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Weekly commentary - CFDS

4 - 10 NOVEMBER 2004 - Playing politics with the dollar

There are some striking similarities between the foreign exchange markets and US presidential politics at the moment. History's dust is still settling in Washington DC, but the battle for supremacy is never-ending. Tuesday evening is far from offering the guarantee of a conclusion. Like dollar/yen there will always be something to fight about.

With money, the issues neither in order of merit nor influence are as follows: the post election period's political impact on the dollar, the size and nature of the threat from Osama bin Laden and friends, the resolve of nations prone to currency intervention and the extent of irritation this causes in central banks elsewhere. (Mucking around with your currency to bolster your economy is akin to nuclear proliferation: potentially explosive.)

The economy also plays a part, you'll be pleased to hear. But this year's obsession with the US trade deficit will lessen. A bill growing at $50 billion every month has had ample opportunity to create the dollar weakness predicted thus far, but with no cigar. So why now with so many new issues?

The primary factor is the European reluctance to shoulder the burden of a weaker dollar alone. The Japanese and Chinese will come under huge pressure to pick up their share by letting their currencies strengthen. This means the euro, Swiss frank and to a lesser extent the pound will creep higher against the dollar. Meanwhile expect to see the yen strengthen against the dollar and the euro. The latter pair promises to replace Bush and Kerry as the next big thing.

Trading the Aftermath

FTSE trading volumes have been somewhat thin ahead of the US elections. Most positions have been closed by traders waiting for the next major trend to be decided in the weeks after the result. And with this column having taken some decent profits in the past few weeks from shorting the index, it is crucial we hold on to that cash.

With no clear trend in place, the best analysis points to key support and resistance levels either side of the current price. Lower support lies on last week's low at 4550, while upper resistance still remains at the key Fibonacci 4680 area. Above this, October's high-tide mark at 4735 remains an important target.

With the potential for election controversy, there is always the chance that a post-result legal tussle could send markets into a short-term spin.

'We have taken heavy bets on the US markets ahead of the election,' says Will Akerman at easy2spreadbet.com. 'The majority of traders are selling the Dow, expecting the stock market to dive in the aftermath of the political battle.

Many analysts expect a Bush win to bolster the Dow, sending a clear signal that it's 'business as usual'. Hardly surprising that spread betters are hoping for some volatility and waving the flags for Kerry.'

That ties in with most of the comment and feedback that we have seen.

The majority of traders expect a fall after the election thanks to dodgy results and dirty tricks.

The contrarian trader would buy the FTSE on any dips during the legal circus that is bound to follow Tuesday.

28 OCTOBER - 3 NOVEMBER 2004 - Kidde investors make a fireproof profit

Those who bought into fireprotection group Kidde (KID) back on 7 October should be sitting on a fairly decent profit by now. When our new-look trading section hit the stores, Kidde was trading around 134p. Last Thursday, the group confirmed it had rejected a takeover bid, but shares soared on speculation that the bidder would come back with a fresh approach.

The price jumped 17% in a day. CFDs or spread-betters could have made around 200% on margin - a good call from Warren Firth at IG Markets. The correction continues for retailer of the year Tesco (TSCO). The share price has taken a 2.5% tumble since the reversal pattern from Man's Nick Sparkes spelled a temporary lull in the supermarket's fortunes. That was over two weeks ago and has a couple of weeks to run with a target of 255p.

There were some modest profits to be had from our LogicaCMG (LOG) and BP (BP)/Shell (SHEL) plays, which have now expired. Mr Sparkes is on a roll with his BSkyB (BSY) short sell, currently in profit by 3.5%. Those who are trading on margin should be up at least 30% and hoping for no good news from the Murdochs for the next few weeks.

Stopped out in spectacular fashion was our Reuters (RTR) short sell thanks to a third-quarter update which saw a slower pace of declining revenue. The market somewhat over-reacted and sliced through our 353p stop loss.

Also stopped was Corin (CRG), which readers should not have been able to buy as bid rumours were quashed the morning of our issue.

Last week's trades are heading in the right direction with Kingston Communications (KCOM) shares up 4% and United Business Media (UBM) down 2.5%. Traders should now be in our Pearson (PSON) trade, which has reached its support area of 590-595p and is a Buy.

21 OCTOBER - 27 OCTOBER 2004 - Quick wins with special FX

The euro is riding high - at its highest level against the dollar since February - and there looks to be more strength ahead.

This week our focus moves back to the euro. Last week was another volatile one for currency traders that saw EUR/USD swing around in a nice 270-point-plus range, with plenty of opportunities to make and lose some money along the way.

It is what happened at the end of the week that catches the attention. Friday saw the release of yet more economic figures from the US - retail sales rose by more than expected in December, up by 7.7% from a year earlier - but this was discounted in the face of poor consumer confidence numbers and weak industrial output.

As ever, markets don't move in straight lines so a bit of patience may yield a better entry level to go long EUR/USD

The net result is that the dollar took a bit of a clobbering and EUR/USD moved to the highest level seen since the end of February this year.

From the chart this is a key break and suggests even more EUR/USD strength ahead with a distinct possibility of a run back to the highs for the year around 1.2900. As ever, markets don't move in straight lines so a bit of patience may yield a better entry level to go long EUR/USD.

Once again, last week dips down to the 1.2220 levels brought the buyers in and this has been the case since late September.

Any weakness towards this zone would be viewed as a medium-term buying opportunity, looking for further gains in the weeks ahead.

21 OCTOBER - 27 OCTOBER 2004 - Euro in the zone

FX is the largest market bar none and trades around the clock, starting off in Australia, then Europe, then on to the USA before it all starts again down under.

The last few years have seen this market really open up to private investors, with spread-betting companies, CFD providers and others offering institutionally-tight spreads to everybody. It could be argued that FX is the ideal short-term speculator's market with plenty of volatility day-to-day even in quiet times, and regular swings of a few hundred points.

The last couple of years have seen a major recovery by the Euro in relation to the US Dollar

All this is great if you are on the right side of the move, but of course volatility can bring additional risk for the unprepared. All the companies providing FX trading allow you to place stop losses to minimise that risk and traders would be well advised to make use of these facilities.

Which brings us to this week's market - the Euro. The last couple of years have seen a major recovery by the Euro in relation to the US Dollar - a rise of around 50% by the beginning of this year. EUR/USD has slid back since but settled into a well defined trading range over the last few months.

The top of this range sits at 1.2460 with 1/1950/1.2000 at the base. This Monday saw EUR/USD trading around the 1.2350 area, having showed signs of failing again ahead of the big resistance towards the end of last week. Further downside is expected with 1.2150 a reasonable target, representing a 200- point move from current levels. The only thing that would change the short-term bearish view is a move through 1.2460.

30 SEPTEMBER - 06 OCTOBER 2004 - Blue chip stocks are all-action heroes

Last week's index divergence trade in this column saw CFDs punters take their profits and run. 'The trade was a scorcher, falling straight into our clients' hands,' said Will Akerman at easy2cfd.com. But this week's action has been firmly fixed on the UK's blue chip stocks. Technical traders have recently capped a great finish to Q3 trading, with a clear sell signal in Cable & Wireless. 'The bear channel' pattern gave analysts a warning that all was not well with the telecom bantamweight. And sure enough, this week's negative broker reports confirmed that the entire sector is suffering from a virtual price war.

Having sold C&W at the 115p resistance level, CFD traders are looking to take profits in the low 90s. Another big sell-off in the stock and they'll net a massive winner,' said Akerman. Although the FTSE put in a resilient performance last week, there appears to be no cause for celebration just yet. 'Continuing signs of economic softness and the breakdown of the US markets do indicate that this will be short-lived, and I see weakness in the weeks ahead,' says John Stassi at SFS. 'The rising oil will impact on economic growth due to implied inflationary pressures.

Although the FTSE put in a resilient performance last week, there appears to be no cause for celebration just yet.

'This week I am recommending selling HBOS [target price 722p], selling Dixons [target price 154p], selling BAA [target price 535p].' Stassi also agrees with Akerman that Cable & Wireless is ripe for shorting this week. His target price is 85p. Oil continues to rake in profits for the guys at Blue Index, according to Harpreet Kondal: 'We wanted to do an oil play, but BP and Shell were both approaching strong areas of resistance. I always say you should respect the resistance and not bet on a break out in such situations.

'So we chose a smaller play in the form of Tullow Oil, which is still doing well for us this week. We got in around 133p and its currently sitting at 145p - we're hanging out for another 5p.' 'As for the FTSE, it just appears to be wrong-footing everyone,' says Kondal. 'I recommended shorting the index at 4630 but sadly nobody did - everybody just wants to buy it right now. We, however, are waiting for it to fall further.' Warren Firth at IG Markets is recommending that CFD traders buy Unite Group at 238p. 'There is very little I see in the way of resistance between the current share price and my target of 257p. 'All short-and-medium term moving averages are beneath current levels and rising strongly. An abundance of support lies beneath within a band 215p to 220p. Place a stop loss on a break below 208p.'

23 SEPTEMBER - 29 SEPTEMBER 2004 - Ripples across the pond

From all reports, CFD traders are crossing the pond for their autumn profits. The start of the week saw an attempt to take advantage of a potential divergence in sentiment between the FTSE and the Dow. While technical FTSETraders continue to target the key Fibonacci level at 4680, the Dow has shown several signs of chart weakness.

'The FTSE trade fits nicely with the short squeeze we're seeing in the UK blue chip index,' says Will Akerman at www.easy2cfd.com. 'But traders will have to be quick on their feet. When these shorts get filled, the markets could take a drastic dive.'

Many traders took positions ahead of the Federal Reserve meeting on Tuesday. Add this to the raft of US results from trading giants Goldman Sachs, Lehman Brothers and Bear Stearns, and it's easy to see why the action has been US centric.

Warren Firth from IG Markets has also been keeping it 'stateside', still long the Dow and still fairly bullish: 'Only if 10190 should give way will I begin questioning the current trend. Additional support is provided by the short and medium-term averages. A break of 10,415 will open the way for a move to 10,600, my new year-end target.'

'CFD traders should stay long the index. Add to the position on any pull-back to 10,190. Take profits at 10415 and await developments.'

Back on this side of the pond, Jason Harvey of E*TRADE was mixing business with pleasure: 'Last weekend, we saw the Ryder Cup swing into action, but can the FTSE sustain a level par by breaking through its 4600 resistance level? Many of our clients think so, by going long the index and hoping to see it rally a further 100 points.'

'However, trade of the month goes to HBOS. Its failure to jump into bed with Abbey saw its share price rise 3%. One client was long at 680p and was quick to unwind at 742p.'

But what about those optimists who were long Abbey? Ask Harpreet Kondal at Blue Index: 'We were advising traders to raise their stop loss to 620p early last week and lock in their gains, in case the HBOS bid evaporated. When it did on Wednesday morning, some of our clients were caught out as they did not want to use a trailing stop loss on their trade.'

'We also made some cash on AstraZeneca last week after its Exanta drug failed to receive approval. It is often typical of drug companies to become oversold in these situations.

Once the announcement was made, we took long positions whenever the price went below 23p. We were looking for support to hold at 22.70p - the previous low in July - and it did.'

Chris Bourke - Shares Magazine

16 SEPTEMBER - 22 SEPTEMBER 2004 - Summer traders still in shorts

The first signs of CFD traders taking profits following the summer's stock market strength have started to emerge. The last five days' trading has confirmed the noticeable change in sentiment with many more sellers.

Crucially, several aggressive traders returned from their holidays to open their accounts by going short. Temporarily knocking the market, these active traders clearly believe that the FTSE 100 is poised for a fall. But Will Akerman at easy2cfd.com is more cautious:

'There is a flaw in this theory. With so many institutional and bank traders already short and desperate to buy back their positions, is the market able to move significantly lower? Certainly Wall Street shows a similar story with many investors noting that both the UK and US indices are already technically overbought.

'As corporate traders return to their desks, normal volumes will return and buyers should be satisfied. CFD short sellers are keenly eyeing a pull back to 4475. This would take the overbought pressure off the UK's blue chip index, although technically a break of this support level would indicate more weakness to come.'

Warren Firth at IG Markets is one of those waiting for the FTSE to fall, but doubts are creeping in: 'I have been looking for a pullback in the index in order to open new positions. This correction has proven elusive and the market has continued to rally ahead.

Traders should look to buy the market. A perfect correction would be a move down to 4440, but this looks an increasingly tall order.'

A somewhat more predictable trade has been Misys, which has been range-trading in the 175p to 187p area for almost three months now. It was a particularly good week for short-sellers of the CFD, according to Harpreet Kondal at Blue Index:

'Early in the week we took a short position at 186p. On Thursday, we saw Merrills place a further 10 million Misys shares in the market which prompted a fall to 177p. Most of our clients were out at 180p or 179p.

'We are also continuing to make money on Abbey National, which does not seem to know the meaning of the word "retracement". Many of our clients just go long whenever there is a dip - obviously the continued bid speculation is doing the trade no harm.'

One of the big stories at E*TRADE last week was 'blue eyed boy' Cairn Energy releasing first half profits on Tuesday.

'Although the 40% loss was predicted, we saw clients going short early on at 1450p and closing out around the 1425p mark,' said Sanjeev Verma. 'High volume profit-taking petered out with the confirmation of Cairn's listing on the FTSE 100. This saw long positions being taken by several clients at 1430 and closing at 1480.'

Chris Bourke - Shares Magazine

9 SEPTEMBER - 15 SEPTEMBER 2004 - FTSE kicks the summertime blues

Building on a summer squeeze in prices, many technical CFD traders are now focusing on an important target that appears to have been largely forgotten.

It is the key Fibonacci retracement level intersecting at 4680. Traders are taking the FTSE's all-time peak of 6950 as the significant high, and using the 3277 low following the tech bubble burst. The Fibonacci 38.2% retracement from that low intersects at 4680, which is currently more than 100 points away from current trading levels. Hence why many traders are convinced the market will carry on higher, at least for the moment.

But are they buying now? 'For the most part, CFD traders are already long the market,' says Will Akerman at easy2cfd.com. 'They have already profited from the FTSE's surprise rally over the last four weeks, so many are looking at 4680 as a signal to take profits. A prudent strategy might be to sell just ahead of this well-watched target.'

Harpreet Kondal at Blue Index has also been enjoying the spoils of a 'relentless' FTSE 100. 'I bought at 4480, using the next significant technical area of 4525 as a target. Once it hit 4500, it just kept going up - I am now going long whenever there is a temporary dip.'

As well as flying high with a range-trading BA (going long at 223 and short at 232), Kondal has been having a sweet time of it with chocolate king Cadburys. 'I went in over four weeks ago at 440p when the market wasn't looking too pretty, using the trade as a hedge against my short positions. It is a defensive stock with a nice upward chart, and has done me proud by climbing to 461p.'

The CFDs advisory team at IG Markets made a nice prediction on the Dow Jones last week, telling clients to buy on a break-out at 10190. After that level was hit on Thursday, the index rocketed to 10,300 by closing. But is there an even better week ahead? Warren Firth's target is 10435.

Dispiriting results for Diageo led to ETRADE clients placing a load of shorts on the stock while sharp figures for Brambles earlier in the week saw many getting in at the 217p level and out again at around 235p.

This week's killjoys are the guys from SFS who see bearish times ahead, with the US taking the blame: 'The disappointing non-farm payrolls and non-manufacturing ISM figures have done nothing to dampen bullish sentiment - yet. But I see profit-taking in the days ahead once the true implications of these figures are truly known,' says John Stassi.

'In a nutshell, the US economic recovery is still patchy and with an election looming, time is running out to prove otherwise. This week I am recommending selling BT (target 170p), AstraZeneca (target 2476p) and Boots (short-term target 650p, long-term target 580p).'

Chris Bourke - Shares Magazine

2 SEPTEMBER - 8 SEPTEMBER 2004 - FTSE kicks the summertime blues

With the FTSE closing last week on eight-week highs, City traders are praying it is a signal of things to come. Has the never-ending rain finally washed away the summer doldrums? Are we about to witness some long-awaited autumn action?

The guys at Blue Index are watching the index like hawks: 'One client went long on the FTSE at 4380 and is happily still long at 4480, so will be taking profits today I expect,' said Harpreet Kondal. 'I would actually say that now was a good time to be shorting the FTSE at around 4500. As always when trading the index, I would average in to the trade. I would short half my position at 4500 and trade the other half should it go to 4600.

'We have also been successfully trading Google since it floated, with Blue Index currently winning 3 trades to 1. We have been going short at around $107 - $108 and taking profits at $102.

'The share is fairly volatile right now, reflecting the large investor interest. The average deal size has been 300 shares, which leads us to believe that there are a large amount of private investors day trading it.'

Kondal also used a smart dividend strategy to make a decent profit on Lloyds: 'We bought Lloyds just before it went ex-dividend at 410p. There is strong support technically at 400p, which was about to be hit after the 10.7p dividend was taken out of the price. It fell to the support area and then came back up to 416p/417p within two weeks, where we took profits. Including the dividend, we realized around a 17p profit.'

With their glasses charged, CFD 'pairs' traders are poised for Friday's pub sector results, with Greene King holding its AGM and JD Wetherspoon reporting full-year figures. Share price fortunes couldn't be more different. JD's April high of 320p signalled the end of a 14-month bull trend and the subsequent technical break-down led JD to drop to current levels beneath 250p.

Greene King's story is rosy by comparison. A recent peak above £11.30 has been followed by some softness. But the bull-trend remains intact, and a few CFD traders are firmly focused on Friday for their signal to trade.

'Several of our traders are short Wetherspoons, but simultaneously limiting their risk with a pairs trade and going long Greene King. On Friday, they are poised to take profits and unwind the Pairs trade if reporting figures reverse either shares trend,' says William Akerman at easy2cfd.com.

Gold received a 'must try harder' from E*Trade customers last week. 'Its failure to build on the previous weeks' gains despite good technicals and two plane crashes left many of our traders giving gold the thumbs down,' said Christopher Roff.

This week's tips from John Stassi at SFS: 'If the FTSE breaks below 4430, we will be looking to retest support at 4283. At its current lofty heights, I am selling Prudential and Aviva with target prices of 410p and 500p respectively. I am still bearish on previous tips GUS and Next. I am also a seller of Centrica on valuation grounds and see them losing customers after the recent price hikes on gas and electricity. Target price 229p.'

'I would actually say that now was a good time to be shorting the FTSE at around 4500.'

Chris Bourke - Shares Magazine

26 AUGUST - 2 SEPTEMBER 2004 - Smiles in last week of Summer

A strong performance across all markets helped bring the traders back in over the previous week. Warren Firth at IG Markets saw the FTSE break through 4370 as cautiously adding to the bullish argument.

'We are not out of the woods yet.' Said Firth.' To confirm the uptrend is back on track a move above the longer-term 90 and 200 day moving averages, sitting around the 4431 mark, will need to be attained.'

This creeping bullishness was a view endorsed by Philip Morrogh-Bernard at Blue Index. 'The move above 4400 is a good sign - we would like to see the market holding these levels at the end of the week to confirm that there is real strength underpinning the move in the short term.'

William Akerman of easy2CFD reflected on a slightly longer view.

'On 6 July the FTSE closed at 4369 - last Friday it closed at the same level,' he said. . 'Longer-term investors could be forgiven for thinking that not a great deal happened during this six-week period, but the shifts in sentiment in between those two dates, helped along by the oil price trading in un-chartered territory, continues to present daily opportunities for the many CFD traders.'

When it comes to individual stocks, Tony Celentano of E*TRADE was seeing activity on both the long and the short side.

'As this year has returned us to typical English summer rain, the dark clouds seem to be gathering over sports retailer JJB Sports.' he said. 'It slumped after it said this year's profits would fall about 20% short of forecasts due to dismal summer weather and tough competition. E*TRADE traders have been shorting CFDs around the 211p level and profit taking at 190p.'

But soaring demand for raw materials from China has helped push Anglo-Australian mining giant BHP Billiton to record full-year profits.

Celentano comments: 'Traders have been buying BHP at 518p and after recent profit taking they still believe it's fuelled for longer term rises well above 530p.'

IG Markets still likes National Grid Transco and is holding for its 480p target. Telecoms small cap Vanco also looks like an interesting one, according to Firth.

'At £120 million market cap it's hardly a tiddler, and with compound growth of 40% and a PE of 23 falling to 16, it looks to have potential for a recovery back to the 280p mark,' he comments.

Blue Index saw the fall by BP to the bottom of its recent trading range as a buying opportunity - and spotted further opportunities over in the financials.

'This is a sector buoyed by the Abbey National takeover story and the speculation at the moment is over who will be next - Barclays and Lloyds seem to be the current hot favourites,' said Morrogh-Bernard.

Chris Bourke - Shares Magazine