Trading news this week starts with UK PPI figures and with ECB president Trichet commencing a series of speeches along side other central bankers throughout the week. The ECBs 50bp cut was largely expected last week, but there were some bold last minute predictions of a 100bp cut. Investors will be listening carefully for any hints from Trichet on future decisions. Friday promises to be the weeks busiest day with US retail sales and Fed chairman Ben Bernanke speaking at the 5th ECB central banking conference.
Last week Morgan Stanleys European strategist Teun Draaisma commented that stocks were now flashing a full house buy signal. According to Draaisma markets have now fully priced in an earnings recession and retail investors, purchasing managers and sell side analysts have capitulated. Although very early in predicting the recovery in 1998, he wasn’t far off in 2002. His full house sell signals timed the tops of 2000 and 2007 almost to perfection though. With this in mind it might indeed be the case that markets have already moved to discount the coming recession and are looking forward to what will happen beyond that.
My suggested trade this week is therfore a bull trade predicting that the Dow Jones Industrial Average will be higher than 9500 in 6 months time – if correct this could return 102%.
