Which Way is the Market Heading?

The FTSE 350 stocks are a real mixed pot.

Some are in short term downtrends – but not definitive enough to trade short just yet.

Others are retracing back to the level of their 30wk MA where they should make a turn back upwards – but are not yet showing enough signs of strength for us to be able to put them forward as a buy.

Yet others, the majority, are just trading sideways; drifting with no definitive trend neither up nor down – so a trade here would be more ‘in hope’ than anything else and that certainly is no proper basis for a trade.

As an example of the influence of the market’s current volatility we had identified one ‘short’ trade this morning in the form of Dana Petroleum (dnx). It is in both short term and long term downtrend. It closed yesterday at 1008p but there it is this morning up by 3% at 1030p. That’s strength not weakness. This will probably only be short lived but this sort of volatility is not only a nuisance but also it will cause whipsawing losses if we succumb to the temptation of making the trade before we are really certain of it. We will be watching Dana.

What is both a source of confidence in the market and yet, at the same time, a source of worry that a collapse may be just around the corner, is how the indices are staying as high as they are with so much worry and concern abounding throughout the financial world. If it is not the sub-prime, it is the jobless figures; if it is not the size of UK’s sovereign debt it is a double dip recession or a downgraded credit rating; if it is not Greece it is the Euro, or Spain….and yet the FTSE index hangs in up there!!

Our FTSE Sector analysis confirms and illustrates the current underlying strength of the market. Of 35 sectors our long-term (weekly prices) trend analysis shows –

9 sectors in Stage 1 trends (Basing/accumulation trend)

22 sectors in Stage 2 trends (Uptrend)

4 sectors in Stage 3 trends (Topping trend)

And, significantly, No sector is in a Stage 4 (Downtrend).

Our major concern right now is that that “current underlying strength” may be masking an inherent and serious weakness. It is an aspect which we all need to be mindful of.