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Weekly commentary - CFDS

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 FTSE traders 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