Glencore tries to marry again

Despite the news first thing that Glencore had approached Rio for discussions about a possible merger, equities in Europe remained under the cosh after two solid days. This is not the first time Glencore tried to woo a rival, as it attempted a similar move with Xstrata.


The news that the Islamic State fighters are now attempting to capture a town on the Turkish border in an attempt to consolidate territorial gains made elsewhere would once again unsettled equity sentiment. The news today that the Ebola virus has made its way into Spain will also concern investors. US treasuries were well id again as 10-year yields fell to 2.38%.


As much as we believe charts are the last bastions of a desperate man, it will have not passed the eye of technical analysts that many of the leading European indices are trading close to the bottom end of 12 month trading ranges. The Dax index of leading German companies is now back to 9000 a level that has offered supported for the past year. The Stoxx 50 index of leading European companies is within 5% of its 12 month low. The FTSE 100 is now back to 6500, again the bottom end of its trading range. The S&P 500 remains suitably higher than this time last year but at 1950 it is back to what some technical markets analysts believe should provide support.


Yesterday we reported on the Sentex investor survey, Morgan Stanley research looked at a broad range of investor sentiment measures. To pick out a few of their indicators, hedge fund net exposure is close to the lowest level in 2 years. Global risk demand is -2.4SD, volatility and put/call ratios are close to levels that have been traditional entry points for equities. Overall their conclusion is that market-timing indicators suggest attractive risk-reward profile for equities.


It is always encouraging to feel sentiment is poor as most experienced investors will tell you that is the time to be contrarian. They will also tell you being a contrarian investor is not a smooth path. Alistair Mundy, head of contrarian investing at Investec describes contrarian investing as eating alone in a restaurant.  Hopefully the equity market reaching these technical levels and falling sentiment will provide the floor, but one also has to remember that trading ranges can easily be breeched and sentiment can easily get worse before it gets better. 

Posted on October 7, 2014 .