Modest gains forecast after a rollercoaster ride

I AM not really sure where to start this week... and I think many traders feel the same; we know there are opportunities out there, some markets are looking over-valued, some looking cheap, but the sheer scale of the volatility swings witnessed in the past two weeks – the most severe since the collapse of Lehmans in 2008 – takes its toll, leaving us weary, frazzled and rather bemused.

The FTSE 100 somehow closed the week over 150 points higher than where it started, and the Dow also made healthy gains on Friday after the release of positive US retail sales data.

The very short term outlook forecast is for that momentum to continue on the open this morning.

GFT quotes two-way prices on stock indices around the clock, even when the underlying markets are closed.

The FTSE 100 index is called to open up approximately around 15 points at 5,335. The German DAX is forecast to open back up above the 6,000 level – up 25 points at 6,022 – and the French CAC 40 is quoted to up 11 points at 3,224.

A complete contrast then to the near-apocalyptic state of the markets last Monday. After the brief respite of the weekend, it is expected that investors will go with the momentum, buying on the dips and taking advantage of some cheap-looking financial stocks.

Federal Chairman Ben Bernanke gave another impetus to those brave enough to buy in to these markets, saying that the Fed had “discussed the range of policy tools available”.

The optimists out there took this to mean that a further round of quantitative easing – QE3 as the programme would be known – is on the cards.

But this week I believe we may see that assumption tested as traders reconsider the context of Bernanke’s statement as really little more than a carefully-timed reassurance to the markets – coming as it did the day after the Dow had fallen over 600 points.

While everyone will be looking for some return of stability this week, watch out for earnings from Hewlett Packard (Thursday) and Dell (tomorrow); after Cisco’s better-than-expected Q4 earnings pushed those shares up 16 per cent on Friday, many will be hoping for moe of the same from these two tech-heavyweights.

Martin Slaney is director of Global Dealing Operations at GFT