Clem Chambers, CEO of ADVFN, Offers a Review of Financial Markets in 2006

Clem Chambers, CEO of stocks and shares website ADVFN, takes a look at the main events in the financial markets in 2006.

London (PRWeb) December 15, 2006 -- Clem Chambers, CEO of stocks and shares website ADVFN, takes a look at the main events in the financial markets in 2006.

2006 was the year that finally laid the crash of 2000 to rest and which had even the most trenchant bears scratching their heads, wondering why the markets just didn't want to collapse like in the days during 2000 to 2003.

The FTSE 100 opened the year at 5618 and now sits at 6247 - a respectable improvement for a year, especially one which had a hair-raising slump in the middle. Sell in May and go away paid off big, as a sudden nine-day correction saw markets around the world tumble 10%-15%. This gave the doom and gloom brigade something to cling onto, but the market simply turned around mid-June and came storming back.

December 2005 saw the 'Santa effect' once again visiting the FTSE; the market rallied into the New Year of 2006 with a speculative surge centred on resource stocks. This winter-spring rally was too good to last, with the surges in value in the mining exploration and oil sectors - especially micro-caps - signalling the end of the resources boom enjoyed over the last few years. Resource stocks could be resting, and the commodities super-cycle theorists suggest they will rally for 20 years. However since the early part of the year - and even post-correction - the mineral and energy companies just haven't had the pep they had in the three years leading up to the May rout.

Gold hit 25 year highs in April and May, breaking the $600-an-ounce level and soaring to $770 before pulling back below $600. Oil too hit all time highs of $78, signalling that perhaps even a rampant China would have to slow its voracious consumption of commodities with energy prices at such high levels. Meanwhile mining companies were running flat out to quench the demand, an early sign that the commodity cycle was due to turn.

However bad news for commodity bulls is not necessarily bad news for equity investors. While mining companies wilted, companies that consumed them rallied; driving the FTSE and the Dow onto strong post-correction rallies. The Dow delivered a big wake up call to the markets by breaking out of its six-year trading range and into all-time high territory, in what looks like a classic breakout pattern. To the bullish, this suggests a rally to 14000, a potentially eye-popping performance for an index that has been stuck in a rut for over half a decade. Even the mighty S&P 500 and the FTSE 100 are now within striking distance of making new all time highs. This won't happen immediately, but only an obsessive bear would bet against them breaking through to new heights in 2007.

Small caps outperformed the big caps of the FTSE 100 and the FTSE 250 outperformed them both, continuing its historic rally. The big caps while performing well still lag, but for how much longer?

The market has been relatively calm since 2003 with little of the wild action that marked the 90s, with its Asian Contagion and Russian default style systemic shocks; instead the market has rallied solidly with only the occasional bump in the road. As such, the May correction was the biggest reversal since the 'Baghdad bounce.' The cause of this nasty blip was brought on by the plethora of hedge funds, leveraged up to their gun-ports, getting caught on the hop and being stopped out of their positions by an unexpected bad turn in fortunes. This is how crashes are made, but in the modern 'efficient market,' no long-term damage was done. So while gambling stocks collapsed, AIM shares were thrown into the dog house (yet again), scandals like Langbar raised their ugly head, the market tanked for a couple of months and resource stocks ended their stellar run; the markets as a whole looked as buoyant as they did through the 80s and 90s.

However investing in shares is once again a minority sport, far away from the mainstream 90s. This alone is a bullish indicator. As long as 2007 doesn't produce cab drivers passing you stock tips, next year looks good for more gains.

Clem Chambers is CEO of ADVFN, Europe's leading stocks and shares website. For free real-time share prices go to www.advfn.com

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