Well probably our clients best ever day in the end. Clients sold into the rally all day and at six thirty were, frankly, all looking a bit sick. One hour later and you could almost hear the champagne corks popping across the country.
US investment banks came out with the 'startling' comment that possibly, given the global outlook, it might be prudent to take a few profits from the huge recent rally and await another opportunity to get long. The ensuing sell off was pretty brutal and left us bouncing (very neatly) off the 13945 support level. The trend is still very much to the upside but the volatility of yesterday will have shocked a few punters after a few weeks of quite calm trading.
The FTSE spread betting market is opening at around 6675-6676 off some 50 points neatly removing most of yesterdays rally. The effect of this is going to be difficult to assess in the long term as investors may not now be too keen on buying above the 6700 level if there is the fear of such a strong reaction. On the other hand dealers will be comforted that a 200 point reversal in the Dow has not seen a greater response from Europe.
With very little information out of UK corporate and no economic numbers until the US this afternoon the markets are likely to drift around the opening levels until some impetus can be found from the States. At 13.30 we have the Retail Sales numbers and at 15.00 the University of Michigan confidence figures. Both of these may give us a better indication as to how the recent financial turmoil has affected the 'man on the street'.
Northern Rock appears to have found a new suitor in the guise of Richard Branson. Given his very good public profile this could be the 'white knight' that the treasury needs to get them off the hook. Mr Branson would get a bargain basement price and the company would, possibly, be able to continue as a whole. The fact that he is in reality just another incarnation of Private Equity will probably not stand in the way of a good story.
On the FX front the Yen looks to be in almost terminal decline against the Euro although the sell off yesterday afternoon did take some of the shine off the day. At one point the cross was 200 points higher at 167.60 before slumping back to bounce off 166.00 and close a mere 100 pips up at 166.60. Today there is some two way business going on with dealers looking for some indication as to whether the sell off will focus minds on the extended Euro valuation or whether the ability to hold on in the face of a correction will build a base for a new move higher. The candle stick chart shows a possible hammer being formed at the top which may indicate a reversal is immanent.
Sterling Euro is also looking very weak with the pound clinging to the 1.43 level. Last month we managed to bounce around off the 1.4270 to 1.4740 support which will again prove to be the bulls main hope but a close below here may well indicate further losses are on the way. The current price at 1.4301-1.4304 has both bulls and bears eyeing the chances. The usd/yen has now spent five days between 116.70 and 117.70 and shows no signs this morning of having any interest in breaking out either way. At 117.30-117.32 dealers are keen to see which way we will break but seem unlikely to make a play until either one happens.
Gold lifted to new highs again yesterday above the $750 level buy found no new buyers above here and so has drifted back. We are now at the previous high of 748 which may well attract interest but in truth the actual value is getting stretched for all of the talk of $800 or $1000 dollars an ounce. Most other metals are considerable which require constant stock renewal but Gold ends up mainly in storage or jewelry. Only in times of economic crisis would extended valuation prove to be a long term target. At the moment, for all of the sub prime problems, the world economy is trundling along quite nicely.
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Spread Trading, 10 Oct 07
Amidst a raft of strange tax changes the oddest is the knee jerk reaction to an absolutely miniscule Private Equity loophole, this now means that there is no benefit whatsoever for holding onto stock for lengthy periods as the same flat rate at 18% CGT applies to a 15 minute day trader as to a 10 year investor. The Tax apparently does not come in for another 6 months so hold onto your hats as virtually the entire long term private equity holding in UK plc is bed and breakfasted. The immediate reaction would seem to be 'buy brokers' as the extra revenue over the next six months could be substantial. The case for closing husband and wife dual relief also appears odd in that if they get divorced the courts nowadays seem to assume that the other half put in equal 'effort' and is entitled to half the assets. Talk about getting hit 'coming and going'. I would guess that clever lawyers will now use the fact that if the revenue grasping arm of the government assumes no input then the divorce laws can hardly claim the opposite!
The markets are looking to open higher as the impact of lower corporation taxes (announced for the second time) and the rise in the US and Far Eastern markets impact prices. The
FTSE spread betting market is at 6640-6641 but it has to be said that we are not being run over in the rush to buy. Dealers are selling just about every index in early action with heavy shorts being set up in both the FTSE and Dow as punters try to call the top. This is always a difficult action as traders should always wait for a trigger before selling but this final push in markets does seem to have brought out the bears. With the Dow at all time highs (again) weak shorts will be in the target sights of day traders if further upward momentum is seen.
Sainsbury's Q2 results were slightly worse than expected at plus 3.1% but the stock has long since stopped worrying about boring things like business performance. Delta Two are looking at the books and whilst everyone seems sanguine of the deal progressing the risk/reward does not seem to be on the side of new buyers. At around 580p the total upside is just 20p if the deal goes through but if Delta walk away (unlikely admittedly) then the stock would plummet to the mid 400's at least. Debt values on any buyout would seem to indicate that Sainsbury’s would be borrowing at Libor plus 400bp which in an industry that only gives very small overall margins looks to be very tight.
Northern Rock now appears to have a better guarantee than any other bank on the planet. This commentator is tempted to bung his own hard earned in. The stock has now almost doubled from the low last week as buyers creep out of the woodwork. With a good quality loan book and bond holders threatening legal action if the company is 'sold out' it is likely that the company will be given time to either find a buyer at a reasonable price or to find new longer term funding lines. At 206 last night we are now mid way between a 'fair but still cheap market' value of 400p and disaster at 0p.
On the FX front dealers will be keen to see if the yen weakness can continue. While the trend is still very strong the Eur/yen is struggling to break above 165.70 and we may see some short term profit taking here "just in case". Above this level the target will be the highs of July at 168.95 so there is still quite a bit to play for. Support is at 165.40 and 164.50 and the current price is 165.63-165.66 with Financial Spreads.
The Sterling / Dollar market continues to trade up and down in an almost random fashion first one direction one day then the other the next. We failed at 2.0460 last week and are now struggling to break above 2.0420 but on the down side dealers a very swift to reject any bearish moves. Two attempts to get below 2.0300 in the last week have ended with the market closing on the day over 100 pips higher. A close below 2.0320 may bring out longer term selling but at the moment the buyers are in the driving seat. Cable is quoted at 2.0401-2.0404 up 20 this morning.
Gold is pushing at the highs again after rejecting quite fiercely the attempted sell-off yesterday afternoon. When the Americans came in at 13.30 they saw the price off $5 and proceeded to buy it up to the current levels, up $7. The market is definitely bullish but if we drift from here it will show a series of lower highs which may upset dealers. The current gold spread is 740.2-740.8 with Capital Spreads, up $2 overnight.
Spread Trading, 8 Oct 07
What a difference a day makes..24 little hours...
On Friday morning 'our Gordon' thought he was the toast of the town riding on a 6 percent opinion poll lead, in a franchise where the stakes are so loaded in Labour's favour that even a 5 point lead for the Tories would only give them a one seat majority this was as good as a gold plated endorsement. All the indications were for an election in November as his own party, fearful of the belt tightening that will be required in the coming years, were clamouring for the off. It is not easy to know why but since the demise of Tony, ‘the Sun', that organ of terror for politicians across the country, seems to have taken a dislike to the new Premier and the Poll in the NOTW.
Today looks like being one of the more boring at least to start with. The FTSE is unchanged and the Dax, S&P and Dow are just slightly off after the efforts on Friday. The week is quite light on data from the US until Thursday and Friday with the Chancellors pre budget speech to focus on tomorrow in the UK as well as a few indicators. For home audiences the important number will probably be the PPI today at 09.30 with Industrial and Manufacturing Production (no doubt someone will tell me what the difference is) to back it up.
The FTSE is opening at around 6592 which, as mentioned, is the closing level for Friday. Our punters do not seem to be too confident that current levels can be maintained if the positions that are being taken out are anything to go by. Sellers are out numbering buyers by 2 to 1 in early trading looking to take advantage of any vertigo that may be experienced at the current prices. For long term traders the question is going to be whether investors, with the world economy looking to be under growth pressure, will focus on existing returns in a falling rate environment or on the potential erosion in corporate income.
Dealers continue to be slightly negative on the pound which has proved to be something of a dodgy opinion to have of late but is paying off in early trade this morning. There is good support all the way from 2.0325-2.0345 on the short term trend lines but we are currently some way from this at 2.0382-2.0385 and still battling over the 2.04 level.
The real loser in recent trading has been the Yen as the carry trade has returned with a vengeance. The eur cross has bounced 1600 points from the lows on the 17th August and the last four weeks have been virtually one way traffic. We are now slap bang on a major resistance area between 165.20 and 165.45 with the current quote at 165.35-165.38. If we can close above 165.45 then the target for Bulls will be the highs at 168.95. For the pound, which has been suffering itself against the Euro, the cross has also been favourable but only in the past couple of weeks as the Yen woes have increased. There is very heavy resistance at 239.60 and then a volume range from there to 245.00. The momentum is definitely with the pound here but there are heavy bars across the way at these prices.
The current GBP/JPY spread Betting market is now at 238.82-238.90 up 20 this morning and feeling comfortable.
Gold is having a bit of a profit take this morning after the interesting trading ranges of last week. The sell off in the early part of last week took out the weak longs who were hold back the market and once they had been cleared away we were off to the races again. This time, though, the gold market failed to drag silver along with it as the lesser metal is still some 50 cents from the highs. This failure to pull the comparable precious metals or to hit the high reached at the end of September may weigh on further strength and this morning we are seeing the price off
some 4 bucks with the gold spread betting price currently at $737.9-738.5.
Oil is becoming ever more fragmented with dealers looking to day trade on the current ranges. There seem to be good buyers below $77 but as soon as we get near to $79 or $80 per barrel the sellers gain sway. We will probably need an event to break out of the current range with the price this morning just drifting slightly lower to $78.54-78.59. How to spread bet on Oil.
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A daily spread trading update by Simon Denham of Capital Spreads.
Spread Trading, 5 Oct 07
Today sees the dreaded Non Farm Payrolls out of the states at 13.30 so everything written in this message may be complete rubbish by 13.31!!
The FTSE seems to have found some support up in the mid 6500's but as with the 6400's dealers seem cautious about trying for a new level. September was filled with attempts to get above 6500 and we may find that October is similarly stuffed with attempts to stay over 6575. This level was something of a support back in July before the sell off. A quick look at the daily chart for the FTSE shows how bullish the move since Mid August is becoming, each fall back is less effective that the previous one and each rally is getting to new highs. To an old participant like myself the move seems a bit too good to be true with 750 points being added since the lows but there is no denying that the valuations do back up the move. Corporate profitability is not yet showing signs of stress and at somewhere in the 12's the p/e ratings are hardly extreme. (also see how to spread bet on the FTSE).
The Hang Seng managed yet another 2% move last night as the index continues to be re-rated on the Chinese market model. I suppose if you are an investor in the Shanghai index and accustomed to trading in stock with p/e's with an average of 50 when inflation is at nearly 7%, the new found ability to trade in Hong Kong on stocks valued on much lower levels then the temptation must be very strong to just pile in. Traders should note that if this valuation model exports itself outside then equities could be in for a big ride (but don't hold your breath).
Early action has the FTSE at 6570-6571 up some 25 points after the US closed virtually unchanged after another attempt above 14000 failed in very short order. Having hit the new high on Monday (lest we forget this was the first trading day of the financial year for many institutions who report sep/sep) there has been little appetite for a repeat and we could be stuck around here for a while in the absense of anything dramatic to move us either way. Traders will be eyeing the 13875 support level if we approach this as a break below here may indicate a return to the 13250 to 13875 trading range.
This has been a very quiet week for company announcements and today is no different with nothing major to get our teeth into. HSBC has given a rather bearish estimate of the prospects for the UK in the medium term saying that the pound is overvalued. If sterling comes under pressure both property and equity are at risk of a re-rating for foreign investors so there may be some pain to be borne over the next few years. Gordon Brown is almost certain to call an election sooner rather than later as he is well aware that the financial winds are probably not going to be blowing his
way for some time. (also see how to spread bet on HSBC).
FX markets are still reasonably quiet after yesterdays rate decisions. Both the ECB and the BOE made the expected choices but this still caused a few of fluctuations as Cable moved a cent higher (most of which has now been given up) and similarly with the Euro. The cable cross is sitting quite comfortably at the current prices of 2.0344-2.0347 and rather like the FTSE charts are showing a nice solid bullish trend since Mid August. Bulls will be cautious of a close below 2.0320 as this may indicate an end to the current phase but long term traders must worry about weakening rate expectations which could affect overseas attraction for the currency. The premium for holding pounds is still good and, in a global market place, a fair place to
shunt your dosh. (also see FX Spread Betting).
Gold,
Crude Oil
and Silver bounced strongly yesterday much to our clients pleasure as buying continued throughout the session. After hitting a low on the US open at $720 the yellow metal then rallied to a high of around $738 before running out of steam. The swift falls would have had the desired effect and taken out some weak longs which will give the bulls the hope of a push higher again. Silver whilst recovering from the initial sell off failed to regain the lost ground of the previous few sessions and longs will be hoping that this does not indicate a pause in the rally of recent months.
For the latest spread trading update from Simon Denham click here.
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'Spread Betting Prices' by DB, updated 12-Oct-07
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