Will stock markets continue to go down?

A question every investor or trader would like to know the answer to. Whether or not stock markets will continue to go down is always a matter of opinion, not fact.

Let me be very clear at the outset: I NEVER make stock market predictions, specifically in regard to the direction, one way or the other, of the stock market. The reason for this is simple: I, nor can anybody else predict the future.

Instead as a trader of the UK stock market, I gather evidence on a macroeconomic level, as to the health of the UK and world’s major economies. I then apply my own brand of technical analysis focusing on price action to use as a backdrop to trading decisions.

In the previous article, I looked at debt, the inability of national governments to pay it back and the fear this generated among stock markets players which lead to the huge sell-offs.

Those debt fears have not gone away and will not until a robust solution can be found, especially in Europe, where just this week, growth figures show a slowdown so severe that Germany the Eurozone’s largest economy, is within a hair’s breadth of negative growth at 0.1%. France, Europe’s second largest economy failed to grow at all! This and the fact that the Eurozone as a whole grew only by 0.2% has traders and investor’s worried about Europe’s ability to pay its way out of the current debt crises.

Fear is still with us but the focus has now shifted to growth, especially in Europe. Without growth, countries will be unable to repay their debts to other countries which could lead the stock market lower as fear grows and investors park their money in ‘safe haven’ investments like gold. It also means that the big economies of Europe will not be able to afford to bail out the indebted ones as they struggle to pay their own bills.

So what now?

Well, George Soros thinks Europe should adopt a Euro bond which would effectively package the debts of all the Eurozone countries together making it easier to repay. Instead, Merkel and Sarkozy have said that Europe needs more economic integration and would like to tax financial transactions in Europe. This news sent the markets down today both here and in the US because investors were looking for a more robust solution to the current debt crises.

How this affects my own trading is this: if the markets go down I will short it. If the markets go up I will go long. The simplicity of this idea can sometimes be lost in all the political and economic mayhem and as an active stock market participant, I only need to focus on what the price action of the stock market is doing now and right now, the stock market is consolidating (going sideways) as it was towards the end of last week, which is why I am in 100% cash right now (no open trades). As a trader, my only concern is that stock markets actually do go up or down. Consolidating markets are less desirable.

Its not all doom and gloom though. Howard Schultz, CEO of Starbucks, is so disillusioned with American politicians inability to pass a credible long term plan to fix the economy, he has written to other CEO’s asking them to stop all political donations to everyone in Washington :). This one man crusade deserves special attention due to the fact that 75% of American corporations have reported higher than estimated earnings this year. It seems that corporate America is in recovery.

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Any trades listed above are closed trades as I do not make public open positions.

 

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