Trading The Stock Market In 2010
We are now well into 2010 but the stock market is looking a little jaded.
We may see the leading indices like the FTSE 100 and Dow Jones move up for a few sessions but risk aversion and profit taking soon come to the fore.
While it is difficult to totally agree with such sentiment, it is also fair to say that equity holders have had a rather-good-run over the last eight months and no one should blame investors for locking in their profits at these levels.
The question is whether this behaviour will continue or not. If it looks like it will continue then range trading looks to be the order of the day.
With the Chinese economy doing so well in early 2010 the pressure for a floating Yuan is likely to increase. And as we have seen, the Western markets continue to be influenced by the news flow from the Far East and Asia.
The rally that equities have been enjoying since March 2009 was always going to be tested at some point in 2010. It looks like a combination of factors is now challenging investors resolve.
Also, the start of the 2010 US earnings season did not go well. Alcoa missed Wall Street estimates and in the past Alcoa’s earnings have often set the precedent.
There are also some concerns about the performance of non-financial stocks which have been the focus ever since the credit crunch. This time around earnings for banks are due to rebound significantly, but outside the banking sector many firms are still facing serious headwinds.
The threat of rising interest rates could easily play a major part in any equity sell off.
We cannot expect interest rate increases in Asian economies, and in particular China, to influence policy in Western economies. Nevertheless, the markets will take note in any shift in the language and actions of central banks around the world.
We might also be seeing the first indications of stimulus packages being withdrawn and central banks positioning themselves to raise interest rates to keep inflation in check.
Policy setters both here and across the pond have given hawkish statements about the prospect of interest rates rises. Any such comments will nearly always give the markets pause for thought.
On a more positive note, certain economic indicators are continuing to show an improving US economy. In addition, unemployment figures are hitting the mark. They are getting better but not at any significant speed. This ‘slow’ improvement will help to hold back the interest rates rises.
So what to do? Which way to trade? It is looking like a rather difficult market to predict so I may just sit this one out for a little while longer.
However, if I do places any trades then I’m inclined to keep any positions small and spread bet on the FTSE and Dow Jones to continue to oscillate up and down. At least for now.
Note that with spread betting spread betting you can lose more than you originally staked or invested. Spread betting carries a high level of risk. Ensure that spread betting matches your investment objectives. Familiarise yourself with the risks involved. Seek independent advice where necessary.
A leading financial author based in the heart of London’s Canary Wharf. Thomas Bainbridge is a respected commentator on the financial markets including the Financial Spreads markets.
Tags: 2010, Alcoa, Asian Economies, Banking Sector, Central Banks, Chinese Economy, Credit Crunch, Dow Jones, Earnings Season, Eight Months, Equity Holders, Financial Stocks, Ftse 100, Interest Rate Increases, market, Rising Interest Rates, Risk Aversion, Stimulus, Stock, Stock Market, Trading, Wall Street Estimates, Western Economies, Western Markets
