LONDON, December 23, 2011 /PRNewswire/ --
As the new year approaches, City Index Chief Technical Analyst Sandy Jadeja summarises 2011, analysing the stock market from a technical perspective and gives his thoughts on the FTSE 100, Dow Jones, Gold, Crude Oil, EUR/USD exchange rate and what is likely to be in store for 2012
Sandy Jadeja, Chief Technical Analyst, City Index:
The year 2011 certainly will leave a mark on investors' minds as we head into the New Year. The past year has been filled with key events ranging from the MF Global collapse, the death of Steve Jobs, protestors occupying Wall Street, an earthquake and tsunami in Japan and, of course, the European debt crisis.
The road ahead may be bumpy for the markets , but with spread betting, investors can speculate on the markets irrespective of whether prices are rising or falling, , so the year ahead should provide ample opportunities. It may be that with reduced confidence riding into 2012 the markets are probably going to experience short term wild swings along the way.
Taking a look back can help us see where we have come from and potentially help create an opportunity map for paving the way forward. There are no guarantees in this business but looking for high probability trades is a safer way of trading, compared to trading with one eye blindfolded.
In the UK, the FTSE 100 opened the year at 5899 and spent seven months trading sideways. We saw the range from a high of 6105 to the low of 5591 take place between January and August. Then suddenly the FTSE broke below the March 5591 low in a violent move lower to witness a larger degree decline not seen since September 2008. The market had a positive rebound in October but was unable to make any meaningful headway to higher highs.
The US Dow Jones also faced a wall of worry as it too witnessed a bearish move lower this year. However it did manage to push higher earlier in 2011 before topping out at 12876 in May, which then saw the Dow fall down to the 10404 low. Currently the index is developing a pattern that suggests a fairly substantial move may be on the cards for 2012.
Gold is often regarded as a safe haven during uncertain times in the markets. With uncertainty dominating the global markets, the price of gold benefited from higher prices. The commodity surged higher and even caught the interest of non-active traders who became interested in precious metals. This has historically been a clear sign of market bubbles when herd mentality takes over and trading becomes 100% emotional. This could see lots of traders hedging their investments using CFDs, with many feeling that gold may be in a bubble but at present the longer term trend has remained bullish. Ending the 2011 session, gold prices still remain in positive territory compared to the start of the year and the month of December has left a clue of where gold may be heading in early 2012.
Oil prices have traded in a wider range compared to 2010. This year we saw Nymex crude oil attempt to hold onto the $100 per barrel level but after a positive start to the year, the commodity topped out in April before losing -34% and falling below $75, followed by a bullish pattern in October. Going forward oil should offer volatility and ample opportunities for commodity traders.
In the foreign exchange markets the dominating story was of course the euro. We started the year on a positive note but then in May, the EUR/USD currency pair started to decline, continuing into the year end. The pair will likely finish lower than where it had started and probably continue its bearish trend into 2012.
Looking Forward to 2012
The dominant theme that is likely to continue into next year will be the stability of the eurozone and of course the upcoming Presidential election. The housing market and the situation of rising unemployment will also be on investors' minds. All of this creates uncertainty and this leads to volatility. If we see an increase in volatility during 2012, this will continue to create Range Expansion bars which of course increase risk stops. However the rewards compared to risk may also prove to be substantial.
If the markets decide to continue the bearish trend then traders placing spread bets should anticipate corrections exceeding 6-8% which is now a typical sized movement given the current volatility. It seems that each time a rally commences the move fizzles out just as quickly as it started and the mood on the street is still one of caution. This often leads to range bound congestion patterns.
Trading in range bound markets can prove to be difficult as price action tends to become choppy. The UK FTSE 100 demonstrated this for several months. If 2012 starts the year with the indices still stuck in a congestion mode, this is likely to create a case for an explosive breakout. It would be important to keep a close watch on the weekly charts for key reversals as chart patterns can often provide early warning signals in advance.
Each market has a story to tell and deciphering the price action is one way to read between the lines. After the initial moves in the first week of January, the picture should provide some subtle signals for the year ahead and as the story unfolds, chartists are probably going to be keeping a finger on the keyboard just in case the market beat changes tune.
For more information, read the 2012 Fundamental Outlook at City Index, which includes further detail about the stocks and sectors to keep an eye on in 2012.
Spread betting and CFDs are leveraged products which can result in losses greater than your initial deposit. Ensure you fully understand the risks.
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SOURCE City Index