UK Indices Spread Trading
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Indices Spread Trading
A regular Indices spread trading update by Simon Denham of Capital Spreads. For the latest Indices spread trading update, click here.
Indices Spread Betting, 1 Feb 08
Well, the markets are still acting like headless chickens with yesterday’s activity almost taking the prize for the most ridiculous to date. Early action saw the FTSE 100 fall 150 points only for the market to turn round on absolutely nothing at all and end the day 40 higher. As the Europeans went to home, the Americans picked up the baton and pushed prices even higher only for Google to give a disappointing trading announcement which caused the Dow futures to fall 180 points in just 8 minutes! Not a day for the faint hearted.
The FTSE 100 Spread is called 30 up this morning at 5910-5911 which is just below a bit of a resistance level at 5920. For all of the bad news around it is wise to remember that the UK is (apparently) still growing. We should only really get worried when the employment numbers start to look grim and just at the moment the opposite is still the case. On this note, this afternoon sees the mother of all economic data, the Non Farm Payroll numbers out of the States. This figure has been the most watched number in the economic calendar for a very long time and still just about retains top spot. We are expecting a number of plus 70K and this is in an economy which is rumoured to already be in recession.
We can expect a very quiet morning today as dealers flatten out positions in preparation for the chaos that always ensues a major data release. However it is always prudent to remember that in bull markets even bad news somehow gets a rosy reading whereas in bear phases the opposite is generally the case.
FX markets are absolutely comatose at the moment and we are trading and re-trading over the same ranges. The pound is pretty much where it has been for the last three days (around $1.9900) with resistance at around $1.9940 to $1.9950 and support at $1.9835 to $1.9850.
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Indices Spread Betting, 31 Jan 08
Last night saw the markets taking a rather exciting turn with the Dow rallying over 200 points on the Fed announcement at 19.15, only for traders to give it all up, and some, in the last 40 minutes of action. The US indices all closed in the red but the effect on the Europeans will be minimal this morning as the final prints from the Dow, S&P and Nasdaq were only a whisker away from the levels that prevailed at the 4.30 Europe close.
There will be a certain sense of disappointment that after yet another cut we did not have the market reaction to the dramatic slashing of last Tuesday week and this may cause some early weakness.
The FTSE is being called some 15 points lower with the FTSE spread around 5820-5821. In truth we are not seeing any real selling in pre-market action and (in fact) we are getting quite a few nibbles from punters looking for some bullish reaction to last nights activity. At one point in the evening trading as the Dow hit 200 points higher we were calling the FTSE to open at over 5900 today so traders know that there is a target to go for.
Shell’s numbers were a nice start the day and we can expect a bit of a move in the stock in early trade. Having said that banking stocks are likely to remain weak after yet further write downs in Sub Prime holdings (this time from the Europeans).
Indices Spread Betting, 30 Jan 08
Today the markets are looking a tad weak after the Far East refused to join in the US rally and sold off substantially in a nervous session. Having fallen 80 points on Monday, the FTSE rallied a hundred points yesterday. It is now trading 50 points down today with a FTSE 100 spread around 5830-5831.
The volatility of recent months shows no signs of abating but a few analysts are peeping over the shell holes of no-man’s land and encouraging some of the foot soldiers to ‘go over the top’. Valuations do look very tempting at the moment and those lucky few with cash to place are being advised to place a little of it at current prices. Interest rates are unlikely to go higher so dividend returns will become more and more important. Companies with solid dividend cover (2 to 3 times) are probably the best bet at the moment for long term investments but for the short term players the markets continue to look too dangerous to get over exposed.
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Indices Spread Betting, 29 Jan 08
Yesterday’s price action really took the biscuit with the FTSE originally expected to come in some 120 points lower actually opening just 30 off then proceeding to fall throughout the day to a low of 170 down. With just 90 minutes of trading left dealers finally decided that enough was enough and a big closing rally took us over 120 points off the lows before expiring breathlessly just 80 off on the day.
This type of volatility creates its own fear of participation as even a small toe dipped into the water can turn into a hefty liability in a surprisingly short period of time.
With the American and Far East markets all back on the front foot (again) the opening quote for the FTSE is once more wildly at odds with yesterdays close. The Spread Betting companies are seeing an opening rally of 45 points with a FTSE 100 spread at around 5832-5833. Normally the opening calls are pretty accurate as pre-market stock levels can be estimated with reasonable precision. However yesterday’s 100 point miscalculation probably cost some bookies dear as punters will often bet against any dramatic moves. They will have bought in the pre-market action.
For the FTSE 100, a close above 5815 (and preferably above 5920) will give many technical traders the confidence to get involved once more. Nevertheless the temptation to just sit out the current crazy conditions may keep the big investors on the side lines.
Indices Spread Betting, 28 Jan 08
The Far East markets have managed to neatly reverse Friday’s huge rally with almost identical falls this morning as the Nikkei Spread comes in over 500 lower and the Hang Seng another, astounding, plus 1000 point day, only this time to the down side.
Recession based fears in Japan seem to have been the trigger this time as Tokyo stock volatility hits a ten year high.
This morning the FTSE Spread is being called 115 points lower at around 5750 as the Dax futures are trading 190 off in pre-market action. As I have said many times in the past few months it is a brave man who gets involved in the current environment. Keep your tin hat on and your head down. There is much being written about the unheard of value in the markets at the moment with many stocks at rock bottom prices but this all rather depends on retention of last years profits and dividends. If a few companies break ranks and cut the divvy yield then many could follow citing other company precedents.
Indices Spread Betting, 25 Jan 08
Two huge pieces of news will dominate dealers minds today. The first being the incredible €5 billion loss created and hidden away by Jerome Kerviel and the second the $150 Billion stimulus package voted in by the US Senate.
Taken in order, the more you consider the extent of the fraud the more questions are raised. If we assume that the trader lost 10% of the absolute risk on the stock futures (and that is assuming he took the entire position at pretty much at the top of the market) then we are looking at total exposure of some €50bn. The bank has said that the contracts were in plain vanilla derivatives (generally this means a ratio of 1:1 risk). That means the dealer somehow managed to get the confirmations for the deals directed to him personally and not to the Soc Gen back office. We can assume that an audit team, as is normal practice, requested a list of open deals from a counterparty bank and discovered that the counterparty had a series of deals which were not represented on the Soc Gen books.
The statement from the bank that the risk had been sold off already might, to some extent, explain the extra-ordinary market action on Monday and Tuesday when in just two trading sessions the Dax dropped almost 1000 points (far more than any other index). Dax trading remains 500 points below the close last Friday whilst the FTSE is almost unchanged and the Cac only off a couple of hundred. The bank may have to answer questions about creating an artificial market as dealers who lost substantial sums over the period might feel rather aggrieved.
The second story is the $150bn package approved in the US overnight. The Asian markets have responded dramatically with massive rallies across the board to go with the huge moves higher on Wednesday and Thursday. The relief in the Far East is understandable as their economies are heavily reliant on US economic growth sucking in imports. The obvious problem is that the US is already suffering from a massive trade deficit and this package is likely to make it even worse. Naturally the dollar has taken it on the chin as traders, who will understand the Fed rate easing as the natural order of things, tend to shy away from anything that smacks of just printing more money.
The European and US markets are being called higher this morning and the early indications on the FTSE are for a regaining of the 5900 level with FTSE 100 Spread at 5930-5931 being quoted to pre-market dealers. In all the turmoil of recent days and weeks it may come as some surprise to remember that the Bank of England, the ECB and the various European Governments have done absolutely nothing. Zip. Nada. Of course the Europeans do not look on the Stock markets in quite the same way as the Americans. For some reason we disassociate ourselves from the impact of under performing assets as being ‘nothing to do with me’. The Amercians, due to the personal nature of their savings culture, are very well aware of effect of falling share prices and the negative impact it has on their portfolios and their future well-being. A bear market is tantamount to Un-American behavior and the US politicians are well aware that their constituents demand swift responses to difficult times.
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Indices Spread Betting, 24 Jan 08
The FTSE 100 Spread is called 170 points higher but this is as much a guess as anything and the opening could be quite exciting. Traders should consider though that bear markets tend to last rather longer than a week or two so don’t be surprised if at some time in the next week or so that the effects of the Fed's 0.75% rate cut start to wear off. The temptation to have a rush at getting back above 5800 will probably interest dealers early on but resistance is waiting just above here between 5805 and 5830 which may take a bit of a battle to get through.
Punters will be wondering whether the US rally will continue into a second day and we can see quite a few shorts being set up as clients look for a reverse reaction. It is a brave man who gets involved in today’s markets in anything other than token amounts. Quite respectable profits and losses can be made in just a couple of minutes with the smallest of punts.
Indices Spread Betting, 23 Jan 08
The market is looking better this morning as Asian markets also staged a relief rally. The FTSE is being called to open 20 points higher. Since we crashed through the 6000 level it may not act as a tough resistance barrier and we could be back up there by the end of the week, especially if the banking sector sees the sort of buying we saw yesterday. Clients are largely long the FTSE, albeit in the shorter term contracts, so perhaps they expect a run back to the highs set in 2007 to be still a long way off.
Indices Spread Betting, 22 Jan 08
Early calls are for the FTSE 100 to open over 100 points lower again as the Far East joins in the rout. My comments of a few days ago stating that we needed to hit 5410 for an ‘official’ bear market to be announced were meant as a bit of tongue in cheek but it seems that the markets are in a hurry to be miserable.
The Americans will now have the completely unprecedented occurrence of walking in to their own stock market more than 6% down outside of their time zone. When I use the term unprecedented that is exactly what I mean. The Dow Jones spread is called 650 points lower at 11425-11429 and the S&P 500 has gone straight through the 1300 level and is called to come in around the 1250 level.
In these markets it is wise to remind dealers that the best policy is to do nothing. Sit on your hands and resist the temptation to get involved. For investors there may be opportunities to pick up very distressed stock but the problem is on what basis is it distressed. If we look at last years earnings/dividends to project yield then we may be in for a shock if corporate earnings take a dive. Some analysts reckon we are at unheard of value levels and other that we are still too expensive. Which do we follow?
The FTSE 100 spread is called (as I write) at 5438-5439 off 140 points but by the time this goes to print this will in all probability be very wide of the mark. We can expect (as with yesterday) that there will be a large number of forced sellers on the open especially when looking at the highly geared dealers. CFD holders are especially vulnerable as with a rolling margin situation it is unlikely that all will be able to come up with large sums of cash on a moments notice. Brokers will close out positions in a very weak market which will force prices down initially. At some point, this morning, the ‘forced’ selling will abate and then dealers will start to re-evaluate value levels.
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Indices Spread Betting, 21 Jan 08
Over the past few days the markets have generally opened on a positive note as small investor demand has come in on the buy side. This has had the effect, in the absence of any major player involvement of forcing the market higher on low volumes. Market Makers have seen the direction the wind is blowing and have jacked up prices in the morning sessions on buying size that would normally leave quotes pretty much unchanged. As we move into the afternoon prices have fallen back on even lower quantities leaving the buyers high and dry. Of course for the smaller investor looking for returns it does not really matter so long as the dividends are maintained (we hope) but for the big boys they will need a good signal that the current weakness is ending before dipping a toe in the water.
The FTSE 100 Spread is being called 75 points off this morning at 5825-5826 which is pretty fierce stuff even these days and is perilously close to the 5815 low back in August and last Thursday. On both occasions the market reacted with a violent bounce but the fear is that this time it is of the ‘dead cat’ variety. The more you look at the long term charts the more they appear to show a ‘double-top’ formation from June and October last year and if this is what the big investors are watching then we could be in for some rather more serious falls ahead. Unfortunately the lower the market goes the less well covered companies debt becomes, the tougher their bank borrowing lines become, the worse their margins become etc. in a sort of gruesome cycle until it all goes too far and snaps back. It has been said before and will be said again but this is definitely a time where ‘cash is king’. All in all it does not look like being a good open this morning and we can expect some forced selling on the off.
'UK Indices Spread Trading' by DB, updated 01-Feb-08
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