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What if China’s warning of a double dip recession were to come true? What would you do? When would you do it?
Of course China is not the only country to hold the view that there is still the risk of a double dip. What if Greece was to fail? And Spain and Portugal to follow? Dare we even contemplate the thought that the Ol’ Dart with debt at 60% of GDP could fail.
At the moment all is rosy in the garden. The Fed is leaving USA interest rates unchanged and so the DOW continues its charge. And our market follows. It knows not where it is going or why but it goes for the ride.
Our market looked hesitant for a few days:
click to enlarge
For the week to March 15 our market was unsure as to whether it should follow the DOW. If you look closely you can see that for most of that period the market finished at the lower end of the range. In fact on Tuesday 16th it looked very much like the market was going to do what it should – and that is retreat. But come Paddy’s day it took cheer and broke through and held above the 4825 level.
I would expect that with this breakthrough the market will take head and we will see a few more up days – to perhaps 5120 or so.
But then you need to consider not only the run since February lows but also the amazing run since last March. The temptation to cut and run will be tempting for many – including fund managers to lock in profits – well at least some.
The market over the last year has been driven on the punt that things could not get much worse and/or stocks were maybe undervalued etc etc., The foundation or justification has not arrived yet. It may come but that is by no means certain. And it must come otherwise we will see a decent pullback.
When markets have run hard it takes little to give it the wobbles. Remember Dubai last year? Many have forgotten but a Greek failure would see much more damage with a tsunami effect.
Maybe it is time for insurance.
Enjoy the ride
Tom Scollon
Chief Analyst
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