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.

S&P - Big break??

For those who are interested, the S&P is hovering around it's long term diagonal support on the weekly and daily chart (formed since the March 2009 low). A break of this line may be a key signal so I am keeping a very close eye. As you can see, I am currently long the S&P in my virtual portfolio. Tomorrow's retail sales data and inflation data on Thursday could be key. See below for graphs...

A New Beginning....

As you may have noticed, it's coming up to a year since I last updated my blog! March 2009 was a very busy time for me career wise, so I ended up sacrificing my blogging duties so I could have a life. Now thing's have calmed down a bit and I have had some good news!

I am going to be writing monthly articles for GX Magazine on my views on the economy and investment ideas. The articles are going to be supplemented by entries on my blog - readers can follow my latest thoughts, check my graphs and follow the performance of my virtual portfolio.

My first article is appearing in February's edition so I cannot go into too much information on here before it is published.

I thought I'd share my virtual portfolio in the meantime - I have selected the following positions based on my views on how I believe the economy is going to perform in the year ahead and beyond. Short(ish) term I am bullish the equity markets (US and emerging markets), medium to long term I am bullish the nuclear sector and gold. I have also gone for a defensive play with a water fund. Should my views change, I will update on here. You can see the performance below - I will be monitoring the positions daily and once the article is published, I will upload the charts. Click on the below table to open in a new window.

The opening prices are from the 4th January when I started writing the article. They are securities that I have been watching for months and ones I believe are worth looking at for good growth potential.
The average performance can be used as an indicator for the performance of a portfolio made up of an equally value weighted portfolio of the securities on the table.

Please feel free to contact me if you have any questions or comments!

Is cutting interest rates a good idea?

It has been a hell of a long time since my last post! I have been off enjoying myself in Vegas before the Xmas break and Mauritius post New Year. The economic, financial and political world gone through a great deal since my last post - the inauguration of Obama in the US, more government bailout's on the cards, terrible unemployment (Q4 2008 1.92m, highest level since 1997) and GDP (Q4 2008 -1.5%, official recession confirmed by 2 consecutive quarters of negative growth) figures confirming the recession is with us, the Israel-Gaza conflict, just to name a few.

The latest piece of news announced today is that the BoE base rate has been cut by 50bps to a record low of 1% - the 5th interest rate cut since October. The aim is obvious - to attempt to stimulate lending and to boost the shrinking economy. Good news for industrialists, retailers, builders and estate agents. However, as I have written about previously, I completely disagree with the notion that we should try to borrow our way out of trouble, hence I think the rate cut is yet another wild decision by the powers that be.

Firstly, it is terrible news for savers and creates moral hazard. Those who were prudent enough to save when things were booming no longer have the same incentive especially when they see bail outs for the careless being handed out left, right and centre. It is as if they want people to get themselves into more debt that they can't pay off rather than save which is what caused this crash in the first place! What the BoE seem not to understand is that by paying lower rates there is less of a chance that people will keep their cash in the bank or building society. The result, fewer funds become available for borrowers and the effect of the interest rate cut is nullified.

Secondly, the damage to sterling could be horrendous. Lower rates means lower returns for foreign investors in sterling denominated products. That gives them less of an incentive to hold sterling, lowering it's value. The more the pound devalues, the more reluctant external holders are to own it. The implications are that in order to service the massive national debt which is estimated to be well over £1 trillion within 5 years, the government will have to issue hundred of billions of pounds worth of gilts. And if external investors do not want to invest in sterling assets, who will buy the gilts?! Unless the government offer higher rates to entice investors - so by cutting the base rate, the long term rate of interest that we'll have to shell out is forced up.

A look back at recent history points to the Japanese interest rate cut to nearly zero in 1995. All that succeeded in doing was shattering confidence so badly that the economy suffered the so-called “lost decade” of collapsing property and share prices. In fact, the Nikkei 225 index is now no higher than it was fully 26 years ago. The bottom line? Lowering interest rates from 5.5% made sense. Cutting them now is a big mistake. Unfortunately, the Bank of England has struggled to work that out.