It’s impossible to call the market’s bottom, so stick to trading its actual moves, says Sandy Jadeja
Has the market reached an important low, and are stocks cheap? That’s a crucial question, but given present market conditions, also a tricky one.
For several weeks now I have been arguing that the FTSE 100 would need to reach 5,000 as a key level where it may find support; for the Dow Jones 11,700 was the downside objective.
Last week the FTSE registered a low at 5,071, very close to the target, and 24.92 per cent off its July 2007 high. The Dow hit 10,827 and rallied upwards of 415 points. So is this a market low?
A better strategy than trying to predict is to trade the actual moves as they occur. Previously, my short Dow position was stopped out at 11,410 for a £10,800 profit, but I told you that a break below 11,110 would get me back on board. However, the sharp reversal stopped me out for a loss of £1,400.
The reversal now has me net long the index but I am expecting volatility to really rock me around a little. This is typical market behaviour as it tries to find it’s feet.
Crude oil also took many people by surprise this week. After reaching $147.27 the August contract shed 15 per cent in three days. But being short was the right move. At £5 per point I am in the money to the tune of £3,420. If crude cuts below $131.50 then I suspect we could be in for a big move down – possibly towards $123.27.
What about the yellow metal? Gold broke out of its three month range and headed higher last week – but I am not convinced about buying. Technically, the price of gold should be soaring given the conditions but the evidence is not quite there yet. I’m happy to sit on the side lines for now and am looking to make money elsewhere.
Over the next few weeks I expect the market to become choppier as it searches out its intermediate term direction but it is also a time to become prudent. Choose your trades wisely and the rewards will come.