By MoneyMorning.com.au
‘European officials are consulting investors and credit-rating companies over two options for translating the rescue fund’s €440 billion in guarantees into as much as €1 trillion of spending power’, Bloomberg News tells us this morning.
Does this mean it’s time to start buying the market again?
No. I don’t think so. The music can stop very quickly on this rally. October has given the Dow Jones Industrial Average its biggest monthly move for about 70 years. The great bulk of the rally has been caused by short sellers who have been wrong footed and have had to buy back shares. Volume has been quite low. And the conviction by the big traders has also not been present.
I don’t think you can judge the rescue package a success until we have seen a couple of week’s trading post the announcement. I’m convinced this rally is close to its used-by date and when the music does stop there won’t be any real buying support to hold it up.
I always respect the ability of the market to do the unexpected. Especially when governments are sticking their noses in and throwing other people’s money around.
The European bailout package is so complex and there are so many moving parts that I can’t help but think there will be some unintended consequences from these actions.
Dealing with this constant intervention makes trading difficult.
The ASX200 has had an amazing run to the upside, which has given me some difficult technical trading patterns to read. We are in an intermediate uptrend still, with the 10-day moving average above the 35-day moving average:
There is some buying support coming in around the 50-day and 35-day the moving average which shows that the uptrend is still intact. We need to see the 10-day cross back under the 35-day moving average before we turn bearish again.
This is more of an observation period rather than a time to jump in and trade. But if you are patient, the market will throw up some fantastic opportunities in the near future.
We may have to withstand some higher prices over the next few weeks, but ultimately I feel safe in my view that this is not over by any stretch of the imagination.
The politicians are clutching at straws if they think they can wave a magic leverage wand and make all of their problems disappear. It is too much leverage that got them into this mess.
More leverage isn’t going to get them out of it.
Cheers,
Murray.
Editor, Slipstream Trader
P.S. Each week I provide free weekly technical analysis on the Australian and US market. And tell you what I think will happen next. It’s all available on my YouTube Channel. If you haven’t checked it out yet, click here to subscribe. Remember, it’s free…
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