What a difference a week makes. With month-end now upon us, we are sticking to our plans and are flipping the trade from a short to a long.
The all-share has retraced 5,81% since the beginning of August, and now with most of the traders starting to return from the Hamptons and Nice, it will hopefully be back to work for September. In fact, since August 10, more than $10-trillion has been wiped off the value of global equities. That after the Fed alluded to the fact that the US economic recovery will be more modest than forecast.
The problem is that we need some positive data to get the market running to the upside again. We got a glimmer of it from the US GDP numbers, which beat estimates, and some soothing words from Fed chairperson Ben Bernanke late on Friday night, which saw the Dow Jones reverse a 200-point deficit from its lows.
This has been the opposite of what has been happening through the whole of August, as growing fears of the slowing US economy sent investors scrambling for the perceived safety of government bonds and the yen. And for the most part of the last week, commodities and local equities also took a beating.
But it appears now the picture has changed. I think investors can now lean more to the upside, as any weakness in economic data will probably spur the Fed into action. It certainly has a familiar sound to it and last time round it was termed the Bernanke Put. Whatever happens, you know the Fed will step in at a certain level. The trick is determining that level.
This week will provide, hopefully, more clarity with a slew of numbers due out. Consumer confidence from the US is the main one, and the biggest market mover. Markets always move on sentiment, and after such a tough month, a positive start is needed. Either way, expect choppy markets until the markets get some direction and the volume starts to pick up.
Nick Kunze is head of dealing at BJM Private Client Services
Traders’ jargon:
“Long” is when you have bought a share with the expectation of the share price going up.
“Short” is when you have sold a share you have borrowed with the expectation that the share price will fall and you will buy it at a cheaper price to settle the deal.
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