I think we have established a short term trend between 5500 and 5400. My hope is by openly stating this we break the trend and head either up or down. I don’t care just do something. If we move up I will go short over 5500 and if not I’m not too sure where I stand. My downward conviction is quite strong but at these levels we are very near the lows of the year.

Interestingly the DOW pushed well into bear territory yesterday but if we get another rally today this will lead to more uncertainty. My ideal scenario is down 100, down 150, up 30 and down 200. That would give us the kind of downward momentum we need to sustain this clean out.

This idealistic thinking doesn’t help me now and with no positions open my fear is that I miss a big swing. My mistake was not placing a 2.50 sell yesterday as the FTSE closed at 5512. I need to start evaluating where to go from here.

How wrong was I when I placed a 2.50 buy bid last night thinking the FTSE 100 wouldn’t open 100 points lower? It turns out I was very, very wrong. Last night Freddie Mac and Fannie Mae drove US shares down (Dow was up 250 and down 250 at various points, amazing) and today it’s the turn of European shares to take an ass kicking. The new concerns are that the two banks will need to raise 75 billion because of accounting changes.

From an Irish point of view the ISEQ is currently down 5% with Bank of Ireland down 12.25% at 4.44 and AIB is down 8.85% at 8.17. Now that’s some drop. The thought of cherry picking the bottom is well out of my mind as we whiz down lower and lower. The truth is who knows 25%, 40% or 50% correction its all just academic and back are the days when your friendly taxi driver gives you his best guess at a market bottom.

As this is the beginning of the earning season could this be the straw that breaks the camels back. I really hope so as we badly need the moment of capitulation that seems to be the word of the day or the big flush out as I like to call it. One big drop of 500 – 600 points and we can get moving onwards, maybe not to the old levels but to new levels more appropriate to our new market conditions.

The big one to look out for this week is General Electric on Friday which could see a big drop if the market doesn’t like what it hears. Unfortunately at moments like these the markets recently seem to become resilient to bad news and ignore it in favour of a rally. I wonder will this happen again or could we truly hit new lows.

No positions open but I will be watching events closely.

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The FTSE has reversed its earlier gains and is loitering around 5400. Any attempt from here to push the markets higher will be sold off as the bears have full control. Unfortunately the willingness of the bears to sell doesn’t seem to extend past 5400 which leaves us waiting for the next shoe.

I’m unwilling to buy into this market due to the level of calmness that seems to be around. There is a level of comport at these levels which many believe is simply where the market should be in relation to the underline economy. I tend to agree with this view and whilst a bounce may be on the cards it is in no way certain. What I do believe we can expect is a pick up in volatility. I’m waiting on (1) Volume selling and (2) a pick up in the VIX which measures volatility.

Data out this week includes the Bank of England rate decision which shouldn’t be much surprise and more bad news from the financials as more banks including Credit Suisse and UBS are forced to look for more capital. Oil seems to have backed off as the dollar falls based on a more dovish view from the ECB and that takes me back nicely to our Monday morning blues as the market looks for direction.

In stocks to watch AIB has dropped another 2% at 8.99 as sloppy management and the disposal or important documents comes into question. Paddy Power rises 1.5% to 19.30 after Goldman Sachs raises it to a buy taking it to a drop of 14% for the year. In the UK British Airways makes a rebound after prolonged selling and RBS is down 4% in London.

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Just watching the FTSE take a 2% dive to 5495 and I should have been in there but should have, could have and didn’t. You can really beat yourself up over silly trades you either made or didn’t make but the entry point is gone and now its time to refocus.

I’m not too sure how to play this market. Everyone is looking for the big “capitulation” play that will cleanse the market before the next rally. Unfortunately the volume isn’t there and the VIX index is quite subdued. This is worrying because we could bounce along 5500 for a while until the pressure builds and bad news prevails taking us to 5300 or lower. I have seen some really over the top forecasts for the FTSE to hit 3000. I think that’s nonsense but 4900 or so could be possible. Then again we are living in strange times and the rules are being written as we go along so anything is possible.

That still doesn’t help my play. I think we are trading in a range and the ECB rates decision could have something to do with it this Thursday. It being a short week as the 4th of July is on Friday could also make things interesting. I’m thinking of a 3 Euro short but at 5600 or above 5550 before Thursday if I get the chance.

Otherwise I may have to incrementally scale into a buy position below 5500 as the market drops. For the moment its still wait and see.

I had mentioned before that my exit point was 5500 on my FTSE shorts. Today the moment arrived and whilst the overwhelming desire to leave the positions open fuelled by greed was tempting and I did hesitate, I decided to try and stick to my plan this time.

The positions have been open for two months now and have netted me the tidy sum of 2700 Euro. I could have left part of the position open but my strong belief in a short term rally left me uneasy about the positions. My intermediate outlook is for a return above 5670 followed by a decline to 5300. At these levels I’m a bit sceptical about jumping back in but a FTSE JAN option for 3 Euro may be a gentle ease in.

So with an increase of 48% including any losses I’m mighty chuffed with my trades. If I can keep up the logical unemotional approach I could end my first year of trading quite happy.

My dip into AIB seems slightly premature at 11.00 Euro as the share is now trading at 9.70 Euro. I did state I expected it to fall as low as 8.00 Euro where I would continue to trade into my full allocation. That said I hadn’t expected it to trade down to that the week after I bought them. Sodds law.

On the plus side my FTSE trades are now yielding a 40% return on my total takings for the year which it’s too shoddy at all. After having the trade open for two months and being down by an equal amount I am happy I traded with the full force of my conviction. My exit for the trade is 5500 or as close to that as possible. From there I will place very cautions buy positions up to 5600 on FTSE year end futures.

On the economic front the mire seems to be widening and people seem to be facing the harsh reality of what lies ahead. In Ireland the slow realisation of the impending storm is getting a little more press coverage http://www.rte.ie/business/2008/0624/esri.html. If the ECB do proceed with the proposed rate hike which has a lot of merit from a EU stance Ireland will be in serious difficulty. The French consumer spending index increased today which gives Trichet more ammunition to use in his inflation arsenal. We are living in interesting times and the future is a by no means as clear cut as black and white. There are going to be some serious bumps ahead. Thank god for spread betting and short selling.