As regular readers are aware I have been rather bearish during the recent rally. I have short positions still open and this may have clouded my judgement but I still firmly believe this is a bear market rally and recent corrections seem to be affirming this. Following the huge percentage rises on the S&P and DOW I was fully expecting the FTSE 100 to push up to 4,680 but caution prevailed and 4,500 provided good resistance.
The battle for 4,400 lasted allot longer than I had anticipated causing a little stress as my concern was this really could go sideways for a long duration. Whilst investor’s exuberant enthusiasm seemed to have no end the underlying fundamentals have not improved as much as the equity markets would like to believe. The ambitious V shaped recovery play seemed doomed from the offset but stubborn, naive or fool hearty investors ploughed into stocks, commodities and anything else going.
Banks and financials have had a roaring success. My personal feeling is that the US treasury couldn’t finance more debt and has had a hand in propping up markets with actions and propaganda. The main goal was to allow the refinancing of banks under the premise that they were now sound following the infamous stress tests. I personally don’t believe this for a second but I’m a designer not an accountant. The huge leverage and mounting defaults in credit cards along with commercial property losses could see the banks going back for help mid 2010. This is slightly ironic considering the stampede to repay TARP funds.
On the equity side of things some value stock pose a good investment. I bought Microsoft and Coca Cola shares at the March lows and sold them in the recent rally. My belief is that the rally is six months premature and we may even test the March lows. Some stocks will obviously fair better than others. The notion that Tech stocks will lead us back from the brink is ridiculous. A new iPhone at $299 is a great deal but the huge contract fee and add on costs make this a luxury product in a declining market. Penalising existing iPhone users by charging them more to upgrade seems counter productive and the Apple share price rise to $145 seemed ridiculous. Google and Microsoft are other candidates in the questionable equity rises although I’m still bullish on Microsoft above $20 and will re buy near these levels. Tech seems very reliant on consumer confidence and spending which I feel will all but dry up come December 2009. My predictions are for a black December but I still hold my previous prediction of FTSE 100 closing at 4,400 at year end.
Gold is something that has spiked my interest and above $880 I think it’s a good deal. I have looked at ETFs and mining stocks but you can’t beat the real thing. For me gold would be a long 5 year trade with an expectation of gold attempting a push at $2000 in mid 2011 as inflation soars. Buying coins or bullion requires a substantial investment but at $880 to $900 I think I’m prepared to make that investment.
My view in the intermediate term hasn’t changed and I’m still bearish but I believe the battle for 4,400 on the FTSE 100 isn’t over but the trend lines are now starting to point down. 4,000 is my exit target and after that I think I will be re evaluating my trading strategy. Over the last few weeks I have been analysing my trading and gave myself a nice D- rating. I have a long way to go in the quest to become a good trader.
As for the new website it is still being designed and I’m eagerly awaiting the arrival of my first son which is my all consuming focus at the moment. I’m fairly active on twitter so feel free to drop me a message.
“A man must believe in himself and his judgement if he expects to make a living at this game.” Jesse Livermore
We currently seem to be playing a game of musical chairs where the eagerness to enter the recent bear rally is wearing off. A level of fear at holding stocks (mainly banks) too long seems to be spreading. Quick profits have been made and the banks themselves have been great recipients off the frenzy but what happens now that the music is starting to wane.
I think like most that the recent stress test was farcical and that the wider market is now realising this may not be the V shaped bounce they desperately desired. Instead we may see many months of profit warnings as companies fail to meet expectations. Increasing job losses mixed with stabilising but not diminishing bad news will wear the markets back down. I’m firmly of the opinion (excluding any black swan event) that the market has made a bottom but a retracement of 10% – 15% from current levels is likely and expected. I believe the markets will have a more positive feel once we do this and can then bounce successfully to stable highs. My year end prediction of 4,400 for the FTSE 100 still stands but volatility in the intermediate term may increase again.
So where do I stand in all of this. Well frequent readers will know my short positions and my intention is to continue a short strategy above 4,500 on the FTSE 100. Should we not go above these levels again I will stay neutral. On a successful retracement I intend to buy value stocks to add to my current list of MSFT and KO which I bought at the lows and are now doing quite well. I think there will be a great downside to banking stocks but value stocks which haven’t gained that much in the recent rally will not lose that much in any retracement.
Website Redesign
I’m currently redesigning the website and making the sections a little easier to navigate. I’m also hoping to add more book reviews and some intro advice on spread betting. This means I may not be updating as frequently but it will be worth the wait. If anyone has any requests please sent them on or add them as comments.
Follow me on twitter @trading2k
Safe Trading.
At the moment I feel like I’m one of a handful of people with the wrong glasses on. Equities rebound and put in recent highs while green shoots (I hate that metaphor) are sprouting up everywhere. Summer must definitely be on the way. However my personal feeling is that with excessive rain little green shoots die and there are considerable showers building. I think the current rally was to be somewhat expected but the strength of it is impressive considering we have still to resolve the underlying problems and lets not mention the piggy wiggies.
Next weeks results from the Bank Stress tests may be an important turning point. While I’m not expecting new lows and believe like most that we have put in the lows I do think we will march back down below the 4000 mark on the FTSE 100 (4800 is my guesstimate). At the moment all bad news is being bought into but with the banking results so close I wonder just how much room this rally has to go.
Position: Still short.
My Apple shorts are still doing well but last night I was going to short at $125 and got distracted missing my opportunity. As a first step at expanding my trading range it was interesting but very volatile experiment. My trading style doesn’t generally like volatility and I tend to stay away from heavy risk. My Apple shorts were for .50 cents so it wasn’t going to break the bank but allowed me to test the waters. I’m taking profits today on any sell off after the stellar results posted by Apple.
So How Are Your FTSE Shorts?
They were doing allot better two days ago and I should have taken profits. I was determined to stick to my plan and trade it till the end resulting in missed opportunities to take profits. Sometimes being too ridged can be a big hindrance but on the other side I have a reputation for taking profits too early.
At present I have three €5 shorts open after one was stopped out yesterday for €90. I have another order to open at 4,065 for €5. My plan is to continue to build up my short and take profits at around 3,900. I’m very comfortable with their being only a limited upside. Once earnings are over which have been better than expected I believe the focus will return to TARP, banks and the myriad of unanswered questions. This will push stocks back and create more headwinds for equities.
Entry: 4000 – 4150 FTSE (September Contracts)
Exit: 3900
Stop (Mental): 4500
Point Size: 20 Euro (5 x 4)
Estimated Return: 2000
Over the last few weeks I haven’t been trading that much and it’s never a good idea to jump back into trading after a holiday as I learnt last time. Having settled nicely into my new apartment (getting TV channels today) I am more tuned into what’s going on. Having no CNBC is sometimes a help. I have a few articles I want to write and I want to re shuffle the site a little too. For the moment though let’s get down to business.
I am currently 5 Euro short on FTSE September futures. This is part of my longer term plan to short above 4000 on the FTSE 100. My intention is to ride any euphoria and accumulate a 20 Euro position. My short entry points will be at these levels: 4000, 4050, 4100 and 4150. My hope is to exit at 3,800.
My shorting strategy is tempered by the recent strength in the markets and I do believe we may have hit a market low which is why my expectations do not fall below the 3,800 level. To the upside I can’t find any reason the buy above 4000 but may consider buying at 3800 level if that level holds. I don’t think any rally will push above 4,500 and such levels would be swiftly sold into.
Now onto Apple; I really wanted to try something different and dip my toe a little into stocks now that my margin is sufficient to cope with this. I have thought of entering the gold trade but I’m not that confident yet. With Apple at $120 I was confident of a retracement and sold at those levels. Apple is a volatile stock and when I use to demo trade I used to trade it and quickly realised it was too liquid for me. At the moment I only have a .25 cent trade on but my build that up if we head back over $121. My exit for this trade is $92.
Entry: 4000 – 4150 FTSE (September Contracts)
Exit: 3800
Stop (Mental): 4500
Point Size: 20 Euro (5 x 4)
Estimated Return: 1500
Total Profit Week: 0.00
Account Total : 11,651.55
Current Position Open: (Sell FTSE September 3,879)
Total Profit Week: 550.00
Account Total : 11,651.55
None
Total Profit Week: -45.00
Account Total : 11,101.55
None
I’m just back from holidays and in the week I came back moved house. In my mind this was a simple process but turned into something larger. As a result of the move I have no TV or Internet access and these things always take time to sort out. So instead of participating I’m hanging back and only occasionally glancing at the markets.
After my holiday I did open a sell trade at 4014 on the FTSE 100 but closed out for a nice 550 Euro profit. Since then I haven’t had the opportunity to trade and looks like it could be another two weeks.
Happy trading.
It’s been a hard few weeks and I haven’t been posting as frequently. At the moment I’m busy trying to move, go on holidays and dabble in a bit of trading. In short I have been spreading myself a bit thin. On the market front it has been a whirlwind ride downwards for most equities and indices. In fact nothing has been moving upwards and the calm downward momentum was starting to have me concerned.
A few weeks ago I opened a silly long on the FTSE 100 for +2.50. This then went the wrong way and I had ample opportunities to close out the position but didn’t. The loss grew and grew with the expiry date nearing but finally I have closed it for a loss. I took some calculated risks and have been playing the upside oversold card for a few days now. Yesterday I cashed out and took my profits and closed my loss. I am now neutral.
Have Equities Bottomed Out?
My suspicion is this is a good time to sell the rally but I’m holding back my itchy fingers for a while. I don’t like open positions on holiday so I think I personally will be staying neutral. I think a few days of subtle moves higher will be wiped out with new lows before the end of the month. April will start off bad and a return to range bound markets for a period is to be expected. As predicted before I think we could test 3200 on the FTSE and so I may start scaling into a short after this rally fizzles out.
On equities I am starting to look at certain sectors and have bought two stocks recently. These are Microsoft (MSFT) and Coca Cola (KO) which were each at their 52 week lows and are part of my five year view. I have been following a list of about 40 stocks for 12 months now and these entered a price I consider reasonable. These are large cap stocks with good performance and I am confidant in their sustainability. They maybe seen as safe stocks but a rounded portfolio is more attractive to me with consistent growth rather than a riskier quick bet. While I accept they may fall further I am happy with the price and hope to continue to pick up stocks over the next six to eight months.
I hope everyone is doing well and not suffering too many war wounds. Happy trading!
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