Was Equity Rally An Early April Fool?

The FTSE ended on a bullish note yesterday, but a late sell-off in the US took the punch bowl away. Most markets are quietly watching the G20 April Fools’ meeting.

While enough people believe that something useful might come out of G20 the markets are likely to lack any real trend. Gold and equity markets are lacking firm direction and currencies are likely to flip on the latest G20 leak/ statement/ walkout. Add to the mix the ADP employment and ISM numbers from the US, and the impending ECB meeting and US payrolls over the next two days and I’m looking to hug the sidelines.

In the background I’ve been nipping in and out of gold but, with the daily range tightening, those opportunities are becoming higher risk. This morning I bought £4 gold at $917, taking profits at $927. I then went short of £3 at $927.05, but with a tight stop as the price is just below both the 21-day and 50-day moving averages.

I used this morning’s sell-off to take a hasty (small) profit on my poor FTSE sale from yesterday; I’m not afraid to say that I have little idea where markets are likely to trade in the short term so I prefer to have a clean slate that won’t influence my thinking. Yesterday’s FTSE trade was a lapse in concentration and I was lucky to get bailed out.

Equities-A Tale Of Two Markets
Here’s why I’m sitting on the equity fence. Compare the charts of the FTSE and the Dow:

Yesterday, putting aside what’s happening in the real world, I was concerned that there were the makings of a bullish technical case for the FTSE. After bouncing off support at the 21-day moving average yesterday’s green candle took out Monday’s red one. The 21-day moving average is starting to push up and the RSI at 52 is supportive of the move. So far the 50-day MAV has held firm, but after repelling last night’s attack it remains vulnerable at 3940. After that we could see a retest of 4000.

That’s looking at the UK in isolation, which is obviously rubbish. Check out the Dow for a slightly different story:

The US market has been comfortably above its 50-day moving average, but has now broken March’s uptrend and is teetering on the 50-day MAV with a declining RSI. Granted, the 21-day MAV is pointing higher, but there was no bullish engulfing candle yesterday; I reckon the 21-day MAV could be tested somewhere in the 7300s.

Back in the real world today’s ADP employment change came out at -742,000, much worse than expected, and a further reminder of the risks of being too bullish on equities.

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