Stock markets rallied significantly on Wednesday following a joint statement from Angela Merkel and Nicolas Sarkozy on defending Greece and such political action could pose a big threat to stock bears, according to Philippe Gijsels, the head of research at BNP Paribas Fortis Capital Markets in Brussels.
“Skepticism had probably become too big, bears too aggressive and bulls too underinvested.
What we got was a big squeeze from oversold levels," Gijsels said in interview with CNBC.com on Thursday.
Volatility is likely to remain heightened as markets enter the autumn, according to Gijsels, who believes computer-generated trades are making market swings more violent.
“Unfortunately, this one-day wonder does not tell us too much about the future. The markets were very oversold, and due for a rally at some point. The trading goddess decided for one reason or the other that this point was yesterday," he said.
Searching for a bottom to market levels is not an easy game at the best of times, particularly in a politically driven market.
“One of the big problems for equities and more risky assets in general is that there is the perception that there is no coordinated plan to deal with the crisis. Discussions go back and forth and even within the same country we hear very dissonant voices,” said Gijsels who notes it is very difficult to read internal politics when so many voices are competing for support from voters.
“It is our view that if push comes to shove and the crisis threatens the survival of the euro zone, the US economy and the in fact the world economy in a meaningful way, a consensus will be found,” he said.
“Lessons have, hopefully, been learned from the Lehman collapse and at the end of the day everyone will work together (to prevent) the nasty consequences that everyone knows.
This being said, no one can predict how long this will go on before the 'solidarity mechanism' kicks in and unpopular measures can be sold to the voters.” “However, after today’s comments one can certainly be hopeful,” said Gijsels.
The chances of political resolution mean the rally, when it comes, will be quick and easy to miss, he said.
“As the level of oversoldness is driven to an extreme, we might see a violent capitulation bottom, followed by a sharp rally that never looks back.
Or something that looks like the rally from the August lows last year when Ben Bernanke started talking about" a second round of quantitative easing said Gijsels.
