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.

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

A little note on the S&P...

Just had a close look at the S&P cash index - following what I was saying below about the fact that it may be trading in a range, today's double bounce off the support @ 1,085 may be a sigificant signal to suggest that we may see a retrace of the fall back up to the 1,100 level. Something that is worth keeping an eye on.

S&P broke down - start of a new bear?

Following Mr.Obama's comments on banking reform on Thursday, the S&P conculsively broke it's long term support on the downside. This prompted me to stop and reverse my long S&P position. As you can see below, the size of my short is double that of the long position I had previously - this is because my conviction for trading the break of the support was very strong.

The apparent reversal in the market also caused some of my longs to get stopped out - namely Cameco Corp and the Powershares Water Fund. From this I decided to reduce the risk of the portfolio and close the EM ETF and the iShares Energy Fund. The reason is that the portfolio feels overweighted on the long side considering this may be the start of a wave down.

I have opened short positions in Lloyds, Bank of America and Ford to hopefully capture some of the move down. You can see the details below - I will follow up with graphs in due course.

S&P level tested and held....so far!

The diagonal support on the S&P (March 2010 future) looks to have held for the time being - although it is Martin Luther King day in the US and the equity markets aren't open (futures are trading). I am expecting a continuation of the bounce tomorrow with mining leading the way - which should be some much needed good news for Cameco.

American banks will be in the headlines this week, with earnings reports from Citigroup (Tues), Bank of America, Morgan Stanley, Wells Fargo (Wed), Goldman Sachs, American Express and ICICI (Thurs). General Electric are reporting on Friday and IBM's results on Tuesday should give an indication about US business spending. Trading updates from the US airlines Continental and Southwest will come in on Thursday.

S&P Update - Back on support and looking weak

Quick note - the S&P is right on it's support, despite the good financial results out today. We may see a continuation of the correction at the beginning of next week. Keep a close eye on the cash breaking 1,130 and the March Future breaking 1,127 - if it does I will look at stopping and reversing the long position and also re-evaluate the Emerging Markets ETF and the iShares S&P GBL Nuclear Energy positions.

Have a good weekend all!

Cameco Corp looking weak

Cameco Corp is dropping towards it's stop at 30 - I have decided to move my stop 29, just below the medium term support. The reason for this is because I view the position as a long term trade. What I don't want to happen is to get stopped out when the long term support is broken then seeing the medium term support hold and the price bounces back up past the long term support.

Also, see the latest performance of my portfolio below. The average was as high as 4.5% during this week, but today's drop in the equity markets has wiped off some of those gains. The retail and jobless claims data out of the US was pretty bad. The S&P is back testing it's long term support - again I am expecting the level to hold. However the end to this week and the beginning of next should give a clearer indication to the short term direction of the market. Keep an open mind!!

S&P Support Holds - portfolio update

The S&P bounced off it's support in style yesterday which is good news for all the bulls out there. From a technical perspective, this weeks candle formation is all important - at the moment it is showing a 'doji' which conveys a sense of indecision between buyers and sellers. It could be that the the buying pressure is starting to weaken. Obviously, we have to wait until the candle is fully formed to infer anything, but it is worth noting that the candle may signal the start of a reversal.

The latest performance of my portfolio is below - I have included hypothetical 'bets' for those looking at the leveraged spreadbetting option. As you can see, using leverage significantly increases the percentage returns as determined by the margin required to put the positions on.

Note - the £100/pt shown for equities is the same as £1/pt where the tick size is x100 (as offered by most spread betting brokers). For example, Shaw Group trading @ 3240 (32.40 x 100), long £1/pt.

A bold move by the BoE

End of my first week writing this blog and what a week it has been. We've seen Lewis Hamilton become the youngest ever F1 Champion, Barack Obama become the first black president of the United States and the BoE unexpectedly slashed interest rates by 150bps - the biggest cut since 1981! The ECB also cut rates by 50bps.

The reasoning behind the rate cut is simple - to stimulate lending and revive the credit markets. Bad news for savers but good news for mortgage holders...well not quite. If you have a tracker mortgage (which tracks the BoE base rate) then happy days. Otherwise, it is still not known whether the cut will be passed on by the banks...I know a couple of banks have said they will be passing on discounts on their variable rate deals but others have withdrawn some products altogether (an interesting stat I read recently - the number of mortgage products available in the market has fallen from 15,000 a year ago to just 5,000 now - a fact that will not be helped by the concentration of the retail banking market which will lead to less competition and higher prices). The UK Council of Mortgage Lenders has said that its members would not automatically pass a base rate reduction on to customers in the form of cheaper loans.

They blamed this on a “dislocation” between the base rate and the higher interbank borrowing rates. LIBOR, which is more relevant to banks when pricing credit, is still high despite falling below 6% this week. This means that banks are finding it harder and expensive to borrow money which impacts the consumer. Easily available credit is what caused this crisis in the first place. The banks are now risk averse - they are not willing to lend as readily - and if they do they want to levy a risk premium. So don't expect things to change dramatically anytime soon.

Was the decision a good one - well only time will tell. The markets were expecting a 50bps cut so the initial shock was a good one. I can think of a few reasons for the size of the cut; (i) to keep up with the US and Japan whose rates are extremely low; (ii) to force the banks to pass on at least some of the cut onto customers; and (iii) because they realised the sheer severity of the recession that is ahead of us and a realisation hit that they should have acted earlier (see Robert Preston's blog on the BBC website).

Other bits worthy of a mention - M&S reported 34% fall in profits; BA have reported a 91.6% fall in half year profits ; BT issued a profit warning which sent its shares below the 1984 floatation price; a Goldman Sachs fund posted $990m loss after 10 months trading; the IMF have predicted the British economy will shrink by 1.3% in 2009 and will be the worst performing of the developed economies; house prices down 2.2% in October according to the Halifax, brings total drop to 13.7% for the year.

And the FTSE....

Last week was the most successful week in the history of the FTSE100 Index. The FTSE enjoyed a consecutive 6 day winning streak which was probably a combination of excitement around the US presidential election (the markets rallied due to the belief that an Obama victory would lead to the quick implementation of policies and initiatives aimed at fixing the US economy) and in anticipation of rate cuts by the BoE and ECB. That finished on Wednesday when disappointing results from ArcelorMittal and Carlsberg A/S overshadowed the presidential election victory for Obama (the so called 'Obama bounce' never materialised). Add to this the terrible UK factory production and services figures which cemented the opinion that the country is heading for a recession. Yesterday property developers led the decline following news about a further fall in house prices.

This tells me that the current rally in the FTSE is no more than a temporary bull in a bear market. The trend is still down - a grim economic outlook for both the US and Europe will be the main factor driving the trend. Expect the markets to continue to be volatile.

Points worth noting (those in bold are major):

Support – 4200 ; 4165 ; 4335 ; 4830 (previous support may become resistance)
Resistance – 4440; 4545 ; 5065