Well, that escalated quickly

Equities and indices tumble as bears gather momentum.

London
Source: Bloomberg

Today has turned from just a sluggish Monday to an outright market collapse. Considering that China will be enjoying a week of bank holidays while they celebrate the start of their New Year, equity traders were expecting calmer conditions.

Without Chinese equity volatility to disturb them, traders should have enjoyed an opportunity to attribute a more analytical fair value to both equities and indices. Equities did start off the day on the soft side but things escalated quickly following the morning's weak European Sentix investor confidence figures.

The fresh release of economic data pointing towards a struggling Europe triggered the bears into action. Should the DAX close below the 9000 level, this would be the first time that it has closed this low since the 27 October 2014.

The German equity index has found itself at these levels as the pattern of lower highs and lower lows have seen momentum increase. Of course it is always darkest before the dawn and we could be closer to the end of this run as the price has already been driven into oversold territory.

The bear market squeeze that oil had enjoyed from mid-January, driving US light crude from levels below $28 to an intraday high above $35, has certainly come to an end. The fundamentals of oversupply and struggling demand have trumped hopes of an OPEC meeting that might bring reduced productivity levels.

Even if the OPEC nations can agree to meet they do not have a great track record in making swift decisions and are unlikely to change any time soon especially as Saudi Arabia is the main driver for oversupply.

The current market-thinking by Bank of America Merrill Lynch is that in order to get spot oil up to $70 a barrel, OPEC would need to find cuts of 4 million barrels a day (or 40% of Saudi Arabia’s 2014 production).

As the investment community's confidence is being tested with weak economic data, collapsing oil prices and a US interest rate rise that might have been made a little too hastily, gold has enjoyed a resurgence due to the flight to security.

Gold bugs have had to endure many false dawns over the last five years so it will take more than the last two months move to convince traders they have finally turned a corner and broken the bear trend they have been entrenched in for so long.

Although recent years have seen any bounce in gold gleefully met by the bears ready to sell into more attractive levels, a close above $1200 would cause many to seriously reconsider this mindset and might be the beginning of a bear markets squeeze.

FTSE 100 risers and fallers (as of 4.35pm) 

Company % change Index points
Randgold Resources Ltd +13.21 +2.51
Fresnillo +7.80 +0.40
Anglo American +3.51 +0.64
Antofagasta +1.59 +0.09
Rio Tinto +1.24 +1.07

 

Company % change Index points
WorldPay Limited -8.68 -1.05
Berkeley Group Holdings -7.70 -1.27
Hargreaves Lansdown -7.62 -0.78
Ashtead Group -7.59 -1.32
CRH -7.51 -4.20

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.