/ 31 March 2010

Traders blog: Shaking up the markets

Last week we were hoping that the shortened week would provide some excitement and some decent trading opportunities. And it certainly delivered! All the fun and games out of Greece and an unexpected rate cut from our own Reserve Bank added to some long overdue volatility. The volatility index also popped nicely from the lows of 16,8% to over 18% on Thursday afternoon. It was a somewhat muted response from the markets with the 50 basis point cut from Governor Gill Marcus only leading to a 0,5% gain in the all-share on the day and one wonders how much was already in the price.

As mentioned before, the retailers and the interest rate sensitive stocks seemed to have known something we didn’t and it was a classic case of “Buy the rumour, sell the news”, as on the Friday, Shoprite promptly dropped 0,89% the day after the decision, and then fell 3,45% on Monday, the largest one-day drop since May last year. Also, a bit of sector rotation may be in play as traders jump back into platinum stocks, resources and the general miners also seem to be back in vogue.

This appears to be after Vale SA, the world’s largest iron-ore producer, and Billiton ended a 40 year system of setting annual prices. They are now signing short-term contracts with Asian Mills, with the Brazilian giant winning a 90% increase.

Greece and the Eurozone continue to grab centre stage and a downgrade of Spain’s debt added to the Eurozone’s woes last week. In fact the most startling move has been on the euro currency itself, with 1% to 2% daily moves at the moment not unexpected as traders and institutions continue to shun the currency and seek the relevant safety of the dollar. With another short week, and local school holidays upon us, last week’s excitement may have been short lived. But I still believe the short term risk is on the downside. We will add to shorts and also continue to buy volatility at these current levels.

  • Nick Kunze is head of dealing at BJM Private Client Services

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