Editorial Contributor
Dominic Picarda’s Technical Take Global Markets Overview Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for 4 years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.
The global economy and the uptrend in developed-world stock markets since early 2009 are in danger. The possibility of a collapse in the Eurozone is creating enormous uncertainty and contributing to slowing growth well beyond its borders, including in both the UK and the US. A co-ordinated effort from the Eurozone’s stronger members, principally Germany, is needed to prevent disaster befalling its weaker ones, including Portgual and Italy and Spain. At the same time, central banks need to pump more liquidity into the financial system, in the US, Japan, in the UK and in Europe. I do not believe there will be a disastrous outcome in the Eurozone and that, in the final analysis, the instinct for collective self-preservation will prevail. Once the next serious round of money printing gets underway across the world, I am expecting another big rally in global equities. Until this is confirmed, my trading stance on stocks is fairly cautious.
S&P 500 At the start of June, the Dow Theory gave a sell-signal. This venerable branch of technical analysis – which compares the behaviour of the Dow Industrial and Dow Transport Averages has helped predict many market declines and recessions over the last 110 years. The average loss in the S&P 500 following a Dow-theory sell-signal is 14.8% over six months. While US stocks have bounced back since this signal, big risks remain. Given the S&P’s dear valuation, I believe that a sustained resumption of its bull market since 2009 will require more printed money from the Federal Reserve and progress towards a resolution of the European crisis. Still, with the index currently above its 55-day exponential moving average, I am not seeking short positions for now, despite my view that the S&P could retest 1268 this summer.
58 | www.financial-spread-betting.com | July 2012