Stock Markets Looking Resistant to an Immediate Collapse

Stock Markets Looking Resistant to an Immediate Collapse

Both market commentators and traders are concentrating on the recent data out of China and the US. The prognosis is less than positive. As Simon Denham of paddypowertrader recently remarked, "Whilst I am not an outright bear on the World economy this does not mean that fear driven investors will not push the markets further than common sense would suggest.

"US data is looking weaker however we must compare this to the slightly suspicious levels it was apparently being reported at for Q4 2009 and Q1 2010. Virtually all data will compare poorly to that".

The performance of the FTSE 100 for Q2 2010 is apparently its worst quarter since 2002. That is something of a surprise as most would have thought that some periods of 2008 would be as bad or worse.

Despite the falls, stock yields are looking increasingly attractive as US and European inflation fears decrease. Interest rate rises are looking unlikely and the UK looks like it will be stuck with sub 1% base rates for a good while longer.

Those investors looking for a major blow out or a confirmed double dip recession could end up waiting for some time. Yes, things are difficult however we should remember that most analysts and economists are still reasonably optimistic about the future direction of the World economy. The canary-in-the-coal-mine products like gold and long-term gilts are being somewhat stubborn and refusing to push higher. It would appear that not every financial sector is quite so terminally pessimistic.

Of course, whilst fundamentals might look OK investors should take current bear sentiment into account. It would be unwise to become too aggressive in any direction. I always say that if you want to place a 10 per point financial spread bet you should actually just trade 5. In the current volatile and unpredictable environment it might be wise to trim your trade size even further.

If you are trading the FTSE 100 then you have no doubt seen that it has hit lows for the year. Although the support at 4,830-4,835 region is holding. If that fails then the next target would be around 4,695-4,700 where the index failed in November/December 2008.

One of the other key markets that is clearly susceptible a global downturn is crude oil. The oil spread trading futures market has finally started to show some reaction to the perceived possibility of another slowdown. Slower growth with increased oil production means lower prices.

We have breached the $75 per barrel level but we will need more than poor market sentiment for a significant price drop. This is the one market where we might expect some rather brisk price action in the near term. A recovery in stock market sentiment might send us swiftly back to the $80 per barrel mark. Continued pessimism on the other hand may put heavy pressure on longs and force us back to the $68.50-$69.00 support levels.

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