Trading trends change despite a stuck record

AFTER a disappointing summer to date, we finally have some sunshine. But in the European markets, things are distinctly more gloomy. Italy and Spain have both brought in short selling bans. Their financial equities have taken a battering as the market lacks confidence in their long-term funding abilities. Both markets saw short-term relief rallies before continuing to fall. Greece is on the edge of jumping from – or being booted out of – the Eurozone treehouse.

All in all, you can’t help but feel that Europe hasn’t come very far from 12 months ago. We are no nearer to either saving the Eurozone or pulling the plug – though admittedly the imminent exits from the currency union have yet to materialise.

But while European leaders seem to be doing the same dance as last year, have retail traders changed their tune? Gold slipped out of favour at the beginning of the year as the Fed ruled out a third round of quantitative easing (QE3) in one monthly meeting after another. But in recent months, spread betting providers report an increased interest in the yellow metal as traders hope that volatility and deteriorating US domestic data could trigger a stimulus boost for gold. “The pickup in gold activity is slightly surprising – considering gold has been trading in a tight range for the last quarter,” says Lior Alkalay, head of market research at eToro. “It seems that gold traders – who tend to be in it for the long term – believe that gold has found a bottom.” Spread betting providers are also seeing an increased appetite for oil and the S&P. In currency trades, Chris Beauchamp, market analyst at IG Index, reports that Australian dollar-euro has grown in popularity. The Aussie has surged to its highest level against the euro, as traders look to do well out of a strong Australian economy at the expense of a floundering Europe.

The nervousness in the European markets has created plenty of opportunities for traders to profit. But this reliance on the headlines coming from the latest Eurozone crisis summit is not without its pitfalls. “One thing catching clients out is market news,” says Vinay Ahir, analyst at SpreadCo. “The markets are currently news-driven and untimely announcements can shake things up, catching out many clients.” Traders need to pay heed to the maxim: “Trade what you see, not what you want to see.” This has been particularly true in forex, as bad European news has seen traders rushing to short the single currency only for it to hold firm. The same is true in equity markets and traders should be wary before charging in to trade in markets that have become so fatigued by bad news.