The recent rally in global equities which began in early September shows no signs of abating just yet, and despite the recent problems in Europe, which sent investors running for cover and safe haven assets, ‘risk on’ appetite has returned once again in the last few weeks, as we move towards the holiday period and the end of another trading year. Returns for investors have been dramatic in the last three months, and the question everyone is asking now is what are the prospects for equities in 2012?
From a personal perspective, I am heavily invested in equities and treasuries, having moved back into the markets in mid 2009, when the FTSE 1oo was trading around the 4,000 level, having just tested a low of 3,460 three months earlier, with investments spread between low risk and medium risk asset classes. At the same time, the Dow Jones index was recovering from a low of 6,469 and breaking above the 8,000 level, with both indices just starting to look stronger as the markets emerged from the recession as risk on appetite slowly returned. The recovery duly continued throughout 2009 and into 2010, and since September this year the returns have been dramatic as we approach the psychological 6,000 level for the FTSE 100, (which has remained my year end forecast since the beginning of the year), with the Dow Jones breaking above short term resistance in yesterday’s trading session to close at 11,428.56, and the FTSE looking to breach the 5,902 high of the 11th September. For both indices, the technical picture in the short term remains firmly bullish as we continue to hold above all four moving averages on the daily charts, with the 9 day moving average in both cases providing a solid platform of support on an intra day basis. A longer term technical view is provided by the 200 day moving averages which are both slanting higher, suggesting that the bullish momentum for equities looks set to continue in the medium term as we close out 2010 and open 2011.
From a fundamental perspective, risk on appetite appears to be holding firm once again, and with the sovereign debt issues in Europe now temporarily resolved, along with recent hints from the ECB that they are both willing and able to step into the market to support future bond auctions, this appears to have allayed investor fears in the short term with a consequent rally once again. However, the threat of contagion still exists, and with Italy now teetering on the brink, along with Spain, Portugal and Greece, it would only take a minor stumble to see the house of cards suddenly collapse. However, for now, the markets appear to be concentrating on window dressing for the year end, as traders take their bonuses and thin markets lead to lack lustre trading over the next few days. For my own part, I will continue to be heavily invested in equities, until my technical signals say otherwise, but for the time being the message is clear – the bullish trend looks set to continue, and any move beyond 6,000 on the FTSE 100 will merely confirm this analysis, with the Dow needing to break above 10,875 to complete the longer term picture.
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