Last week equity markets mostly moved sideways, but with plenty of intra-day volatility. Investors are still nervous but positive economic data and encouraging commentary from central bankers are helping them form the belief that the 'worst is over'.

In Britain, for instance, Andrew Sentance, an external member of the monetary policy committee of the Bank of England, said that the recession there may be "bottoming out". His remarks came on the back of positive industrial production figures in the UK which showed an increase of 0.3% month on month, but an annual decline of 12.3%. Traders were not too concerned with the yearly figures, and took the data as a signal to buy. In the US, positive retail sales on Thursday added fuel to the buying.

Opening long positions on the equity indices really doesn't feel like great value at the moment. The FTSE is struggling to get above 4,500, hitting the level numerous times over the past 30 days. The index is up almost 30% from its March lows, but it has loitered at these levels since early May. The trading range has tightened but it rarely stays so stable.

If the FTSE manages to get above 4,500 then there is an expectation of a decent spike upwards, a very interesting trade to be watching for a short-term trader. However such a spike is not necessarily a signal of longer-term strength.

If you are looking to short the markets, and hopefully at this stage most investors will see the merits of shorting, then it may be worth testing the indices around this level. It's all about risk-to-reward and buying into the market up here may not provide a tempting enough reward to compensate for the risk of the market falling.

A couple of weeks ago we wrote about the rising yield on US 10-year bonds. Last week the story was little different with the upward trend continuing. The yield on the 10-year hit 3.99% on Wednesday, with the US treasury selling $19bn at auction.

The US is flooding the market with new bond issues to fund its $1.85trn budget deficit. Bond markets are forcing the treasury to pay higher coupons as a result of the massive supply of debt they are issuing. Russia is also rubbing some salt into US wounds, announcing that it may move out of some of its US treasury holdings in favour of IMF bonds.

Supply of treasuries is growing and demand at current yields is declining. Unfortunately for the US, the laws of economics dictate that, all else being equal, they are going to have to pay more for extra borrowing. To put the US rate in some context, German 10-year debt is yielding 3.75%. In the UK it has breached 4%, and in Ireland we pay 5.6%.

Oil enters overbought territory

The oil market was as volatile as ever last week. After better than expected non-farm payroll figures from the US last Friday, oil prices spiked through the $70-a-barrel mark. However, the up move was short-lived and prices dipped sharply.

By Monday morning prices were back at $67/bbl and looking pretty weak, but as has been the case for the past few months, the market found solid support as buyers drove prices to close at a seven-month high on Tuesday, just above $70/bbl. 

The close above $70/bbl was psychologically quite important and provided the foundation of a further rally on Wednesday as prices approached $72/bbl. A massive draw-down in the weekly oil inventories, which shows a reduction of oil stored in the US, also provided a boost to prices.

From a technical standpoint the trend is still up and $76/bbl would be the next feasible target. However the market has again entered overbought territory. This can be a good indicator that a pullback is imminent, and given the level and volatility the move lower could be ferocious. But as the saying goes "let the trend be your friend", So there is no need to try and call the top of the trend. There should be plenty of scope to go short as and when the market starts to head south.

Also last week, many brokers revised up their forecasts for oil prices, with likes of Goldman Sachs, JP Morgan & Société Générale predicting $70/bbl by year end. Call me a cynic but this may be another sign that oil prices may head south sooner rather than later, as the brokers seem to be lagging behind current moves in oil. Don't forget it was Goldman Sachs that called for $200/bbl last year.

Finally commentary from various Opec ministers last week was fairly consistent, in that they believe the current rise in oil prices is not in line with demand. On the flipside, the International Energy Agency raised its global consumption outlook for the first time since last August, after seeing the recession "bottoming out".