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Buckle Up - Are You Ready to Retest the Lows?

Central bankers and politicians are in the business of confidence building. Without it, markets - financial or otherwise - do not function. Both Bush and Bernanke did what they are tasked to do...and middle America now believes it may get a reprieve on foreclosure of its mortgage and the credit markets are starting to convince themselves a September rate cut is a foregone conclusion.

However, it will not convince the banking and asset management industry that they should trust their peers. There is still a strongly held suspicion that there is plenty of toxic debt in the system. They key is not to be the mug that gets fired for buying it...or failing to sell it! This trust will take more than a few weeks to restore.

Market professionals also have a stake in maintaining the veneer of confidence. As Philip Manduca, of Titanium Capital, would so often point out on the show - at least 80% of the market has a vested interest in prices rising. When everyday is spent from dawn to dusk spiriting markets higher (school fees and ex wives depend on it) the incentives for talking a negative book are limited.

Robin Griffiths is any obvious exception. A technical analyst by trade, Robin has also seen enough bear markets to have a seasoned view on weak market chart patterns. His advice at the moment is wait for the re-test of the August 16th lows. As he stressed on Monday's show, we will need to bounce off those lows to be confident the panic phase of this sell-off is over. Markets, says Robin, can have up days on positive news flow like the Bush and Bernanke comments but the overall tone is still negative.

He is looking for a mid-October buying opportunity. By then he argues the tone of the market should have improved, and we will also know a lot more about banks and hedge funds that have as yet undisclosed problems.

Septembers, as market analysts well know, have a poor trading record. I believe it is the only month of the year when the Dow consistently closes lower than it started the month. Two important issues: liquidity coming off the summer tends to be lower in September which can dampen trading activity, and funds with redemption calls due in October look to raise cash by selling assets.

Interesting that gold has regained its footing, which might indicate a chunk of the fund selling has already been done. We shall see, time will reveal all.

Meantime, more bad news for the capitalists - or believers in Adam Smith's invisible hand on both sides of the Atlantic. The French government has done a carve-up job on the energy sector which will still see it a major owner of the new Gdf-Suez combine. And a new U.S. law called the Foreign Investment and National Security Act is going to make buying U.S. companies just that little bit harder.

I'm off to Dalian, China on assignment. Be back on the show next week.