European markets bounce back but traders remain cautious

European Indices bounced back from heavy weakness over the last week of trading as bargain hunters attempted to pick up some of the more badly beaten shares. However, traders remained extremely cautious and much of the buying activity we have seen have close stop losses indicating that investors may feel today’s rally could be a short term move.

The recovery in Japanese trading early this morning, having seen the Nikkei come under some pressure upon market opening, has helped to trigger market gains in Europe. After such large falls, it can be expected that bargain hunters could be enticed back into equities, at least in the short term. The question is will investors be confident enough to build on these early gains or will they be enticed to take profits early with the uncertainty surrounding the Japanese nuclear power plant troubles?

The FTSE 100 has found some sincere support at the 5600 level and today’s recovery above this level has helped to convince traders willing to speculate that prices could go higher to buy back into equities. The UK Index could face resistance around the 5785 level and if it fails to break above this, it could convince traders that the UK Index is locked into a bearish trend.

I get the feeling that trading is on a bit of a cliff edge at the moment with traders scrambling to get the edge on both news and technical indicators. Yesterday’s sharp fall in UK equities, triggered by some quite astonishing words from EU’s energy commissioner that the Fukushima plant was ’out of control,’ followed by the dollar/yen cross pair crashing 3.5% lower within a matter of minutes late last night, hitting new record lows in the process, exemplifies how on edge trading is right now.

Stock wise, we have seen some strong gains in early trading for the miners and energy firms, who have been some higher buy demand from rallying commodity prices. BHP Billiton and Kazakhmys are amongst the day’s strongest gainers on the FTSE 100 at present.

On the downside however, we have Legal and General, whose shares have slumped by 2% despite hiking their dividend by 24%, which was more than shareholders had expected.

Traders are likely to maintain a close eye on the situation in Japan’s nuclear plant problems, whilst issues closer to home such as sovereign debt are also likely to remain at the forefront of investor minds.

Sharp rallies and falls could certainly continue to maintain a presence in trading in the near term if investor sensitivities remain as high as they currently are to events in Japan, Libya, Bahrain and sovereign debt.

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