Politics and slowly emerging from the dead

I took a brief break from trading after my call on the beginning of the double dip proved to be wrong. That is not to say that I do not believe that the double dip will happen - I am still convinced that this will happen, especially in the UK. I refer readers to read my article in GX Magazine for more details.

I closed my short ESM0 positions at a decent profit of £570, but if I had closed at the bottom I could have realised £870. Luckily I employed a trailing stop. The reason I held the trade for so long following the bounce was that I had intended to keep the position open for the long run if the ‘W’ shape were to be fulfilled. This was not the case, and even though I could have made more money by closing the position when it was in profit, I stuck to my initial conviction. Put it this way, if I had closed near to the bottom, but the market fell even further confirming my initial view, I would be kicking myself even harder than I am now! But that’s the name of the game; you have to take risks to make the big bucks!

I have been watching news of the election in the UK unfold and the sentiment seems to be that we may be heading for a hung parliament (where no one party has an overall majority). This would be terrible news for the pound. I have taken a couple of short sterling trades based on technicals. I will post the graphs another time.

I am in favour of a change in government and that means that I am supporting the Tories, but that is mainly because they are the best of a bad bunch! The fact that they plan to tackle the UK's deficit as soon as possible is a positive step and I think that a continuation of the Labour government would be bad news for the British economy and our credit rating.

I have also taken a couple of short term short positions on the S&P (ESMO - June contract) and the FTSE (Z HO) again based of the technicals - you can see the graphs below.

The portfolio is perfoming steadily with a 20.8% return over the initial investment.

Update....

It's been a couple of weeks since my update - mainly due to being uber busy at work! The market bounced following the recent drop following the break of the long term diagional support. This rally seems to be over now the recent support has broke. The graph below is showing a head and shoulders formation where the neckline has broke down. These are all bearish singnals. I cut my shorts at a pretty good time and I am going to look into load the book once more. I took another S&P Future short on the 16th Feb at 1,098. I could have picked a better entry if I waited a bit longer for the graph to touch the upper resistance once more.

Regardless, the 61.8% Fib level has not been sucessfully penetrated and the resistance at 1,114 looks strong. I see the 1,066 as the next support level, a break of which should see the price action return to the low at 1040.

Cutting shorts....

Quick note - I have cut my single name shorts as I have lost some of my conviction on the downswing as we have failed to make new lows. I am still bearish, but thought it best to lower my risk and wait for a clearer picture to emerge.

Interestingly, it looks like I should have kept the the long BP trade off the support that I cut yesterday - another case where I cut to early. I should have had more conviction in the trade given the strong technicals.

An indication that rates may rise....

Today, Ben Bernanke publically announced that the FED may raise the discount rate in the US "before long," but repeated the Federal Open Market Committee statement that low rates are warranted "for an extended period."

How ambiguous is that?! What ever the reason behind the announcement, the fact is that this is bad news for equities and furthermore adds more uncertainty to the current market climate. Higher rates are likely to encourage people to put money in savings which means less spending (lower consumption) and consequently, lower profits and less incentive to invest (why invest in risky stocks if you can get the same returns in a "safer" savings account). The S&P fell sharpy on the news.

This is good news for my net short portfolio. This morning the ESH0 (S&P March Future) rallied up to 1,072 on the back of news out of Germany and the EU suggesting that they would support a possible bail out. On the back of this, I added to my shorts at resistance, getting in at 1,070.5. This gave the portfolio heavy exposure to the downside (3 short S&P positions open), so I closed the short opened yesterday at a small 1pt profit on the diagonal support @ 1,065 (since been broken). I also took the opportunity to close the BP long position (short hedge) which is likely to be impacted by the possibility of falling oil prices should the fall in equities continue.

Sideways movement....but where next??

At the end of last week, I mentioned that I would be looking to re-enter shorts at 1,066 on the March Future - I have taken this position today. However, the market looks to be trading sideways, without any significant indication that the trend will be continuing in any one direction.

In light of this, using the spreadsheet tool I have built, I was looking for a technically strong long position as a short term hedge. BP Plc (BP/ LN Equity) is sitting on a good diagonal support formed since March last year and have taken a small long position with a tight stop.

On the S&P500, the price action has been contained within a downwards channel (daily graph) with the next key support at 1,040 (cash index).

I have attached my latest graphs below with a brief comment on each - feel free to contact me with any questns or comments.

AAL LN - diagonal support broken on downside. Price contained in down channel. Shorts good unless diagonal support is broken on the upside and/or resistance of channel broken on upside. 

BAC US - diagonal support broken on downside. Break out from converging triangle validates shorts. Looking for horizontal support to break for continuation on downward price action. 

BP/ LN - big support holding thus far. Favour long positions as long as this is the case. Resistance (previous high) to be broken to further validate long positions.

DXY - down channel broken on up side. Trading within an upwards channel off low. Inversley correlated to the S&P.

S&P500 - 2hr graph (March future): noise at the previous low. Price action contained by downwards channel. Continuous lower lows achieved validating bearish view.

Daily cash index graph: diagonal support broken on down side and trading within a channel. Trading just above a key support zone.

PRU LN - diagonal support broken on downside. Shorts good unless diagonal support is broken on the upside and/or resistance of channel broken on upside. Next support zone joins recent low and a previous resistance.

End of another sucessful week...

The markets continued to fall as I expected this week - unfortunately I was a bit conservative in closing my single name shorts early, especially Lloyds which could have banked me another 140 points!

Nevertheless, the portfolio is performing well with the current value over £12k.

I closed the most recent S&P short opened @ 1,097 when it looked like we hit a support @ 1,067. Again, this was premature as the S&P dismissed this technical level and powered through, reaching a low of 1,050.5. I still have my long term short from 1,127 open with the 'double dip' in mind hoping that the high may be in for the time being.

From a shorter term prospective, I am looking for a retrace back towards 1,066 to sell short once more.

Levels to watch:
Support: 1,059 and 1,050 (March Fut); 1,039 (cash index)
Resistance: 1,065 and 1,078 (March Fut)

On the cash index, the 1,070 level looks key to me - it has acted as both a support and resistance level in the past. A breach above this level will mean re-evaluating my bearish view.

The long dollar trade is looking better everyday as it continues to power through the diagonal resistance. From a fundamental and macro point of view the trade is looking like a good long term bet.

I also cut half of the gold position - I was very bullish gold coming into this year, however the sentiment I am getting from the market is that the rally may have been a mini bubble which is always liable to burst. Since I lost some of my conviction, I closed half at a small but significant loss, keeping open a small position while keeping a close eye on my stop at 1,024.

Have a good weekend all!

Range trading on the back of some bad news...

The S&P rallied in the early part of this week, mainly on the back of good GDP news at the end of last week. However, a mixed bag of news surrounding jobless claims in the US, concern governments will struggle to fund their budget deficits in Europe, strikes in Greece promted by spending cuts and the BoE deciding against further quantitive easing has caused the market to drop sharply today.

Worth noting that both the BoE and the ECB have held rates at 0.5% and 1.0% respectively.

The BoE decision in relation to QE looks to be driven by inflationary concerns. This may put upwards pressure on interest rates. However, the ECB and the FED have signalled the intention of keeping rates at their current levels for an extended period. In the UK growth was lower than expected at 0.1% which is leading many analysts to expect that rates will remain low to avoid falling back into recession.

All good news for my portfolio which is net short. I had cut my S&P short on Monday @ 1080 following the rally. I since opened another short close to the top of the range @ 1097 which is looking healthy. I am sitting on the BAC, AAL and PRU positions. The Dollar trade is also looking good especially on the back of the jobless claims news out of the US. All in all, I am still bearish.

Good GDP news out of the US

GDP data out of the US today was better than expected with QoQ annualised return hitting 5.7%. Personal consumption was also slightly better than expected. The S&P reacted as would be expected,  ralling from today's low of 1,070 (March Fut) back up to 1,090. I took the opportunity to close out the rest if the Lloyds position (+253 points) and the Exxon short (+101 points) and also added to my short S&P position at 1,088.

I am still bearish - the index is making lower lows while failing to breach the upper level of the range.
Key levels to keep an eye on (March Fut):
- Resistance: 1,090 ; 1,103 - a break above 1,103 would lead to re-evaluating shorts
- Support: 1,080 ; 1,071 (today's low) ; 1,066