I’m just going to note some of my observations and what I have been following for the past few months. Banks have been of a keen interest to me with Allied Irish Banks and Bank Of Ireland offering more than a roller coaster ride for those who can stay up with the upgrades, downgrades and rumours. Approximately two weeks ago AIB were down at .90 cents and I have been very disciplined in entry points with .80 cent being my target. I don’t believe for a second that we have seen the last of the bad news and this would be a short term trade. However I missed the boat as .90 was the low and we are now back at over 1.50 with a recent dip but renewed strength. Short term outlook is very positive for the stock but long term I see renewed weakness.

Other notable stocks, well lets face it everything has goon to the moon. Take the tech sector with Apple (AAPL) storming through 240.00 and set for 250.00. Google also back on track and realistically there are very few stocks off with most making new highs. It seems the lessons of yesterday have been firmly learnt and we are now rallying on stellar growth.

So I guess all good news. For the most part I think there has been staggering progress made in stabilising the worlds economy. Just take a look at the VIX the volatility indicator, its practically asleep at 10 month lows. This either signals complacency or complacency.

With all the major indices reaching new highs today its hard to see a sustained push higher. My reasons for saying this are that as the new earnings season kicks off the expectations may be priced in. So this leaves us in the precarious position of managing market expectations. What will happen if profits meet expectations but fail to beat them? In this scenario we could drop lower. On the other hand what will happen if stocks fail to meet the huge expectations now set? This is my fear and this is why I am currently neutral and staying on the sidelines.

I could be completely wrong (again) but with companies like Wal-Mart slashing costs on thousands of products has the consumer really gained back the confidence to push sales higher. A secondary factor is that most companies have shed thousands of jobs and they are now lean but how lean can they go? There is a point where you can’t cut anymore and I believe most companies have reached that point.

With the FTSE 100 now touching 5,800 my expectation is a cautious rise to 6,000 followed by a modest pull back to 5,800 and a more severe pull back to 5,500. These are only observations and I haven’t a trading plan to back this up. I have cash waiting to acquire shares with a long term view but at current levels I don’t see much value out there.

I hope you have all prospered during the rally or kept losses low. The next few weeks will be interesting as reporting season swings into play. With UK politics heating up its interesting to see the economic initiatives from the two main parties. Recent trade pressures by the US aimed at China are also worth observing along with the European handling of Greece. All in all its an interesting geopolitical scene but from a trading point of view markets are very muted. With less and less volatility it has become harder to trade short term but again these things go in cycles and another bout of volatility is sure to be around the next corner.

Happy Trading

Related posts:

1. Quarterly Results & The October Rally
2. Economic Outlook And Recession Fears For 2010
3. New Financial Spread Betting Site Live

I’m looking at the complete and utter collapse in confidence in the Irish banking system. Allied Irish Banks (AIB) is trading down 45% at 0.80 cents while Bank Of Ireland are down 35% at 0.49 cents after Goggin steps down early. This is amazing and looks like a run on the banks. I’m not sure if the ban on shorts being lifted has accelerated this but there are many people panicking now. Some of the message boards read “this is a bloodbath”, “I can’t work as the world is in meltdown outside the office”. Others apologise for offering advice “I would like to retract my advice to buy at 11 Euro”. Today is going to be a very interesting day for the government and the Irish banking system.

As I type AIB are down 50%. Carnage is the only word to describe the ensuing sell off. Thankfully I dumped a long, long time ago. So where do we go from here and are AIB and BOI the next to be nationalised as they fail to recapitalise? Interesting times ahead.

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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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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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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.

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Back to spread betting and my FTSE shorts are a lot healthier now. My procrastination has cost me a lot but this is my fist year of trading and I’m still in baby step mode. My goal still stands at a 10% profit for the year. I have no intention of increasing my shorts now as I lost my chance at 6300. My interim expectations are for the market to move between 5900 and 6000 before heading to the March lows in July/August.

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