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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, 23 Nov 07
Clients took some relief yesterday as the markets finally staged a bit of a recovery after the US led pre-thanksgiving rout.
The FTSE having sold off in very early action rebounded strongly as sellers ran out of steam. The recovery was broad and took the entire day with a steady move higher throughout the session. Yields on many stocks look very good value (assuming there are no dividend cuts) and this has obviously brought some of the value buyers into play. The UK outperformed almost every other index as investors tried to make up for the national football team's seeming inability to hit a small round object in the vague direction of goal by buying everything non retail focused.
The early call this morning is for the index to open about 10 higher around 6164-6165 but we are seeing quite a bit of profit taking from clients who held on for most of yesterdays move. The Dax is not helping much as it is now 14 off from yesterdays close meaning that, while the FTSE has gained some 100 points in the last 24 hours, the Dax has only achieved around 25. Over the past month the German index has traded rather boringly, getting into trading ranges and then over a trading session moving to another. If you get the one or two days move incorrect or are not in play that day then there has been precious little to go for.
The Dow spread betting market is also not really joining in the game with the Futures advancing a paltry 40 pips after being closed yesterday. The S&P Spread Betting is already giving up some of yesterday's 'out of hours' rally off 3 points from the UK 16.30 close at 1420.0-1420.4. At this price we are almost exactly 10% off the October (all time) highs which, if we manage to recover now, would be termed just a small correction for future chart watchers. There is solid support at 1406.0 and way below at 1330 being the medium and long term trend supports. The Dow has breached the medium term support at around 12950 and the fear must be for a move lower to year lows at 11930 and the long term support at around 11600. With fears over the US economy long term investors are trying to weigh up current value (which is undeniable) against future prospects (which are rather murkier).
There is little in the way of economic data out today to help us along and being a Friday not much corporate news either. We may find that with many in the US taking a long break that markets struggle to continue with yesterday's rally.
In FX the dollar has taken an overnight pounding and as feared in yesterday's comment the failure of the Greenback to get back above 109.15 vs the Yen has led to further deterioration. The cross is now at 107.69-107.71 off another 80 pips and we are now at a two year plus low with the charts, frankly, looking very grim. We have now dropped from 115 to the current level in just a couple of weeks without a serious rebound and my comments yesterday of 101.68 being the bear target is looking attainable. On the plus side there is a huge amount of volume support at the current level going back three or four years and there is a good support between 107.00 and 107.40 which may help out.
Sterling remains the middle fulcrum, strong against the dollar weak against everything else. Housing on the continent is getting dearer and dearer for UK investors and with rates in Euroland remaining firm the huge outflow of property money to sunnier climes may be waning. As mentioned several times the sterling yen cross is looking problematical and a break and close below 221.00 may trigger some serious unwinding of longs. Carry returns are still very favourable (especially with the Sterling 3mth Libor so expensive) but the recent falls will be causing fewer and fewer adherents to get involved.
Gold has been the big gainer (once more) over the weak dollar and any shorts are being mercilessly squeezed this morning as we rally $10 overnight to a spread of 815.1-815.6. Whether this is sustainable is difficult to say but with demand from investors outstripping supply it is not a wise man who would bet against it. The Financial Spreads clients were heavy buyers a couple of days ago on the break back above $797 and are now sitting very comfortably.
Oil is also climbing but this is probably on the weak dollar rather than any other factor. Brent Crude is now around the $95 per barrel level and Nymex is pushing at $97 as punters are once again gunning for $100. On the other hand there is probably a huge weight of producer selling at this level as long term it would seem an unsustainable price.
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Spread Trading, 22 Nov 07
Hopes for some sort of support yesterday were cruelly dashed as the US spent the eve before thanksgiving selling out of anything remotely ‘dodgy’ on their books. And this highlights something of the problem that the markets are currently facing. In the absence of doing anything else punters are just fighting shy of buying, or at least holding onto, whole swathes of the equity sectors. This is currently causing the general trend to be negative and press and commentators are focusing on the negative stories (naturally) which is giving a rather lopsided view of the current economic situation.
The FTSE gave up all of Tuesday’s rally yesterday, and some, and this morning is coming in just off the closing levels at up around 10 at 6092-6093. Actually this isn’t too bad, as of 9pm yesterday we were quoting the index fully 30 points lower than this on a 200+ point drop in the Dow. Overnight the Nikkei, Hang Seng and ASX have decided not to join in, for one day at least, the fall out. However it must be said that their stability is after a truly awful performance on Tuesday. As mentioned yesterday if we close below 6115 the technical’s would seem to indicate a change from bullish to neutral so there may be a concerted push to get us back above here. There are also crucial support levels at between 6060 and 6075 and the long term bullish trend line currently at around 5960. One of the worrying things is that previous fall outs over the past few years have been short sharp correction affairs, soon over and soon forgotten. This time the move just seems to go on and on. The short sharp corrections are the rallies not the falls.
As mentioned, today is a holiday in the States and in time honoured fashion this generally means that tomorrow is quite dead as well. With any luck the markets will take this opportunity to pause for breath and take stock of valuation levels etc. I know the Capital Spreads dealing teams are hoping for a small oasis of peace and quiet in the never ending volatility of the past few months. One of the problems is that, occasionally, when the liquidity of the US goes away the markets go absolutely bananas and move in sharp shifts as traders hunt for support and resistance levels and their associated stops. This is often seen in the FX markets so punters will be watching for evidence in early action.
There is not much on the corporate news front this morning with just Halfords and Mothercare giving interims. Investors will be hoping for trading updates which may give further information on the current state of the high street. Mothercare gyrated wildly yesterday with a 10% plus trading range as perhaps there were whispers of a worse than expected statement due today.
On the Forex spread betting front today’s early action is quite muted with levels pretty much the same as last night. Dealers seem to be taking a bit of a breather this morning. I’d speculate that this state of affairs might continue for at least a little while into the morning and afternoon sessions.
The dollar is off the lows versus the Yen but some will be worrying about its inability to get back above the 109.15 support level (it failed there in the early hours this morning as well). The price is currently 108.75-108.77. It has to be said that the technical’s (and, lets be honest, the fundamental’s as well) do not bode well for the greenback. The obvious target is 101.65, the multi year low from Jan 2005. However there is a long way to go before (if ever) then. The US policy appears to be trade correction through currency depreciation, a time honoured strategy, but they risk importing a serious inflation problem. Of course with virtually all world commodities priced in the dollar this is likely to cause some serious continued volatility in the commodities sectors.
Cable is still hovering around the 2.06 level and seems for the moment to have reached a stable level. Depending on who you talk to the future is very murky indeed. Half of commentators say that the fundamental value for the pound should be around 1.7500. God knows where this would be vs the Euro and Yen. The other half are looking for a continued rally higher up to the 2.20 level. For the moment we can say that the short term trend is gently drifting upwards and we can see support at 2.0590 and resistance at 2.0695 and 2.0775. On the downside the 2.0450 level seems to be holding firm and we will need to close under here to get the bulls worried.
Gold has bounced up again from the $797 / $793 support / resistance levels after seeming to take a look here through much of yesterday. Aside from the equity markets the traders in other financials, commodities and FX, seemed less enthused with getting into (or out of) positions and this led to quite a boring afternoon and evening session. Today we are back above $800 again with the Gold spread at $802.6-$803.1 the longs will be hoping that the recent price action will have built a support underneath the market.
In Oil, after the early attempts to get over the $99 dollar level, dealers eventually seemed to run out of puff and we traded down to the $97 level where we remain this morning (January Nymex). Brent Crude is open today and is expected to show only sporadic interest given a complete lack of news and no impetus from it’s closed US cousin. The Crude spread is now at $95.22-95.27 up 30 cents or so.
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Spread Trading, 21 Nov 07
So the FTSE was off 170 on Monday up 100 on Tuesday and off 100 this morning. It is nice to live in such secure and reasoned times.
At the close last night it all looked so much nicer with the US rejecting another attempt to go lower and the FTSE having already settled, as mentioned, 100 up on the session. This time the Far East was having none of it and the Hang Seng slumped over 1000 and the Nikkei over 400 as fears over credit and growth continued to swirl. The weakness in the dollar is now impacting revenue across the globe as margins get squeezed.
The FTSE is slipping to around the 6125 level but the indices have been struggling to force markets lower than this over the past few days. That will probably tempt in some short term buyers. A close below 6115 would trigger quite a few sell orders as this is the level in May 2006 which was the high watermark for that bull run. Every time we have threatened this level over the last year it has either seen good support or seen a further sharp sell off.
We might be staring at a $100 a barrel but in euro terms, Crude Oil, is actually around 40% cheaper on a three year basis (still expensive but not quite so eye-watering).
Daily Mail and Trust have reported numbers at the top end of expectations and been rewarded with a 27p sell off! This is doubly surprising as the trading statement was also good. So perhaps there were some out there expecting even more.
On the FX markets the dollar, as already mentioned, is having a tough time of it with the USD / YEN hitting (almost exactly) the two year low at 108.79 in early action but has now achieved a sort of crabbing move higher to 109.07-109.09. If punters are expecting the support to hold they will be hoping for a better reaction through the day. Another attempt on this major support level may trigger substantial position liquidation.
Sterling has performed quite poorly overnight and is even giving up some of the gains against the dollar. This is showing up in the GBP / YEN cross rate which is over 200 pips lower this morning and like the dollar cross is threatening the really important support levels this time around 224.00. The Yen has been showing strong signs against all the majors in recent times as money pours out of the western blocks across to the Far Eastern currencies. Although the carry trade remains out there, it is difficult to see anyone with even a modicum of risk control trying to put on positions just at the moment.
Gold broke above the $797 resistance level in late session trade last night as the dollar weakened having failed twice in the normal session trading. There appears to be little follow through just yet this morning other than a bit of a short squeeze in very early action and we are now at $802.1-$802.6, still five bucks above yesterday's close but also five bucks below the early morning high. Clients are still slightly long, the break out last night seems to have kept buyers keen to buy more today. Traders will watch to see whether the break back into the 800's is just a short term move but the momentum seems to be back with the gold bugs especially as the USD / JPY cross weakens.
Oil just had one direction yesterday, Up. The price for Jan Brent rallied some 330 cents in the trading session and eyeing the charts we can see that there was very little evidence of any selling pressure at all with only small pull backs during the day and these only after sharp shifts higher. This shows evidence of a sort of rolling rout of short sellers as bulls ground the price unerringly higher through stops and we are now at all time highs of $95.65 - 95.70 for Brent and $98.36 - $98.42 for Nymex. Just a short push from $100. We can expect the next dollar fifty to be quite a battle as producers, unable to believe their luck, lock in guaranteed super-profits but with winter round the corner and OPEC not increasing production (or only marginally doing so). I’d expect OPEC to keep some production back in anticipation of a fierce shift higher if we go above the hundred buck mark.
Spread Trading, 20 Nov 07
This morning's move higher seems to be rather more firmly based than the rather odd initial move yesterday. As readers of this comment will remember Capital Spreads clients were buying on the open yesterday and the market eventually peaked up 40 pips (a respectable day). The market then lost faith and dumped 170 on the back of renewed Financial woes.
The FTSE 100 has bounced neatly off the September lows of 6115 and the early spread is 6162-6163, up 40 on the close of yesterday afternoon. The catalyst for the move higher has been some better than expected post close corporate numbers from the States and a bit of a bounce in the Far East with the Nikkei ignoring yesterday’s weakness and adding a 1% rally to Monday's close. The US markets have taken heart as well, the Dow is now trading 90 points up from last night at 13054-13058 and the S&P up 11 at 1445.0.
There is not a great deal of corporate information flow this morning but ICAP are likely to reiterate the huge increase in trading volume over the past year as the financial markets have continued to gyrate wildly. In general big moves mean more money for brokers/exchanges and the last year has seen virtually every asset class experience massive volatility. The stock was recently downgraded by Credit Suisse to neutral but mainly because it had performed so well in recent months that they felt profit taking was a wise course. The stock has fallen 10% since this brokers note but this still leaves long term investors on the right side of the angels.
Scottish and Newcastle (who are fighting off a Carlserg/Heineken bid) also give a trading update and no doubt this will give the board a chance to renew the bun fight going on between the companies. The S&N top management seem to be taking the takeover approach as a personal insult and some of the language being used may be regretted in the future. With SAB picking up Grolsh yesterday speculation has risen that this will have removed them from the potential list of competitors for S&N so the stock has now slid below the bid price. This is a classic signal that the city is likely to plump for the current offer. Unless a white knight charges over the horizon it looks like sayonara to yet another FTSE 100 company.
The FX markets actually did very little in the end yesterday. After the initial drop in the pound, today’s early morning action has reversed any loss. GBP/JPY is finding any level below 225 very difficult to hold onto and we seem to be forming a falling wedge pattern on the hourlys. A break above 226.60 could indicate further strength here but, of course, the pound has seen some serious gyrations in recent days/weeks/months and punters would be wise to keep their Stop Losses close.
Cable has also managed to push back above 2.0500 this morning up to 2.0545-2.0548. There is some resistance at 2.0550 which, if breached, may tempt further buying. It’s possible there would be more buying above 2.0620. The dollar has had a nice little bounce recently which has taken out many of the weak shorts so traders should not be surprised if we now recommence the weak dollar scenario. The real loser in this morning’s session has been the Yen but in reality we can just say that we are reversing yesterdays trading range.
Almost unbelievably, Gold had a quiet day yesterday trading in a 'mere' $16 range. We bounced off the $775 level and closed just below the $780 support which should have been quite a negative indicator. But the weakness in the dollar overnight has given the yellow metal a bit of a boost and we are now up 6 bucks at $786.0-786.5 and frankly looking quite solid.
In truth today's opening looks just a blue as yesterday's were red. Bottom picking is likely to be the order of the day.
Spread Trading, 19 Nov 07
Reading the gloom of the Sunday newspapers I was half expecting a 'rending of the temple veil' event this morning but (as is normal) if all the indicators are pointing one way the markets go in the other!
The FTSE spread betting market opened flat but is trading some 20 points higher and our Financial Spreads clients are happily buying from the bell. With hopes of rate cuts on the horizon investors seem to be looking for yield rather than trying to ponder the overall economy. If ten thousand highly paid economists cannot forecast events then traders may as well just react to incidents as they happen.
At 6310-6311 the FTSE 100 is hiding some curious dislocations with banking stocks looking the cheapest for years whilst miners seem to be indicating that commodity prices will just go higher and higher ad-nauseam. Oddly enough copper hit an eight month low overnight in the Far East which seems to fly in the face of this conventional wisdom, and this is in a product that actually gets used up as it is produced.
The Dow bounced off 13050 for the second day in a row and the index looks to be building support between 12970 and this price. Unfortunately overall the price action is showing increasing evidence of a step lower sequence with each rally failing below the highs of the last. Unfortunately, again, the moves are now getting so large that it is very dangerous even to trade on the most conservative of assumptions as a daily reversal can easily be in the region of 300 points. Wise punters remain on the sidelines unless an obvious opportunity presents itself. Of course all the excitement of the current volatility means that 'wise punters' are very much in a minority. Volumes across the globe are increasing almost on a daily basis as was seen by the LSE's 72% increase in their last trading update.
Barratts is up on not great numbers but better than was feared and the board has restated their preliminary trade expectations. The stock is some 15p higher in early action but this has merely recovered about half of last weeks fall. Investors remain very wary of building stocks (and any stock with connections to it).
Hamworthy has taken a tumble after increasing turnover by 30% but only reporting a 15% hike in profits. Northern Rock (surprise surprise) failed to find a bidder at the current levels as all eight saw an opportunity to pick up a profitable operation for virtually nothing. It looks like the government is going to be forced to hold onto the company for the foreseeable future but the outlook for investors continues to be bleak. Personal opinion is that, if Citygroup and RBS are willing between themselves to put up almost £25bn for the company (but only if they own it) then the argument about the credit crunch being the current problem is unsustainable. It is now looking more and more as if the major bank lenders are happy to see a competitor be wiped out thus having the benefit of both increasing the margins on new mortgages AND increasing their own slice of the property lending market. And all without actually doing anything!
On the FX front the pound continues to look weak but it has been down here before on several occasions in the last few trading sessions. Forex markets continue to be very volatile as traders try to get a handle on the dollar. Whilst the general consensus is for dollar weakness the currency shows just enough tendency to make violent corrections to keep every one honest. This morning, as mentioned, sterling is the whipping boy dropping below 140 vs the euro once more and giving up much of Friday's hard won gains against the yen. With the interest rate crutch for the pound looking rather weaker the fear is that the current slump could continue into the middle term. Against the yen, the support in the low 220's is seen as crucial. Although we are some way from the low 220s at the moment, the extreme moves of recent days have shown that 1000 and 1500 pip move in a few trading sessions are become an increasingly common factor.
The Euro is getting ever more expensive and uncompetitive. Parts of the Eurozone are finding the international market place an ever darker place to be. A widget made in Frankfurt is 15% more expensive, in dollar terms, than at the start of the year and more than 40% more expensive than 5 years ago. This is squeezing margins ever tighter and will be causing high level political friction as jobs are exported to cheaper areas of the globe.
Gold has stabilised in the $780's and dealers must now decide whether this was just a long awaited correction in the rally to $1000 or if there is more to come. Punters have (for once) not been buying into the latest weakness and while they do remain slightly long the net exposure on our books is the lowest it has been for many months. It is difficult to see a trigger for movement from here. However the support at $783 is seen as a potential buy/sell opportunity with $797 on the upside is resistance. The current spread is $787.5-$788.0.
Spread Trading, 16 Nov 07
We're calling the FTSE Spread around 30 points lower this morning to around the 6330 level following another bad day on Wall Street and across Asian. These are testing times for the world indices. News that some of the banks may have their debt ratings cut will probably hit the sector today, however clients seem to think the opposite having generally bought on their recent weakness. There have also been rumours that another bank has approached our "lender of last resort" for emergency funding. Barclay's shares have bounced healthily from their multi-year low of 441p where we saw a great deal of buying from clients. They are firmly back above £5 and could be active today.
We also anticipate the Northern Rock spread betting market being quite active today as we expect around 8 different proposals from potential bidders or partners, but whether any of these be enough to pay investors is still in doubt.
The past week started well as investors picked up what looked like cheap bank stocks on Tuesday, but Wednesday and Thursday saw volatile trading sessions and we are almost back to November's low around 6265.
Rio was sold off in Australia as copper prices fell overnight. Claims by the Wall Street Journal that they could make a counter-bid for BHP Billiton could attract some profit takers.
The currency markets have been experiencing seriously sharp moves, mainly in the favour of the dollar. Many clients saw Monday as an opportunity to buy back the precious metal after it dipped below the $800 mark. However, after a midweek rally, the stronger dollar saw to gold tumbling back below the $800 level. A top is fully in place now and with previous support indicated at around $770 if we get down to that level again then there some support might stop the selling.
In the forex spread betting market the £/$ the 2.0500 level has offered little support. Clearly the dollar bulls have paused for a rethink today after a 3.5% drop in cable. On the weekly chart a bit of a "shooting star" candlestick has formed which is usually an indication that the up trend has reached a top and certainly so far, this seems to be the case. Clients seem to have created a bit of a hedge now with the majority being buyers of gold (therefore bearish of the dollar), but short cable (so bullish of the dollar)! It just goes to show how uncertain everybody is during yet another turbulent week for all financial markets.
The Crude Oil spread betting market has had a relatively quiet week by all standards and with an overall decline since Monday, clients have seen this as a buying opportunity in the hope that the elusive £100 a barrel mark will be hit shortly.
Spread Trading, 15 Nov 07
Yet again a late sell off in the US took the shine off things but the UK seems to have ignored the move and is opening unchanged this morning. Mervyn 'Phophet of Doom' King must be slightly miffed that his dire warning of a potential substantial fall in the world equity markets has been completely ignored...by everyone. Whenever central bankers make an over market comment every one always remembers Greenspan’s 'irrational exuberance' speech of the nineties. What is less well known is that after the initial drop on his comment the markets rallied for thousands of points to the upside and have never even looked remotely like returning to where they were when he made the statement.
This morning sees the FTSE spread being called unchanged at 6434-6435 having been quoted as low as 6400 last night as the US market fell out of bed in the last hour of trading. Punters seem confident and are continuing to buy both European and US stocks and indices as the 'Credit Crunch fall out' rather conspicuously, fails to arrive. Of course the effects of weakened banks will take time to filter through to the general economy but enough of the big players seem confident in buying to make a difference. If we go to the upside the obvious first resistance level is 6460 where we failed yesterday. The entire area between 6450 and 6470 has proved over the past year to be a significant support and resistance level.
SAB has come in with very good numbers but has warned of 'a more challenging environment' for the coming year (corporate speak for do not expect this performance next time). The shares have reacted by dropping 50p on the open to around 1325p as they were pretty fully valued already.
British Land has also come in on the weak side after reporting no upside on net asset values to the end of September. The stock has now fallen some 45% from the start of the year which will have many of the big investors twitching at the AGM. In a world of rising property valuations this stock is now virtually unchanged since the end of 2004.
On the currency front the pound is fighting another rearguard action having routed the enemy in early action yesterday only to be ambushed by the BOE announcing possible rate cuts in 2008. The exact opposite to what was expected. Obviously the bank is more worried about growth than about inflation (about time). The unexpected fall in industrial production last month may have come as a wake up call. With the financial sector not expected to do as well in coming quarters the economy is going to need all the help it can get. Cable has now traded a 300 pips range four times in the last four days which is unusual even for the pound. This type of extreme volatility is often seen at the turn of market moves so many technical traders will be looking to set up shorts if support levels give way. The 2.0500 support mentioned over the last few days has held once more and we are now at 2.0575-2.0578 (having already traded a hundred point range to no effect this morning). Resistance is up at 2.0620, 2.0645 and 2.0730 to 2.0750 but if we sell off all eyes will be focused on the 2.05 level.
The dollar has recovered somewhat versus the yen and the 109 support has held well. The bounce though seems to be less that enthusiastic having stalled in the l11's. Punters will be watching to see if we are having one of the famed 'dead cat bounces' and whether after the initial buying fizzles out we return to bashing the buck.
The yen looks poised for further gains with dealers not able to regain support trading ranges in the last few days, but in truth, this has been the case many times in the last few months and every time somehow the momentum is lost.
Gold Spread Betting has rallied strongly from the sub $800 prices and is now sitting comfortably at $812.5-813.0. We are in something of a no-mans land here. In the last week or so the market hasn’t stopped here. It’s just been a point where the markets have been moving somewhere else (up or down). There is some resistance at $814 per barrel and interest from Financial Spreads clients around the $805 level. However, for once, the market appears rather subdued.
Oil repaid my rather worried comments of yesterday by rallying 250 pips! After Tuesdays dovish comments from OPEC out came the velvet coated Iron Fist yesterday with comments indicating that there will be no increase in production and a combative statement pushing some of the oil problems onto the heads of the US (not all that unreasonable). Today the Crude Oil market has dipped half a buck to $90.66-90.71 (December Brent). Traders will be eyeing $90.30 support for signs of strength but, like Gold, the markets are reasonably quiet.
Spread Trading, 14 Nov 07
A huge day with a lot of upside has put a smile back on the faces of the Capital Spreads clients as they recorded probably their best ever one day performance. In the main, most punters (as mentioned yesterday) were taking the opportunity of the recent falls to get in on the long side and held onto their bets throughout the day. As I write clients remain long as we await the opening of the UK markets.
We are calling the FTSE spread up some 65 points this morning at 6426-6427 and investors are humming at their PCs as the feeling of well-being seems to be suddenly in the air. The results from Goldman (who else) and BOA gave the push that was needed to the markets. My comment yesterday about how the entire world seemed to have been caught up in the Sub Prime debacle has been answered by the good folk round Goldman Sachs way who have rather neatly side-stepped the whole problem. Not for nothing are they generally considered to be the smartest and highest paid workforce on the planet!
The extreme (upwards) moves in the indices spread betting markets is making rational decision taking very difficult. The 300pt increase by the Dow has reversed much of the previous four days of pain and we can now see Monday’s consolidation as potentially the base for the market.
Sainsbury have come in with some nice numbers but the board has reiterated their stance over their property portfolio which will give no joy to Delta 2 or Mr Tchenguiz. The big rally of recent days has not helped the Sainsbury share price. In reality, unless there is a renewed bid (a possibility but probably not for at least six months), the 'fair value' of the stock is still well below current levels.
On the foreign currency front the pound is gamely trying to recoup some of the recent losses and this is being aided by the renewal of the dollar and yen weakness. Against the Yen the currency has had a 7% fall followed by a 3% rally in the last three days which must make finance directors for import/export companies very nervous indeed. If most companies work on 5-15% profit margins then movements of this nature make the potential profit/loss variations of a venture between the ink drying on the contract and getting the FX financing in place quite dramatic.
So the pound has bounced off the 2.05 support level mentioned yesterday and is now back above 2.08 at 2.0803-2.0806. $2.0815 is the last resistance level before 2.0900 and then up to the highs again so we can expect some selling at these levels from longs breathing a sigh of relief after the drops of Friday and Monday. There is small support at 2.0775 and 2.0745 but if we break below here we may get another of those cascade effects as dealers lose faith and pull out.
Versus the Euro the pound has recovered a bit and is now at 1.4190-1.4193 but again here we are seeing some selling as our punters look for further pound weakness. Today we have the BOE inflation report which is unlikely to make happy reading especially if you focus on the staple products (food and energy). This could give a boost to sterling. If the report is quite bearish it will remove any possibility of near term rate cuts and may raise the spectre of rate hikes!
Gold has bounced back for the second time in two days from the sub 800 level and bulls will be taking some comfort from the resilience of the support at 794 and 797. Trading ranges on Tuesday and this morning have shown some signs of perhaps tightening up a bit to allow for a little consolidation before the next move. As regular readers know, I ‘might’ personally think that Gold is one of the more useless products in the world. However at the moment the general momentum is still very much to the upside and would remain so even if we fell another 120 bucks! Current support at the previously mentioned 794 and 797 levels seems to be holding but below here we have major trendline support at around 785. To the upside there is little to mention other than minor resistance at 808 and then up at 823 and 829 before the highs come into play at 844. The hourly charts are showing the possibility of a head and shoulders formation which may have some bulls a bit worried but other than this the buyers are still in the driving seat.
Brent December Crude Oil has now dropped 6 dollars from the highs of last week.
The Nymex December market has dropped $7. The effect of OPEC dovishness has started to have an effect. Whilst some continue to harp on about the economic growth of the emerging nations as a catalyst for higher prices this is in reality a story for the future not for the current environment. The US also appears to be being more cautious in its pronouncements over Iran which may reduce the political risk. The current price is 91.55-91.60 as we bounce a bit from yesterdays $3 fall and the probability is that the recent drop is just a correction but the elusive $100 barrel is still…elusive…Traders will be worrying that there is a long way to fall if the market turns. In can imagine that there is a good deal of $75 a barrel 'put' buying going on at the moment.
Spread Trading, 13 Nov 07
Late last night it was still looking a bit pear shaped but the overnight move in the US markets and rebound from the lows in the Far East have put a bit of sparkle into proceedings this morning.
The call on the FTSE spread betting market is for 20 points off but at the close last night we were staring down the barrel of a 60 point reversal. Oddly enough the closing quote at 21.00 yesterday was exactly the same as the opening one at 07.00 in the morning which has formed something of a possible candlestick 'gravestone doji' which some consider a signal of a trend reversal. There is something of a battle going on at these levels with 6300 being the level of the close of business on the first trading day of 2007. For all of the fire and brimestone of the last ten and a half months it has all added up to a plate of beans. Admittedly in between this number the advance of the 'physical' over the merely 'financial' has been the focus of the year to date. Mining and Manufacturing has done well and banking? As Sven Goran Erikson used to say, “err…not so good”. Metals are bouncing from the lows last night in the states which will help the miners this morning and the renewed focus on value may well bring in further buyers. Yields on many front line stocks look tempting but the problem will be whether these companies can sustain the dividend levels without impacting growth.
What has been the most noticeable aspect of the current financial turmoil is how avoidable it all seems. It has come as something of an eye-opener to me how all the major players appear to have been hit by the same problem. There must be some big banks who did not get into the sub prime sector but I have yet to hear of them. What appears so strange is that when you stand back and look at the lending practices that led to this crisis, you have to ask would any of the participants (if they were personally making the actual mortgage commitments) have lent the money on such lousy credit ratings.
Vodafone have outdone expectations with a plus £4.56bn pre tax on forecasts of £4.35bn. The stock is likely to bolster markets unless the dreaded ‘buy the rumour sell the fact’ comes into play. Mr Sarin can be forgiven for preening himself a bit given the flak he has endured of the past few years. The stock is up some 27% this year and the increases in the dividend will cheer investors.
Sainsbury come with a trading statement tomorrow and rumours abound that Robert Tchenguiz is pushing to get them to reappraise the REIT route. The board may consider that this is an attempt to have your cake and eat it. A sort of 'heads' I win on a takeover but (if this fails) then 'tails' I win on a property asset sale. The fact is that Sainsbury's margins are wafer thin and if they were forced to 'rent' the freehold off a property vehicle then there would be no fat left for the bad times. The company is still trading on some 23 times next years’ earnings which is far in advance of any possible actual trading improvement (especially with food inflation now rearing its head).
The FX spread betting markets were the big movers yesterday and they look like the place to be today. At one point Sterling hit 2.0520 yesterday vs the dollar, fully 6 1/2 cents off the highs of Friday (the biggest two day move in over 4 years). Today seems little different except in the opposite direction with Cable now bouncing up to 2.0666-2.0669 in morning action and punters are feeling quite happy having gone home long of the pound. There is actually some solid support around the 2.05 level which no doubt helped to stop the rot yesterday. Having said that above 2.0650 there is little to go for aside from a return up to 2.11. The markets moved higher and lower so quickly that there was no volume support/resistance building. If the pound is to remain at these elevated levels then it must spend a bit of time consolidating.
Of course against the Euro and Yen the story is not so nice after the massive support at 1.4240 failed yesterday. Bears are looking at this cross and will be licking their lips if there is no return to the trading range of past three month. Aside for interest rates the pound has not much to say for itself with an economy with much of the same structural problems as the dollar but with a much higher tax burden as well. The cost of Holidaying in Euroland is going to come as a nasty surprise come next summer.
Gold had it worst day since 13 Jun 2006 when it dropped over $40. Oddly enough that day pretty much saw the best buying opportunity for the past few years. Capital Spreads clients are trying to buy into the fall but were hurt on an almost continuous basis yesterday. As my comment suggested yesterday the early buyers were trampled when the big traders came in and sought out to batter the easy longs. We may well see some volatile activity as spooked traders make quick buy/sell decisions. At the moment the gold spread betting market is sitting at $805.0-805.5 up a buck or so from our closing level yesterday. However at one point yesterday it did drop 10 dollars lower in very late US action. There appears to be good support between $793 and $797 which will bolster the bulls. On the other hand the speed of the reversal will probably make buyers nervous if we go much higher.
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Spread Trading, 12 Nov 07
It was a bloodbath on Friday. Taking its lead from that the Far East put in one of the worst days of the year. It doesn’t bode well for a good opening this morning. Virtually every asset under the sun is being called heavily lower (even Gold!).
The FTSE is being called some 30 lower at 6274-6275 and some might consider this a result, if it happens, given the near 400 point fall in the Nikkei and the 1200 in the Hang Seng (both down over 3%). The Dow compounded a dismal week with a 200 plus drop on Friday and is trading a further 50 lower this morning. Alarmist headlines as to the possible dire situation that some banks might be in is not adding any positive vibes. Looking at the appalling share price moves of the big four in the UK over the past month alone, investors might be forgiven for thinking that Armageddon had happened and nobody noticed.
Barclays and RBS are off more than 25% since the end of September and both have lost over 40% from the highs in the giddy days of February. ABN does not look like such a prize after all. Whilst nobody cries over bank woes it would be advisable to remember that the continued prosperity of the entire Global economy depends on stability in the banking sector. Lower bank capital values mean lower lending capability, a fact which has hampered Japan for some 18 years (lest we forget).
Friday started with such good prospects that the eventual demise was harder than normal to take. Financial Spreads clients went into the day long and were rewarded with an initial rally up to 6440 but weak data and continued rumours over Barclays dragged us lower. Weekend press has indicated that Barcalys will be making some sort of interim audit report to assure investors that there is nothing untoward in the books. However the revelation that the bank has possibly been lending to Zimbabwean cronies of Mugabe to buy confiscated farm land is likely to lead to some raised eyebrows. The bank survived the long relationship with South Africa in the seventies and eighties due to the tacit approval of the government of the day but it is difficult to see the Labour Party coming to their aid if these stories prove to be true.
Overnight trade saw some serious moves in the currency markets as the Yen has made a bid for power. Sterling whilst still strong versus the dollar is now flirting with the very serious support levels at 228.40 having managed to lose over 1000 pips in the last three trading sessions.
Over the past months the weakness in the dollar has all been European focused as the cross versus the Yen has stuck around 114 to 116. However trade in the latter half of last week certainly put paid to that as the Yen smashed through a series of support levels. It continues to drop lower, the current price forex spread sits at 110.22-110.24, the lowest since May last year and 109.00 is looming large. If the lines are breached then the bears will be hunting in even greater numbers looking for the 105.50 support and below here 102.00. The carry trades which had been holding on quite comfortably last Monday are now looking truly disastrous.
Oddly enough with the dollar finally weakening against the Yen you would have imagined that Gold would be going for the moon as far eastern investors watch the price (in their local currency) drift lower.
But the opposite is the case with the gold spread betting market opening $14 lower this morning at 818.0-818.5. Punters will be hoping that the spike of the last two and a half months is not a repeat of early 2006 move which swiftly resulted in a $170 fall down to $550. A similar drop would have us down to 670 or there abouts. That would not actually break the long term positive trend line (such has been the speed of the rally) so those who go on about the long term direction of the gold market may be warned that the potential for seemingly massive falls whilst still remaining long term positive is very much alive. In reality the market does need a bit of a pull back if only to get rid of some of the short term speculative longs who are trying to get on the move. After the initial drop we are seeing strong buying from punters who see this as the fall out that they need to get long. This is likely to be the same across Europe with smaller traders getting in on any drop so our clients should be wary of the possibility of a renewed bull hunt later on this morning as the bigger traders come in and try to force us lower once more.
Oil has also dropped over the week end (although people may see this as good news). The Saudi's announced the possibility of increased production. The cold weather in Northern Europe this weekend will have reminded many that winter may not be as benign as last year. The Brent (December) spread betting market is at $92.25-$92.30. A dollar lower than Friday but still, lets be honest, still bl**dy high. Filling my wife's 4x4 gas guzzler will be a painful experience. Have we peaked or is this just a pause in the climb to the stars? Inventories are not exactly robust but on the other hand we are not looking for the last drop either so this time next year we may be seeing much lower prices if world growth does slow a touch. In the meantime, the El Dorado of $100 is still there so we can expect renewed attempts in the coming trading sessions. If we take too long at these levels though the probability of a high being formed gets more likely so punters are (as always) reminded to keep their stop losses tight in the current trading environment.
For the latest spread trading update from Simon Denham click here.
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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.
'Spread Betting Broker' by DB, updated 23-Nov-07
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