I’m away for the Christmas holidays and looking forward to the break. I haven’t traded recently and have no intention of doing so until the New Year. My supposition is still that after a Christmas rally which could take the FTSE 100 to 5,500 there will be a slow down in January and cliff dive in March 2010 (4,500 FTSE100).

The fundamentals still don’t add up and once the Christmas spirit has worn off the hangover could start to kick in. Many will say this is just the perma-bear in me but I have been patiently following the markets recently and waiting for my entry. The FTSE 100 has been struggling at these heights and whilst there are good indicators my common sense approach i.e. what I see in the shops tells me that year end isn’t going to see stellar growth and usher in a new wave of spending.

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Fundamentals have been thrown out the window and technical analysis over the past few months have been at best a frustrating black art. With the dollar being hammered left, right and centre gold has raced past the $1,000 mark and is now steaming ahead with very little resistance.

The gold play seems to be re-enforcing the systematic devaluation of the dollar and as the dollar drops equity risk taking rises. This seems to be the stable and reliable trade till the year end. With inflationary pressures under way and China urging the US to increase rates the FED are in a tough spot. Jobless figures have eased but not to the extend that an improvement can be measured or to the extent that job creation is on the cards.

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There has been a huge amount of speculation over the end of the recession and the V shaped recovery that may ensue. The apprehension in the market comes from the uncertainty of the fourth quarter this year and how the Christmas shopping season will pan out. From my vantage point I see what could be the basis of a good recovery but then a set of figures comes out like the US monthly consumer credit report which adds to the doubt in my mind. I can’t balance the equation of rising unemployment, consumer retrenchment with rising corporate profits and runaway equity prices.

I think the resilience of the consumer is something that can’t be underestimated. The fact that consumers have been enduring economic turmoil for over a year now may also create the need for an emotional break in for form of splurging at Christmas. For this reason I think spending will hold up into the shopping season and whilst consumers are savvier and shrewder I believe that most will let their hair down over the holiday period and ignore the perils till next year.

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I am getting back into the daily news and trying to get my focus back on the markets. It’s another earnings season and with that we can expect some good beats and some scary misses. The interesting thing will be if we can push the markets higher or sink back lower when all is said and done. Personally I think we will escape flat to slightly higher once the earnings are over and this will leave us time for a nice Christmas rally. Yeah I’m already thinking of the Christmas rally. Every year it has taken me for a ride but maybe this year I should sit it out and save some cash.

The rally so far has taken on many new subscribers with me included. Many of the perma-bears have shed their coat and are now wearing a nice new
bull skin. I had thought that the fundamentals would have put the breaks on the markets but then lots of little things kept improving. This morning is a case in point as UK house prices rise for the first time in 16 months. All this little signs have fed the most amazing and unprecedented rally in recent history. Hindsight has clearly shown us that the March lows were very oversold but the current pricing in of growth is in my humble opinion overly exuberant. Somewhere in between these two extremes lies the perfect market price. However that’s not my concern, in the past this would have swayed my view but now I’m just watching the trend and not questioning the greed.

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And finally I have the new site design live after what seems like forever. The new site is broken into a few new sections which should make it easier to get around. The Trade Diary will have my views and opinions on current market news whilst the Trade History will document my trading patterns.

A new Spread Betting section will document my trials and tribulations as I try and become a successful trader. This section is more of a cathartic look at my failing and insights on how to remedy those. It should prove beneficial to beginner traders and those looking to learn from my mistakes. Finally the Book Reviews are self explanatory. I hope you like the new design and I’m looking forward to getting back into the markets after a long break. All feedback is more than welcome.

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