Market overview (summary)

• Bull Market (stocks) 2010/2011

Unlikely. When we talk about a bull 'run' we should be referring to a bull market in stocks that occurred in 2009 where the Dow recovered from July 20 2009 low at 8746 and rallied without any real volatility until January 20th 2010 when the Dow dropped out of it's range at 10603.

It was a classic bull run, that anyone could make money in (low volatility); in fact everyone made money in 2009.

But after the 2009/2010 bull run ended we now have volatility and rangy market trading, which will continue with downside momentum. The risk appetite markets are now challenged with conflicting fundamentals, namely Europe and the US and of course China. The European banking system collapsed in the last quarter in May 2010. The EU PIIGS (Portugal, Ireland, Italy, Greece and Spain), as indebted as they are, sent their banks into a asset depreciating meltdown; the European Central Bank in all it's wisdom is now pumping over 45% of it's total lending into the EU PIIGS banking systems, probably more so to Spain. The ECB also successfully was able to keep the Euro (EUR) speculators (short sellers) at bay when it's drew a support at 1.20 The question is can this be kept up? With a Trillion dollar (US) bailout occurring of the European banking system that needs a continue flow of credit keep the EU banks liquid, probably not. A breaking point is there and should keep the market cautions and uncertain for any bull momentum to take place. The US is somewhat similar; with a banking system that needs continue flow of credit namely from the Federal Reserve, even though monetary induced liquidity seems to be waning, this may lead to a Quantitative Easing part 2 (once the banks start asking for more credit), which again will end up mostly on the balance sheets of banks sucking up borrowed liquidity from the Federal Reserve and the US government (Treasury).

All and all for a sustained bull market the Dow needs to break through the psychological barrier of 11,258 26 April 2010 at a time when volatility was effecting stocks and momentum, for the last three months from April through to July 2010 if you had stock plays within that period you may just break even if the Dow is able to pass through 11,258 resistance.

• China

China is about as transparent has a lead lined nuclear bunker (makes sense, probably not...anyway). If you can pinpoint one country with a planning economy that is able to manipulate the market, more so currencies, it would be China. Dropping the Yuan (CNY) peg to the US dollar then buying USD to depreciating the Yuan showed how serious the Chinese were at strengthening their currency. Occasional leaks on export output numbers prior to official releases, GDP leaks, funny GDP numbers, CPI leaks and funny CPI numbers etc etc. A lot leaks seemed aimed at the FX markets during trading, although Asia is notorious for leaking info and intervention/manipulation of the FX markets to keep their currency lower ( for exports). China doesn't show any subtly here. The trick is can China maneuver a nice 'Goldilocks' slowdown of it's economy? Probably impossible; an extremely over-leveraged housing market/s, slowing exports from European and US slowdowns. If the trade figures are hard to believe and you believe that China is slowing down faster than what their governments say; the best way to analyze China trade/export/economic strength is on several things. The currencies like the Yuan, if depreciation continues or the Chinese are buying a lot of US dollars they are doing so to deliberately keep the Yuan lower; this would be indicative of slowing export growth. Settlement/spot prices (metals) out of London and Asian markets, to be watched closely, the markets never lie, if a slowing demand for raw materials takes place; then China's demand for raw materials won't be as significant. Therefor spot prices should tumble.

• The Dry Baltic Index.

Funny how some economists like to dismiss the validity of the freight shipping chart, but if they cared to look at the peak of the index in 2008 it was at 11,310, now it is at 1,997 we had shipping freight booms coming out of China and Asia in 2006/ 2007 at the peak of the global economy which was 2008 (before the crash). The Dry Baltic Index should be be factored in when make a analysis of China/Asia trade slow down.

• Algo (algorithmic trading) Trading

There is some talk of Algorithmic trading or High Frequency Trading or flash trading. The main arguments against HFT is that it distorts bids in market, the distortion? Well some consider rapid bidding as a distortion, in reality it's just a extreme tightening of the bid offer/spread. Which means that computers that are trading with each other are doing so quicker than a human, therefore the bids become instant (within seconds) into the market, thus a algorithmic patten is created. Is this a threat to fair, free markets? Not at all. Firstly if you believe the markets are some fair, egalitarian place where everyone has a chance at striking it rich, you probably shouldn't be trading in the markets. The markets are a devious, tricky and perilous place, but that is capitalism. Kinda similar to the mafia, except not may people die by unnatural deaths, if they do it's from natural causes like stress, heart attacks and drug overdoses. Seriously, if you trade in the markets (as a self funded trader) to make your millions, yes I'll say it again, you probably shouldn't be trading in the markets. The odds are too great for a major windfall, it is not to say that you can't make money, or scrape a living from it; but generally you are up against major players with major stakes.

Some commentators use the term 'criminal' to describe Algo/HFT trading, which is a vast over exaggeration. When one can witness on a good day, inside trades (humans), governments statisticians leaking to bigger players in the market before the 'official' figures are released. A good example of this was when the Australian CPI was about to be released, the AUD sank before the official releases, traders, and people writing on the news wires commenting on this. This is because a fund had a inside edge, so any poor soul that was hanging in for the CPI watched his/her margin being eaten up prior to the release, would have been distraught and the unfair advantage. So in a sense human to human market dishonestly is more damaging than computers high speed trading to each other. Also, the HFT probably wouldn't have much more of an effect on a high risk self funded trader anyway, in the sense if you are trading with a small margin, or capital cushion; either way large moves in the market (sell) human/computer or otherwise are going to effect you if you have made an over leveraged bet. The HFT are more damaging to the small/medium size brokerage firms, the institutional traders and floor traders, not the self funded trader trading from his/her apartment/house/loft/garage/kitchen/toilet.

The reason is the bids are not competitive for clients, as a HFT program can out bid you very quickly than a human in the market, this effects your clientèle as you cannot get a good price to buy into the market. A self funded trader has no clients, so in that respect that should not matter re: competing for bids. A positive for HFT is that HFT smooths of bid/offers to the point it looks like a straight horizontal line (depending on the stock), I saw this occur on a medium size biotech in early 2009. The volume eased out and the bid/offer spreads narrowed to a line, there was second to second bid and offers as the HFT bots trading with each other; you could follow the patten almost predictably. Other traders complained that the Algos where suppressing the stock price (an apparent conspiracy between the HFT and the company stock holders, yes I know bizarre...), which was an insane/paranoid excuse. Within hrs volume was flowing backing to the stock the Algos/HFT broke out of the upside and the stock jumped significantly. If you were watching the bid/offer spread narrow you knew that a breakout was eminent, it happened yo be on the upside as the volume crept back in, I bought in on a position within the narrow bid/offer spread and rode the Algo/HFT upside trade. I made money on the back of Algo/HFT.

The flipside is when a HFT smooths out a price, say awaiting positive market news and/or buying indication, but none of that happens in support of further buying, the HFT will cut long positions hard sending the stock/currency down rapidly.

Get used to it.