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Old 30.04.2009, 08:14
Nev
 
Posts: n/a
Re: Global stock market, in which point are we?

I can't see any reason to go back into stock markets except to trade short term movements. Markets are being propped up by unprecedented government intervention, global growth/demand are slowing and the worldwide economy is still in the worst recession we've seen in six decades, despite efforts by politicians to talk up signs of recession easing. With no bullets left on the interest rate front and having chucked billions of bail out and quantitative easing dollars at the problem, politicians have no option but to put on a brave face and talk up confidence.

After 18 months of nothing but awful news, some kind of bounce was all but inevitable but the better than expected earnings which triggered the rally were better only because expectations were at rock bottom, not because things have turned around. Take the banks as an example - improvement in earnings was down to securities trading and accounting smoke and mirrors, not a fundamental improvement in the underlying business.

We're still 10% below where we were at the beginning of the year so I guess there could still be some wind in their sails yet but personally, after a 25% move up, I don't see stock markets breaking out from here and the risk is to the downside. The announcement of the results of the banks' stress testing on May 4th is an key event for market confidence.

Bear in mind this was a cautious rally in the sense that the put to call ratio and levels of implied volatility indicated there was a lot of hedging of risk going on. And from what I see, very few folks are taking out and out naked bets in any size.

I've no idea where the markets bottom. I can buy the argument we are in the bottoming process but that could go on for a long time and leave plenty of scope to get badly burned if you time your entry and exits wrong. I think this is a market for professionals or at least the market savvy with a certain risk appetite right now.
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