New Wave of Government Intervention

Wednesday & Tuesday have seen positive market action since that huge 10% rise in Western Europe Markets. The current consolidation seems to have some momentum!!!

New Wave of interventions have been anounced this week:

• Monday, the UK anounced it will cut VAT to 15% from 1st Dec. 2008
• European Union anounced a $200bn euro recovery plan http://news.bbc.co.uk/1/hi/business/7749382.stm
• Barack Obama began detailing his rescue plans for the economy, http://biz.yahoo.com/cbsm-top/081126/210d57da98961961a24ddd903b6b0cec.html
• China Slashes interest rates by 1.08% (biggest decrease in 11 years) http://biz.yahoo.com/ap/081126/as_china_economy.html

However the crisis is on, and untill any help propagates through the system many months will pass.

Jobless claims remain at recessionary levels, Americans cut back on their spending by the largest amount since the 2001 terrorist attacks, orders to U.S. factories plummeted and homes sales fell to the lowest level in nearly 18 years. [source: http://biz.yahoo.com/ap/081126/financial_meltdown.html]

9.84% Up day

The FTSE-100 opened with an up gap and rallied towards the end of the trading session to close at 4153 points. The psychological price level of 4K is being highly disputed by nervous market participants, as Citigroup receives a bail out package of over 20bl and the UK treasury announces further tax rate cuts in an effort to inspire more consumer spending and pump money into the economy.

Germany and France have also seen over 10% growth, whereas Nikkei 225 performed poorly with 2.7%.

To be honest it seems the 4K level will not be given up without a fight. It is always easier to find reasons for a move after it has occured and I am certain nobody expected such a strong rally on European Markets today.

Monday... the last week of November

Here we are :-), the month of November is comming to an end, and what a month it has been. October 2008 will unquestionably go down in history as black month on world markets.

However November wasn't much brighter either, on the 20th (Thursday) the FTSE-100 fell below the psychological 4000 level and Friday has seen more trading down in these regions. The Dow as well as the just mentioned british index are at their lowest for over 5 years this month.

More falling is to be anticipated, governments around the world however are actively fighting the oncoming avalanches of disaster, such as a sheduled statement in the UK on Monday 24th and plans to reduce VAT to 15%, see http://news.bbc.co.uk/1/hi/business/7739749.stm, http://news.bbc.co.uk/1/hi/uk_politics/7744273.stm

As for the comming week, who knows, it might be a very bad week indeed, however as for tomorrow FTSE-100 will likely open with a positive gap, due to the large Dow Jones gains on late trading hours on Friday, positive intervention plans by UK government and finally 3 continuous days of ~10% drops might call for some new interest from traders.

A lot of hope has been lost and long term or even mid term positive trends are extremely unlikely. But there is still hope, by mid-2010 we might be out of this recession http://biz.yahoo.com/ap/081123/lt_apec_summit.html!

hehe, oh my :-((

Trading in the current environment!

hmm.... I am really starting to believe that trading is again becomming somewhat less riskier. With most governments now having had reacted to the immediate crisis events. Secondly volatility is calming somewhat since October.

1st - Markets have been too volatile for most risk limiting strategies. Even with the correct anticipation of price moves, it was very easy to end up on wrong side of the trade. Stop-loss orders have recently been very prone to execution due to outrageous volatility.
2nd - Rescue and other aid packages by governments cannot by any practicall means be predicted. This just ment more volatility and scope for unanticipated price action.

I'm starting to get convinced again that going short or long rather than staying out, is the way to go forward. Rescue package approval has strongly slowed down, and volatility seems to be a little more behaved. Anyway, I know what way I'm going to trade ;-).... selling short, except anticipated market corrections on the long side, but search for proper growth is just a little to soon.

Market update, 2 weeks after Obama election

It's been exactly 2 weeks since the election of Barack Obama, who is sheduled to be sworn in as the 44th President of the USA on January 20, 2009.

On the day of election the Dow Jones was up 1.5% from previous close, in fact 4th November was the highest price for past month. Since Obama's election, markets haven't been doing too greatly, but also there is some talk about an easing situation in media. Compared to month of October this clearly seems to be the case, however the bottom of markets is ony beeing tested at 8K (Dow Jones), 4K (FTSE-100), 7K (Nikkei 225), 4.2K (DAX), 3K (CAC 40) and another drastic drop might be around the corner. For the next 2 days or so, we might however see some positive consolidation, as the 8K (Dow Jones) bottom is beeing tested.

More rescue packages have been approved by the likes of emerging economies such as China (over $500bl) and today a drop in inflation was reported to 4.5% from 5.2% (United Kingdom). Yet the crisis may be still worse than it appears. There are huge manufacturing decreases, redundancies and problems (at least unexpected changes) with implementing rescue packages are starting to creep out with the USA $700bl plan.

Cornered into an illiquid market

Short selling is a simple technique that enables traders to make profit on down trends. The underlying process involves borrowing shares, selling them instantly, rebuying the same number of shares at a later point and returning them to the lender. The lender makes their profit from a small interest paid for the privilege of borrowing shares and of course in their best interest hopes for share prices to go up.

I came across the VW/Porshe - Hedge Funds story on BBC today, see http://news.bbc.co.uk/1/hi/business/7697082.stm. Share prices VW have soared by over 300% in the past 3 business days. Many Hedge Funds found themselves in lossy short positions after Porshe anounced that it owns over 70% of VW. These short positions got cornered, not enough shares on the free market as most are owned by Porshe.

"'Each and any short-seller in the world is trying to close up their position and there is no way they can do it, except for trying to buy like mad,' said Heino Ruland, an analyst at FrankfurtFinanz. What is upsetting the hedge funds is that if between 10% and 15% of VW shares were on loan to be shorted and only just over 5% were available in the market, it is likely that many of the funds that shorted VW had borrowed the shares from Porsche." [source: BBC article]

VW is now clearly overvalued, so what does this mean?!! I wonder at what point the shares start falling? "VW's shares peaked on Tuesday at 1,005 euros, valuing the company at 296bn euros ($370bn; £237bn), which is well over the $343bn value of Exxon Mobil - previously the world's most valuable company. Last Friday, VW's shares closed below 200 euros. As an indication of how extreme the market valuation is, last year Exxon made profits of $41bn on sales of $390bn while Volkswagen managed profits of about $8bn on sales of $136bn." [source: BBC article]

This is a stock to watch, maybe once the lossy short positions are accounted for the stock will plummet down?!!

Big price rises!!

Hehe, no chance... what we are seing in the market for past 2 days (28th-29th October) is overvalued madness. Apparently the 10% up on the US markets was beeing credited to planned US interest rate cuts expected later today, however financial commentators lacked enough factual explanation to justify current market behaviour. Recession is underway with a lot of bad quarterly reports and it is pretty clear that whatever interest rate cuts will be, tomorrow (very latest by friday) we will see more strong drops on markets!

As anticipated...

Just check out last paragraph of my previous post, go on, check it! You will notice that the expected fall has occured today, what's more it was a very volatile trading session again. The British Markets closed down with -4.46% loss of its value. The company that I've been tracking as an example (ANTO.L in the top UK 100 by capitalisation) experienced volatility of up to 10% today...
Wait, let me re-iterate that, the blue chip metal-mining company saw 10% volatility. Only reaction that comes to mind is, wow, because this is not a single case of such volatility, in blue chips these days.

To explain, the Asian markets started daily trading with a horrible nearly 7% drop on NIKKEI 225. Followed by other eastern markets doing rather badly and when western europe opened up the fall continued with now 6:30pm (Greenwich Time) the DowJones is craweling at 8600, meaning -3.65% loss.

A lot of these drops are attributed to some sort of realisation by the investors that eventhought credit markets are improving, everybody else is now going into recession.

See the following articles that will help summarise "events":
http://biz.yahoo.com/ap/081022/world_markets.html
http://biz.yahoo.com/ap/081022/wall_street.html
http://news.bbc.co.uk/1/hi/business/7684216.stm
http://biz.yahoo.com/ap/081022/oil_prices.html
http://ekonomika.sme.sk/c/4135938/svetova-ekonomika-smeruje-do-recesie-euro-pada.html

I think we are now in vain looking for explanations, it is clear markets will be volatile and generally on the down side for big part of near time to come. Traders will still however try to make profits in short term, so we will see upswings and drops as investors take profits (or losses while they are still alive :-).

Volatility can be great & gloomy

As I wrote on October 14, 2008 it is becoming clear we are close to the bottom of largest market falls, but a recession is what we are just enterying. However as this is happening the worse falls are behind us and markets are now looking to find their bottoms. This means large volatility, and brings plenty of opportunity to make money, but also to loose some.

Caution is hence advised. I recently started day trading, and it was not uncommon to see in stocks that I traded, such as ANTO.L (a large in the top 100 by capitalisation in UK) moves that ranged over 10% during a trading session.

Anyway, a lot, really a lot, of chaotic trading seems to be going on at the moment. These are dangerous times and predicting market direction is hard, lets look at tomorrow. The previous 2 days have seen some growth of market prices again, and today there was slight drop, most of it starting on the Dow Jones after British markets closed at 4:30pm (Greenwich Time), hmm... I'm
thinking now tomorrow might be a negative roller coster as traders sell some of the growth they accumulated over the past up days. Let's just see what will happen tomorrow ;-) !

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