/ 8 June 2010

Which way to bet in this unreadable market?

What a terrible start to the month. The JSE battled to find any traction and finished the week down 2,3%.

While you normally expect the summer months in the northern hemisphere to be fairly subdued as traders leave their desks and head to the south of France, the complete lack of interest and trading volume has taken me a bit by surprise.

With the World Cup starting on Friday, expect more of the same as eyes turn from trading screens to football screens. Volatility still continues to be a theme and some of the individual moves on the platinum and mining shares have been insane, with 4% and 5% moves on a day not unusual. The euro also continues to fall towards zero and is now trading in the mid 1,19/$.

The bad week was capped off by the eagerly awaited monthly unemployment numbers, which missed. I mean, did we expect any less? It is often said that economic recovery is the slow return to normality, when interest rates and unemployment are no longer remarkable.

Unfortunately, if any message was to be taken from Friday’s numbers, is just how long it will take the world’s biggest economy to become normal again.

Americans might have to get used to a jobless recovery — as we in South Africa have witnessed with long periods of growth yet very high levels of unemployment. That might be what Bill Goss is calling the new normal.

Looking forward is really is a tough call. There is no doubt that the economy faces severe headwinds from the likes of emerging Europe and a Chinese government intent on cooling a potentially overheating economy. But, technically the market looks oversold in the near term and the decision lies with the difficult choice of shorting the bounces or trying to bottom-pick this market hoping for a technical rally.

We have decided for the latter as we continue to add to some small long positions. I like the contrarian approach and my decision seems vindicated by two reports that landed on my desk this morning, calling the Dow at 6 500. It’s not easy swimming upstream.

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