The dust is beginning to settle on the extraordinary German decision to ban short selling in selected instruments. A certain amount of ‘what the hell are they doing’ has been going the rounds but in reality we can see that the edict cost the German’s very little (their financial services industry hardly deals in these products) but could potentially cost London a great deal. Once one country has bitten the bullet it will only need another small crisis in sovereign debt to raise the pressure on politicians in other nations to follow suit. Underneath all of this is hatred from many people towards those who make money in times of trouble. Disaster is always more palatable when ‘everyone is in it together’.

Unfortunately for politicians who take the easy route of attacking those who are right rather than actually dealing with the underlying problem (insolvent, monetarily populist, lying and corrupt national institutions) they merely end up with a worse situation than the one they started with. Stopping people trading in freely quoted instruments just removes liquidity from the markets and prompts Treasury and Investment Managers to actually reduce what funds they already have in the nominated areas as the market for those instruments becomes artificial and subject to political edict (not a particularly stable foundation on which to base investment decisions!!).

The FTSE seems unable to make much headway below 5175 at the moment, although we are continually pressing the level, as european markets continue to outperform the US and UK. The Anglo Saxon markets are below year end levels whilst the Dax is holding onto gains and the FTSE/Dax spread has widened from 500 to over 800 in the last few weeks.

As mentioned there is support for the FTSE at around 5175 and lower at 5150/55 at which we will probably see some client interest if we trade down there. On the other hand 5230/35 is also a minor resistance level (as is the symbolic 5200). In reality investors are as clueless as everyone else at the moment. Markets are swinging violently from bullish to bearish seemingly on the toss of a coin and each day is seeing multiple 50 to 75 moves in both directions. Such uncertainty is generally not good for markets as more and more people sit on their hands ‘awaiting events’.

In the currency markets the Euro finally had a good day yesterday (which continues today). In conversation with some clients yesterday morning I was surprised that the Euro had not fallen further on the German news and indicated that, just for the very short term, this might actually be a bullish signal as I am a great believer in the idea that if any market does not move in the expected direction on a particular piece of news then this increases (considerably) the chances of the exact opposite occurring. The reason for this is, that events suggest, that everyone who wants to be short (of the euro in this case) already has their positions in place and there is no-one left to take it further.

The same argument held for Gold (I did not write yesterday’s comment). For all of the chaos over the last couple of weeks (events that we are more accustomed to driving the yellow metal higher) the price has failed to make new highs and we are now some 60 bucks from the highs. We can speculate that there may now just too many longs around. 1182 and 1155 are critical levels at this time as each represents lows from previous small sell offs. If we get below these points then there may be more in the selling pipeline to come. On the up side 1200 (even though it is a suspiciously ‘neat’ number) is actually something of a support/resistance level. If we can get back above here and close there then the bulls will be a touch more comfortable.

Sterling is now beginning to worry traders once again as the pull back in the Euro does not seem to be dragging the pound with it. All in all though our clients are nicely positioned short of the dollar at the moment (as the greenback is taking something of a pummelling this morning) but we have seen an increasing tendency for traders to swing in out of positions very, very quickly.

Oil is finally having a quiet morning as the low 70’s seem to have held strong for the time being. 71.80 has proved a good closing support in recent days and bulls will be optimistic that the bear run might have hit a solid enough barrier to hold.