Now we worry about whether we can hold onto the gains.

The rally of 150 points yesterday in the FTSE has been followed almost instantly by a 50 pip retracement this morning as investors concern themselves that we might have got ahead of ourselves.  As mentioned yesterday Early to Mid July is frequently a turning point for markets as bear or bull moves run into traders returning from summer breaks with ‘fresh’ ideas.  Helping the markets out has been the hope that BP are close to finishing their relief drill hole which should (hopefully) finally put a cap on the leak but the repeated ‘news leaks’ about interest from Libya, Saudi, Dubai and some shady hedge fund have a ‘desperate’ air about them.  Clients should beware getting too excited just yet.

Yesterday saw one of the weirder market moves as, after the US PMI data (out at 15.00) came in even weaker than expected, the markets rallied(!?), Equities and consumable commodities (Oil etc) moved to new highs for the day, which seemed a perverse reaction.  Especially as we had been moving up anyway.  It took an hour or so but eventually a bit of common sense reasserted itself but not before the FTSE had managed to close near its high at 16.30.  Oil also managed a peak at 73.85, a rally of almost 2 dollars, before giving it all up later in the session.

More obviously the dollar itself did weaken on the data with the Euro managing to get a closing foothold above 1.26 for the first time since early May.  Unfortunately for the Euro bulls the cross seems to be slowly dribbling away this morning and dealers will be watching the minor support at 1.2555/65 for any indications of giving way.

Indices markets seem to be treading water at the moment with the FTSE holding above 4900 where we have been for the entire overnight and early sessions.  We are seeing a slow grind lower but as with earlier this week and the end of last there seems to be little appetite for sellers to offload around these levels.  Cautiousness is the watchword, still, and dealers seem unhappy about putting too much into any individual positions.  Major directional moves appear to occur at the drop of a hat and, while day traders love the volatility, the longer term players certainly do not.

The Dow is still well above the lows of early yesterday morning for all of the evening sell off from the afternoon highs.  It remains to be seen if the move from the lows is just a market bounce or a turning point and, in reality, we need a far greater move higher to negate the fears of a return to a concerted bear market.  The failure to close above 9750/9810 resistance may weigh on traders minds and as mentioned many times in the past this is probably a time for sitting in your shell hole and keeping your head down.

Currency markets continue to be Dollar negative overall but Sterling does seem to be struggling to maintain the bullish trend. Unlike the Euro and Yen the pound has gained no new impetus from the continued weak US data and dealers must beware a bit of nervousness creeping into the Cable cross. Of particular worry will be the 1.5075/85 support which is just 25 pips away as I write.  A break of this may open us up to a sharp move lower but (as with all this levels) until a break is achieved we are seeing buying from traders looking for the support to hold again and the currency to move higher.

As mentioned the Euro has gain heavily from US weakness in the last month or so and pull backs are just being seen as better buying levels.  The market overall is still heavily short of the Euro and this is forming a natural support as each rally is seeing its own mini short squeeze.  1.2555/65 is the near term support and below here 1.2480 and the old 1.2350/1.2450 bigger barrier.  On the upside 1.2600/10 is obviously a bar once again and now 1.2650/60 from yesterday.  As indicated we are seeing a slow grind lower so far today and with virtually no data out this afternoon this may become the preferred direction.

Oil is also looking fragile after the attempt to move higher yesterday was stomped on quite aggressively.  But the 71.50/72.00 level has been the lows for the last week with no sign of the bears winning the day so the buyers will be hoping for more of the same. A break below 71.10 is needed to get the move going to the downside and with the current price at 71.75 this is probably not likely to happen until at least the US inventory data due tomorrow.  Interestingly the long term rising bull trend line from Jan 09 is now at 70.10 which may cause a few palpitations if we approach the level.

Gold was the one big loser yesterday as the arguments for buying the yellow metal continue to falter.  Slow/medium growth, most countries getting on top of deficit issues, low inflation and possibly rate hikes now likely in the medium term do not add up to a wonderful prognosis.  This said the love affair continues with our clients continuing to buy into any falls (as they have done very successfully over the last three or four years).  Our clients are probably no different to investors the world over and so the pressure continues to be positive rather than negative.  Normally when everyone is long you can say that this is a sign of a peaking market but Gold is somehow different as the word ‘everyone’ never seems to be just that.  At some point of course it will all reverse but at this that moment only time will tell.