Day Trading Investors Hope for Continued Volatility to Create Opportunities
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The regular Financial Markets Update from Simon Denham of Financial Spreads.
For today's update >> Financial Markets.
Spread Trading 15 August 2011
Results this morning are dominated by Michael Page's half year numbers. While the figures themselves are good, when compared to H1 2010 they were actually about £5m below expectations.
Investors have also been unnerved by the total lack of any mention of current trading conditions, apart from the mention of a hiring freeze in the UK banking sector, 10% of their annual revenue.
The stock is off almost 15% in early action and investors will be concerned that Michael Page is a better indicator for the UK economy than many government statistics. If the outplacement companies are not doing well then maybe nobody is.
In the face of no actual bad news over the weekend the index spread trading markets are doing better on the open. The FTSE is currently about 30 points to the good and the Dax doing even better, up by 70.
Day trading investors will be hoping for more of the last few weeks, with the increased volatility creating opportunities galore, although to be fair creating fear in pretty much the same measure.
The FTSE has pushed above 5295/5300, a feat which proved too hard on three separate occasions last week. Our spread betting account holders will be watching to see that there is no pressure to fall back below this mark as the reaction sell offs were violent to say the least.
We can see support at 5320/25, 5295/5300 (strong) and below here the volume trading area in the low 5200's 5210/5225.
Resistance is at 5385/95 but above here there is quite a bit of fresh air with the next serious resistance up at 5495/5505. Risk/reward would suggest the up side but traders should be very wary of a lurch back into 'fear' from 'greed'.
The US markets are also looking perky in early action but it must be noted that, compared to Europeans, the returns look less attractive. Of course in the long term the US is in a better position as they merely have to deal with their own problems and not worry about everyone else.
The Dollar could take up much of the slack if the US administration refused to do anything to address their budget problems but this would make them very unpopular with their trading partners.
The volatility of last week which saw the Dow trade a range of over 600 points no less than 4 times is, we hope, unlikely to reoccur this week.
The Fed seems to have stopped its knee jerk reactions of the past three years and it must be hoped that this will become more of a policy in coming crises. Resistance is at 5370/80, 5430/40 and 5500/10 support at 11320/30, the upward trend line from the lows on Thursday, 11275/85 and 11185/95.
In the FX spread betting markets we are running into the battle to see who can have the weakest currency.
Everyone wants currency weakness to bolster hopes for export growth and, existing, debt devaluation through containable inflation, although I personally believe it to be a false crutch.
In this scenario fundamentals get washed out into the gutter as we can see from the massive over valuations of the Yen and Swiss Franc which are believed to be the safe haven deposits.
Rather like the 'Yen carry trade' of the early 'naughties' this appears to be the safe trade to go for but when it goes wrong it will really go wrong.
Oddly enough while all the chaos of the last week was going on the FX markets were actually quite quiet.
For the Pound the prospects are very difficult to see. Debt has performed well as everyone focuses on the woes of Europe but we must fear that when this has been played out the markets may then turn their fire power onto the UK.
Fortunately, like the US, the UK can make fiscal decisions based solely on their own requirements and this may dissuade the naysayers in the medium term.
The currency has basically been stuck between $1.59 and $1.66 since the end of January which is creating buying and selling opportunities for those who have traded the ranges longer term. Current resistance is at $1.6300/10, $1.6330/40, and $1.6460/80 support at $1.6230/40, $1.6160/80 and $1.6100/15.
Gold remains everyone's favourite investment and whenever the markets look weak the price will rally sharply but at what point will we have gone too far?
When the world was a stable place gold was happily trading around $270 to $400 and we are now four to six times over this price. Has the number of Dollars in the world quintupled over the last six years or the credit worthiness of the US/Eurozone/UK slumped by an equivalent fraction?
The answer is probably No which would indicate that 'at some point' the gold spread betting market will come under very bearish pressure.
The problem for the sellers though is that the 'at some point' moment is not here and now. It is still a bull market and will remain as such even if the price virtually halved.
Not only this, but the buying momentum has actually accelerated which has continued to put pressure on anyone rash enough to have sold. There is no single market where our clients have stuck with an opinion through a huge move like gold.
Our spread betting clients have been long the yellow metal for almost five years; no matter how high it goes the buyers remain in control. There is minor support at $1725/27 $1660/65 and at the $1600 level. Resistance, for what it’s worth, is at $1750/52 $1777/79 and $1802/06.
The above comments do not constitute investment advice and neither Financial Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
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'Day Trading Investors Hope for Continued Volatility to Create Opportunities' edited by SD, updated 15-Aug-11
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