Markets February Spread Trading
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A regular spread trading update by Simon Denham of Capital Spreads.
For the latest spread trading update from Simon Denham click here.
Spread Trading, 29 Feb 08
Another 100+ point movement day on the FTSE yesterday as the markets rejected the break out (again) and slumped back below 6000. To their credit the Financial Spreads clients never believed in the break out and sold virtually anything above the 6000 level and were rewarded in spades with the fall out.
Today we are looking at further opening falls with early the FTSE spread trading at 5945 - 5946 another 15 points lower. The volumes on the exchanges remains weak which is causing such heavy moves as market makers swiftly adjust prices. In conversation with some of the quoting brokers it appears that they are running as flat books as possible and attempting to tempt closing deals on any new positions with swift price action. How long this situation can continue is open to question but the freezing of the money markets means that nobody is keen to have to go to the banks for funds (just in case it is refused). A tale of a full, or curtailed, lending line can be death to a broking unit.
The GBP / USD cross rate had the good manners to bounce neatly off the support level mentioned yesterday at $1.9750 and climbed throughout the day back to the same resistance level at around $1.9950 - $1.9970 where it had failed on Wednesday. We are now back below $1.99 and seemingly comfortable at $1.9887 - $1.9890. Traders will probably leave it alone for the time being until some direction becomes more evident.
Sellers of the Euro believing that the $1.50 level vs the dollar was a good point to set up shorts were rudely awakened by the continued move higher. The Euro - Dollar spread is now at $1.5226 - $1.5228 (yet another all time high) and bears are being squeezed. There were almost certainly a large number of $1.50 Call options written over the past year or so and these positions are looking very, very vulnerable.
Gold hit a new high (yawn) as did Oil, Coffee, Silver etc etc etc...the hunt for secure delivery seems to be hotting up. At some point the elastic band will probably hit a critical point and the whole edifice will snap back but trying to call the top is a mugs game. So unless you are long already, sitting on the sidelines would seem like a sensible thing to do.
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Spread Trading, 28 Feb 08
Yesterday was a classic in today's trading environments with the FTSE falling over 100 points in morning and early afternoon action only to reverse virtually the whole move and close just 10 pips lower on the day.
Early indications this morning are for a weaker open on the back of minor falls in Japan and late weakness in the US. Although, on the plus side, the RBS results will give the banking sector yet another boost after coming in well above analyst’s expectations. But the number crunchers will probably want to see more information on the progress of the ABN acquisition before hanging out the bunting just yet. The FTSE 100 spread is coming out at 6046 - 6047 which is disappointing as the eventual close at 6076 was above the resistance / support level mentioned in yesterdays comment at 6065.
The Dollar is attempting something of a small bounce today with the euro retreating from highs of $1.5145 to the current level of $1.5090 - $1.5092 but the pound is suffering rather more and is now at all time lows versus the Euro (once again) at £0.7631.
Against the Dollar, Sterling has given up 200 pips from the highs of yesterday (oddly enough the same highs as the last rally in late January) and is now back down at $1.9770 - $1.9773. The resistance at $1.9750 which acted to hold back the initial rally on Tuesday may well act as support today but if we close under here this evening then we will be back in the $1.9390 - $1.9750 range that has dominated trading for the last month.
With third quarter GDP out of the States this afternoon we can expect a quiet early start to the session.
The commodities markets have paused for breathe this morning (as the dollar regains some composure) but the pressure is still there and it remains a brave trader who bets on any significant fall back in prices. Gold had a few attempts at falling below $952 yesterday, all of which failed, so short term punters may be watching to see if we break below here.
Crude Oil has given up on the $100 level rather easily and it appears that the $99.50 level is rather more significant from a support/resistance level. It took quite a few goes to break above this level and we have bounced quite violently off it once already (yesterday afternoon). Dealers have now taken us down to it once more in a late fall out last night. That means traders will be watching for further buying (or the lack of it) early today.
The current crude oil spread of $99.53 - $99.59 for the Nymex April contract puts us in an interesting starting point for today’s action.
Spread Trading, 27 Feb 08
Today sees the FTSE looking to break above 6100 with the opening FTSE 100 spread at 6099-6100. The 6000 level, which had caused so many problems to defeat in previous rallies gave up without a fight yesterday as the Banking, Mining, Energy and Pharmaceutical sectors put on a display. The close above 6065 will be giving the bears some cause for concern as this has proved, over the past six months, to be something of a critical support/resistance level.
Clients were strong sellers all day yesterday and unfortunately this has not left them in a strong position this morning.
FX markets were very Dollar negative yesterday and the Euro is now over $1.50 (a new all time high) and it is this action that amplifies how far the pound has fallen in recent months. Even though it rallied strongly yesterday in line with the other currencies, it is still some $0.125 from the peak set in November. Imported inflation will start to look very grim over the coming half year so we can expect some even nastier PPI figures.
With January sales seeming to be strong and commodity inflation so prevalent the Bank of England (hawks at the best of times) will probably see no need to cut rates this time round. The hair shirt of monetarism looks set to irritate us for a while longer. This may keep the pound reasonably stable for a while but if the Trade and Public deficit numbers continue to make grim reading and growth slows below expectations then the long term trend is unlikely to be up.
With the dollar weakening significantly and most commodities priced in USD, commodities had yet another reason to rally.
Gold started yesterday on the soft side falling to $926 before the dollar impact started to be felt. The Gold spread is now $957.0 - 957.5 (a new all time high). In reality, the recent fall in the dollar means that from a basket currency basis, it is little changed over the past week.
Silver on the other hand has gone into overdrive and has moved some $2 higher in the last week with the Silver spread this morning at $19.30 - $19.33. That’s a rally of almost 15%, in gold this would be the equivalent of a move of over $130.
The Capital Spreads clients have stuck to their long commodity positions and are being heavily rewarded. The bulls are in control across the board and it would not be a wise man who stands in the way of the train.
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Spread Trading, 26 Feb 08
At the moment, the 6000 level on the FTSE 100 seems to resemble our current government and its tax policies. Every time we look like seeing a new policy, they just turn the other way and head towards new lows in the polls. It's rather like the FTSE 100 Index chart of the last 5 weeks, where we've made three attempts at getting back above the psychological 6000, but keep rejecting it. But despite all the troubles and woes of the equity market, the technical argument is that a close above the 6100 level will be a positive sign. Even yesterday, the market's volatile session saw it turn its back on 6000 in the morning until it made its second attempt at breeching it towards the close. We are calling the market to open some 15 points higher at 6014. But like many of the opening calls recently, this currently unpredictable market could quickly make up its own mind and trade way off this mark.
This morning some of the European banks seem to have released some upbeat results which will only fuel the bulls into believing that the worst is over. However, one can't but think that they're just pulling the wool. Despite the recent confidence boosting news flow the fall out from the credit crunch isn't over. Standard Chartered, the only bank to have posted a gain in 2007, is expected to release full year figures today in another big week for the banking sector. HBOS are reporting company results tomorrow and RBS on Thursday. With the announcements of increased dividends for major banks the risk they are taking on is doing so at the expense of their margins. The mass selling of the sector seems to have stopped, but it'll be a long time before we see the dizzy highs they reached in the middle of last year.
There's little in the way of UK economic data today, but with many of the Capital Spreads Account holders becoming ever more knowledgeable in global economic trends, many of them will watch the German IFO business climate data at 9am this morning. It is unsurprising that a decline is expected from 107.9 to 105.8, considering the bashing banks there have taken and that the Euro can't seem to shrug off its all time highs. After that we get inflationary data followed by consumer confidence released across the pond. If you asked any American shopper (or indeed British for that matter) what they believed to be the current state of affairs with the economy they'll probably give you exactly the same answer as the highest paid economists are expecting from the data later today. Prices are getting higher and confidence is falling. Further evidence that the US is in a recession and the UK can't be far behind.
The dollar is better off this morning with cable around $1.9660 and Euro / Dollar $1.4790. The jury is still very much out as to whether the dollar's spectacular demise in 2007 is over and any attempt by cable to get back above the $2 mark will mean we're still in a dollar bearish market.
The Gold market is experiencing a bit of profit taking as it rejects the $950 level. With clients still long of the precious metal it's unlikely to be long before they'll be buying more of the yellow stuff as that's what they've been doing every time the price dips. With $70 to go before the $1,000 mark, it's only a mere 7.5% away from what looks like destiny.
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Spread Trading, 25 Feb 08
The huge rally in the US on late Friday night coupled with the Far Eastern response will mean that the FTSE is being called some 75 points higher this morning. Hopes that the markets might be about to quieten down have been disappointed on several occasions recently and an opening call of 75 points up might be considered an odd moment to talk of it once more. However...whilst the daily trading ranges continue to be quite violent the actual theoretical closing levels of the index when taking into account ADR activity on the US markets after the 4.30 UK close has indicated quite a tight range in the past week or so. The quoted 21.00 closing range for last week was covered by just 30 points.
Early calls on the FTSE 100 Spreads are at 5960 – 5961...right back in the groove and giving the bulls something to get their teeth into again. The 6000 level has been a bit of a killer so far this month with strong selling every time we get there. Again we will probably attract quite a few sellers if we approach the number. On the basis that the markets will move in the direction that causes the greatest amount of pain to the greatest number of people (!) for a break above 6000 to become sustainable we will need some solid short position creation.
This week continues to be a big company reporting time with RBS, HBOS, William Hill, Barratt, Persimmon, Ladbrokes, etc coming with interims or full years. The banks seem to be falling over themselves to point out how well they are doing but a better picture of the UK may be taken (sadly) from the performance of the bookies.
Gold is being squeezed higher again in Far East action as shorts begin to get squeezed once more. The dollar weakness in the fag end of last week came as something of a blow to the precious metal short sellers. The Capital Spreads account holders have yet again made the right moves by remaining long of the gold market. $950 beckons and $1,000 is still the target for many.
With volatility actually increasing last week in many asset classes the ride will continue to be errr...exciting...shall we say?
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Spread Trading, 22 Feb 08
The markets are beginning to look a tad grim again as the US and the Far East traders do their best to take the shine off the start of the week and the FTSE is trading some 30 points off in mid morning activity at around 5900.
The Far Eastern markets have now, apparently, had seven losing weeks in a row, which must be some kind of record, and this is difficult for the Europeans to just ignore. The FTSE 100 having rejected (for the third time this month) the 6000 level will now have the bears looking for further declines as buyers are obviously hard to come by above that level. We really do need to close above 6050 to have a chance of disrupting the negative trends. If we close below 5920 today and the US fails to put in a good performance in the evening session then sellers will probably start to sharpen their knives.
It is very difficult to cut through this general air of gloom that seems to have settled on analysts and fund managers. Having been doing the rounds this week with the Capital Spreads road-show the complete absence of optimism is almost palpable. These are not people who are natural sellers and so will not be going in to liquidate positions but often falling markets can be generated by a disinclination to come in on the buy side. As smaller investors reduce fund inflows / sit on their hands it can actually have the effect that we are all hoping will not occur, a falling market.
In the topsy-turvy world of banking Lloyds TSB have come in with reasonable numbers to match Barclays the other day. Many will be asking how the Alliance and Leicester and Bradford and Bingley (who like Lloyds are very domestically focused) have managed to make so many crucial errors in the last year. Analysts, as forecast in yesterday’s comment, were quick to take out the knives, almost competing with who could give the worst share price target. There is nothing they like worse than appearing to be fools in front of the fund managers and the complete surprise on the A&L numbers will not have pleased.
On the FX front the Pound neatly bounced off the support levels below $1.9400 and we are now almost 300 pips higher at $1.9658 - $1.9661 as the dollar weakens. Versus the Euro and Yen it is more, same as, same as, as we settle at £0.7550 and around the 210.50 levels. With comments saying that the US might already be in recession the Dollar may struggle to repeat the moves of recent months and we are seeing a greater numbers of sellers than is usual.
With the price of Crude Oil rejecting the $100 level yesterday the question will be asked as to whether the 20th Feb 2008 will become the one day in history that the price of crude managed to close in three figures or will the never ending requirement to secure supply push us ever higher. The Gold and Platinum markets squeezed again and the yellow metal has finally hit $950. $1,000 must be in its sights now and the magnetism of the number may well be enough, on its own, to pull us up.
With so much of our commodity requirements coming from, shall we say, the not always friendly, parts of the globe the fear over flow disruption is unlikely to fade. Our main Crude Oil supplies come from places such as Russia, Nigeria and the Middle East, countries which have very little inclination to be particularly amenable with the Western economies. The Far East has always been more accommodating towards the little foibles of the commodity rich nations and in an era of reduced availability the historical friction with the West may well work against us.
Since the late Nineteenth to Mid-Twentieth century when the UK and France exited most of their Empires the torch bearer for western values has generally been the US. Their heavy handed diplomacy over the last decade or so may well come to haunt us all in the coming years.
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Spread Trading, 21 Feb 08
The FTSE is bouncing (yet again) after the late, late show from Wall Street turned a 100 point fall in the Dow into a 100 point rally. The FTSE Spread Betting quote, as I write, is 5929 - 5930 up 36 points. In truth the rally seems tired already and we have only been going for 20 minutes! The company reporting season has only just begun but there are very few ‘good’ stories out there. If we believe in tough times for 2008 then we can hardly expect much better this time next year. The choppy market activity looks set to continue for some time yet. Support at 5700 and resistance at 6000, a nice wide 300 point range, seems to be containing expectations for the moment.
On the Pound Trading front, the support vs the Dollar held once more last night and we have bounced slightly to $1.9462 - $1.9465. Bears seem to be in the ascendancy at the moment but the continued inability of the market to close below $1.9390 is giving sellers some pause for thought. Against the Euro and Yen we are also probing the lower end of recent trading ranges but (as with the dollar) the supports are still holding out.
I mentioned that the commodities markets went Bananas on Tuesday. Yesterday they went one better. Gold managed to fall $20 by the US opening only for the Yanks to reverse the whole move, and more, pushing us up $35 to the current (new highs). The gold spread is now at $945.0 - 945.5.
Crude Oil is back up to the $100 level as OPEC removes the possibility of new production increases…and it looks like the Oil inspired inflation effect will continue to filter through into other commodity units.
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Spread Trading, 20 Feb 08
It seems that the FTSE is rejecting the 6000 level as decisively as it did at the beginning of the month. Having given the bulls something to cheer about in early action we ran out of steam at around 6030 before a late sell off took us down to close at 5968 (still 20 up on the day).
No such happy beginnings this morning after big falls in the Far East and a miserable performance from the States in the evening’s action. Our call on the open is for the market to come in some 60 points lower at around 5910. At least the Financial Spreads Account holders should be happy having disbelieved the move all of yesterday and loaded up on substantial down bets throughout the day.
Alliance and Leicester have missed targets by a huge margin which will put even more pressure on the stock but, on the plus side, Anglo American have massively beaten targets to the upside so hopefully a bit of a score draw overall.
FX markets are showing continued pressure on Sterling support levels in the mid $1.94’s vs the dollar and the mid £0.75’s against the Euro. Major levels are $1.9390 and £0.7605 respectively and if the 09.30 Treasury numbers come in worse than expected we could see a swift attack on these from the markets.
As discussed in today's "High Commodities Prices" Feature, the Commodities went for broke yesterday. Gold went for the resistance levels of $915 and $926 mentioned yesterday and defeated them. The $926 level now turns into support and we are sitting bang on it in early trade with the gold spread at $926.5 - $927.0. To be honest I could go through virtually every commodity and say ‘new highs’ ‘broke resistance’, ‘continued strength’ etc. etc. The markets remain very, very volatile and are not a place for the faint hearted.
Spread Trading, 19 Feb 08
My word...I picked up the Telegraph this morning and wondered whether I had strayed and spent my money on that paragon of journalistic integrity the 'Daily Express'. Fury this, anger that, compounded with the picture and rantings of an obviously deranged Mr Fayed pepper the front, middle and business sections. The only sensible bit appeared to be the sports section.
Sad as it seems there is obviously more money to be made in moving into the sensationalist and sentimentalist areas of newspaper publishing than bothering with serious analysis or worldwide reporting.
Northern Rock is now history and should be treated as such. There will be court cases to hold for the share holders but in truth they can hardly claim that they were not warned. The stock has traded solidly between 80p and 110p since the 19th November (three months ago) affording ample opportunity for holders to get out and any new buyers can truly be said to have done so 'at their own risk'. With liquidity, the bank is obviously a profitable entity but the important part of this sentence is ‘with liquidity’. Without it, the company breaches its regulatory statutes (like Global Trader last week) and should really be closed for new business and wound down. To continue to trade is perverse as it raises the spectre of commercial operations having to compete with State guaranteed ones.
And now the Tories will vote against nationalisation, as though they have any other serious solutions themselves. Brilliant! Politicians appear to be the only people who can stand on a Zebra crossing and argue ad-nauseam (at the taxpayers’ expense) over whether the White or Black areas are the safer. 'Our Gordon' and Cap't Darling are bad enough but 'Nice but Dim' and 'bouncing' George Osborne make a mockery of serious opposition.
Oh well! Back to the 'real' world.
Markets seem poised for any type of news at the moment as the rumour of an increased dividend from Barclay’s and Lloyd’s banks launched the bulls into an orgy of buying. The rally in the FTSE of 159 points was a welcome fillip to dealers who had feared that the fall on Friday might presage another collapse. With the US away on yet another bank holiday, the scene might have been set for a replay of the last Stateside vacation on Jan 21st. In the event even the S&P futures market managed, at one point, to trade some 20 points higher in very light volume. That will not please Stateside traders, as they will have missed out on the fun.
Early calls are for the markets to give up some 35 points of yesterdays move on the open and come in with a FTSE 100 spread at around 5910-5911. The Far East failed to give a further boost to the bulls, which is slightly disappointing but hardly surprising. We are still in a sort of limbo as to how the banking crisis will affect the overall well-being of, not just the UK but also, the global economies. This will continue to show itself in wildly volatile markets as fear or greed gain the temporary ascendancy.
Barclays have come in much as expected but Cadbury and Scottish and Newcastle have missed estimates by a mile. S&N even managed a loss (mainly on a one off charge) against expectations of a profit of around 280m which will not help their defence against Carlsberg. If the ‘retail’ sector of the FTSE is starting to look weak then we could be in for some tough times.
On the FX front the pound continues to battle it out around the $1.9500 region having had a few goes yesterday and early this morning at $ 1.9470. The support at this level looks surprisingly strong and will be giving sterling bulls some confidence. Having said that, the bounces are not taking us above $1.9535, that conversely will be also tempting the bears. With the GBP / USD spread at $1.9525 - $1.9528 the Capital Spreads range trading clients are selling (with tight stops). With little information out this morning we can anticipate a quiet session.
Versus the Euro we are not doing so well...again...the pound is trading above the £0.75 level again. Continued probing up here raises the fear that a break out could take us significantly lower. Traders will be watching resistance at £0.7545 and then (if broken) £0.7600. The downward trend, in place since early September, shows no signs of reversing and as currency traders are want to say ‘the trend is your friend’. The current EUR / GBP spread is at £0.7540 - £0.7542. That puts us just under the lower resistance level and will be tempting a few day traders in.
Gold has bounced from $900 mark as the dollar weakens slightly overnight and the Financial Spreads clients are back on the buying side once more. Resistance remains at $915 and $926 but current activity seems very two-way. Without some poor news elsewhere dealers are likely to try to trade the ranges.
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Spread Trading, 18 Feb 08
So much for the gloomy outlook...Today seems to be coming in on the plus side with the FTSE 100 spread called 35 points higher and back above 5800 at 5823-5824. Dealers will be eying the corporate news wires all week as big players from the banking, mining, engineering, pharmaceutical and just about every other sector give their annual numbers. Trying to second guess market reaction is becoming quite difficult as economic and company data seems to be being read from a bearish perspective these days. No matter how good a piece of data some analyst manages to pounce on a tiny negative indicator and leads on the story.
FX markets are being pound nasty again today in a small way. The GBP / USD spread is off 80 pips at $1.9522-$1.9525 as we oscillate around the $1.9400 to $1.9700 range once more. The failure to make headway last week on the pound bounce from $1.9390 is causing some negative momentum and dealers will be waiting to see if buyers can be found in the low $1.9500 region before coming to sterling’s aid.
With the US off today for 'President's Day' we can expect a low volume trading session. This often has one of two effects. The first (the most common) is for the whole day to be boring as hell with small trading ranges and tiny volumes. The second (as happened on the last US holiday back in January) is that in the low volume environment a small momentum can build into a massive move causing chaos and confusion.
Gold remains supported at $885, $895 and $900 and resisted at $915, $925 and $935. Early action this morning took us up to around the $906 level but selling in Europe has now pushed us back to the closing levels of Friday with the gold spread betting markets at $902.5 - $903.0. With the dollar remaining reasonably solid the pressure for the next move higher will have to come from some other sector at the moment.
For the latest spread trading update from Simon Denham click here.
Risk Warning: Spread betting and CFD trading carry a high level of risk to your capital and you may lose more than your initial investment. Spread betting and CFD trading may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Markets February Spread Trading' by DB, updated 29-Feb-08
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