18th April 2011
Equity Overview
Focus on Dax Futures

A strong bounce since the lows made last Monday have seen the Dax gain nearly 500 points and finally broke the yearly highs last night after Fed Chairman Ben Bernanke’s first interest rate press conference provided a further boost to equities and piled more pressure on the dollar.

Thoughts from the trading floor

After making yearly highs in mid February the German Dax had the biggest pullback of the major indices in the aftermath of the Japan Earthquake, making a low on 16th March of 6436. Since then the market has had an incredibly strong bounce. This morning the Dax Future is trading around 7480, an impressive 1000 point bounce in just six weeks. Previous yearly highs of 7450 were broken last night on the back of a doveish Bernanke press conference, which saw big moves in the dollar, commodity and equity markets.

Technically the Dax looks strong and has the potential for another big move up over the long term. Having broken the daily reverse head and shoulders pattern on 20th April the Dax has surged higher and yesterday provided confirmation of the move with a break above the highs of the year. If the market can close above the highs today, the long term pattern is for a another leg up in equities.

This is not to say that it will be one way traffic. After such a quick move to the highs, a pullback of some sorts cannot be ruled out especially as we approach the end of the month and long weekend in both the UK and Europe. There may be some traders and institutions looking to take profits at this level. As long as the market stays above the neckline though, the market remains bullish. For reference, the long term technical target of this move is 8125, just 125 points away from the all time highs made in December ‘07.

In the short term the outlook is less clear. We are wary of such a strong run up in equity prices over the last few weeks and days especially. We will look to see if the market makes a strong break of the highs or if indeed there is some resistance at these levels. Short term support in the Dax June contract lies at 7355 and further at 7265.

Bull View
After breaking the daily reverse head and shoulders pattern the market is long term bullish. If the bulls can keep the market above the recent highs for a few sessions, the short term target will then be 7770.

Bear View
The bears have struggled recently and will have to defend these recent highs if they are to gain any momentum back. If they can get the market back below 7400 they will look to test 7265 initially. A break back below the neckline of the head and shoulder would be a meaningful downward move.

Futex View

We have been long term bullish equities for a while and now and continue to be so. With the weakness in the dollar across the board, and the reactions to bad news often proving only temporary stumbling blocks, the market has shown remarkable strength. Though there may be some small pullbacks from the current levels we expect the Dax future to break higher in the coming months.

4th April 2011
Equity Index
Overview
Another strong week from equities last week with all the major indices closing markedly higher than where they opened. It was a quiet week for news until Friday’s jobs report and manufacturing data which both showed slight beats on analyst expectations.

Thoughts from the trading floor
The S&P pushed higher again on the week and closed just above resistance at 1327.00 having traded as high as 1333.75 in Friday’s session. The index still shows signs of impressive strength and the yearly highs are now firmly within sight at 1343.00. Short term support is seen at 1310-15.00. The Dax in Germany was again the strongest of the major indices, with Friday’s rampant day taking it through the 7200 handle. The Dax is trading close to short term resistance at 7220, but major levels are not seen until 7355. Major support is seen down at 7060. The FTSE 100 futures in the UK are now within 100 ticks of the yearly high but must first push through resistance seen at 6030-40.

The markets seem to have well and truly shrugged off the bad news from Japan and have taken little notice of the ongoing struggles of some of the smaller Eurozone economies as well as the conflicts in some middle eastern countries. Portugal have continued to claim an unwillingness to seek aid from the EU, but a bailout of some sort seems inevitable in the coming weeks. Should this happen, it will be interesting to see if the markets turn their focus to Spain.

There is little in the way of major economic releases this week, so markets will look to the FOMC minutes released on Tuesday, and the ECB interest rate announcement on Thursday. Traders will look to see whether Trichet and the council will press ahead with their intended rate hike and look for further signals of ECB thinking in the press conference that follows.

Important events this week.

● Monday: UK PMI Construction
● Tuesday: Eurozone Services PMI’s, US ISM-Non-Manufacturing, FOMC minutes from prior meeting.
● Wednesday: UK Industrial Production, German Factory Orders
● Thursday: US Initial Claims, UK/ECB/Japan Interest rate decisions
● Friday: US Wholesale Inventories

Bull View
After another strong week, the S&P 500 has little in the way before the yearly highs can be tested. With little data to be released and volumes low, the equities may continue their slow grind up.

Bear View
Bears will look to defend double tops on the year in both the Dow Jones Industrial Average and the S&P 500 and look for and signals from the Fed about future, sooner than expected rate increases.

Futex View

Again the markets showed strength and we favour a move to at least test the highs of the year in the S&P 500 and possibly even the FTSE 100. It will be interesting to see how the markets react from here and whether any high volume comes into the markets around these levels.

28^th February 2011

Equity Indices

Overview

Last week equities traded sharply lower as they looked to correct after strong monthly gains over the course of this year. The S&P cash made lows below the key 1300.00 handle. The market retraced a good chunk of the week’s losses on Friday, a follow through from the bounce seen on Thursday evening.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. Support at 1291.50-92.50 is important and as long as the market can hold above here, a challenge of resistance at 1343.00 (recent high prints) remains on the cards. The market found a floor late last week below the daily trend line, which is at 1301.00 today. The market was unable to force a daily close below here, which should aid the cause for the bulls. The 1320.00-1322.00 remains the major stumbling block, in the short-term, for bulls. Another key failure around this level may result in an extended sell-off targeting a break and close below the daily trend line and thus a deeper correction. A move back above here in the next day or two should then target the recent highs.

This week traders will continue to follow the political developments in the Middle East. Recent days have seen an escalation of violence in Bahrain and Libya, which resulted in the Middle-Eastern indices suffering further losses yesterday to fresh 9-month lows. The overriding fear is that the unrest spreads to Saudi Arabia. In this scenario, equities would come under severe pressure whilst oil would spike significantly. Currently, this remains a tail risk; howeve,r market investors hate political instability and further tensions will cause headwinds.

Tomorrow is an important day for the markets as Fed’s Ben Bernanke makes his key semi-annual speech. In this event, Bernanke will outline the Fed’s strategy going forward. As ever, the outlook for the economy and the FOMC’s policy towards their Q.E. package will be the highlight. We have started to see a raft of voices from the Fed suggesting that some members have started to turn hawkish. However, Bernanke has maintained that the Fed’s mandate towards employment will need to be fulfilled before they head towards a sustained exit strategy. Dovish comments may be taken as a green light to buy equities and other risk assets. Notably, the USD has continued to show weakness, and dovish comments may thus result in further selling of the USD and buying of risk assets. Alternatively, a hawkish speech may result in another round of panic liquidation of risk assets and thus force a deeper correction in equities heading into the Non-Farm payrolls report on Friday.

Important events this week.

• Monday: Chicago PMI report (US)
• Tuesday: ISM manufacturing report (US), Bernanke’s key monetary policy report.
• Wednesday: ADP employment report (US)
• Thursday: ECB monetary policy announcement.
• Friday: US Employment situation report.

Bull View

As long as the monetary stimulus is in place, Bulls will remain confident of an ongoing medium-long term rally. Their next target in the S&P 500 is 1441.00.

Bear View

Bears will continue to look for further catalysts for a deeper correction and will be hoping weakness last week can follow through this week.

Futex View

We would back further weakness this week. The market has started to show signs of some short-term weakness and we would back further declines heading into the rest of the week.

Equities were generally subdued on Friday.... (more...)

Overview

This week’s Strategy Session focused on the identification of specific price patterns in the market, how to avoid enduring big losses and the importance of having a big picture view of markets you trade.

Thoughts from the Trader

Last week, as global equity markets generally sold off, the Euro Stoxx 50 remained relatively bullish as the peripheral sovereign debt crisis stabilised. The stabilisation was as a result of the introduction this week of the European Financial Stability Facility (EFSF) Euro Bond and the expected demand from Japan and China for the new asset. Their support of the bond led to a positive expectation surrounding this week’s auction. Highlighting this strength was an atypical correlation between the Euro Stoxx 50 and both the Dax and FTSE 100. As and when selling pressure dried up in these two markets, the Euro Stoxx 50 strengthened immediately, sparking the rally we saw throughout the week.

The opposite was witnessed in the Bund market which sold-off last week, putting the Bund under further pressure going into this week. Yield spreads in the Eurozone continued to tighten aggressively and even the political unrest in Ireland failed to trigger any further widening. Credit Default Swaps (CDS) also shrugged off the news and appear to have fully priced-in the whole Eurozone crisis. With regards to the state of the Eurozone, the EUR/CHF is a key market that traders should be well aware of. This currency pair acts very much as a lead indicator and its recent rally indicates a level of stability and certainty regarding the Eurozone. Interestingly, the Bund witnessed increased volumes last week after the quiet conditions over the Christmas period.

Looking forward to this week, our Senior Traders emphasised particular strategies/patterns that all of our traders should be paying attention to. They also reiterated the importance of remaining patient in the market. They reminded the forum that being able to consistently extract 2 ticks/hour from the market would be enough to enable you to grow your account over time. The forum was also reminded of the importance of having a sound understanding of the big picture of the markets. It is a trader’s responsibility to gauge the big picture and how it changes over time in order to spot cross market correlations and lead indicators. For example, the behavior of both the Dax and FTSE 100 Index last week aided our Senior Euro Stoxx traders.  The associated strength in the EUR/CHF along with the tightening of European yield spreads were sound primary indicators of an increased desire for European risk assets and the diminishing appeal of Bunds as a safe-haven.

Further to the Bund’s weakness, both the Schatz (German 2-year Bond) and Bobl (German 5-year Bond) sold-off throughout the week on heightened fears of impending interest rate hikes. These fears triggered a flattening of the yield curve. The sustained selloff in the Bund was interspersed with strong blips as a result of aggressive buying as traders executed spread trades, selling particularly the Schatz and buying Bunds. It is imperative that Bond traders are aware of these sorts of price patterns and the accompanying logic behind them. With knowledge of such patterns, traders should exercise caution when selling into aggressive breakouts due to the recent trend of the Bund retracing strongly back into its previous ranges.

The increased volatility in the Bund market provides both opportunity and risk. As a result, ensuring stops are effective and kept relatively tight is of paramount importance. Slack stop management and a lack of discipline to take effective losers can quickly result large losses and being stopped out for the day. As a trader you must live to fight another trade and must continuously ask yourself “is the reason I entered this trade still valid?” If this is not the case, you should immediately exit your position.

In terms of fundamentals, this week we have the FOMC meeting on Tuesday evening with no action expected to be taken by the Federal Open Market Committee. As a result, this increases the chance of a significant price shift if any action were to be taken, as it will not be priced-in to the market. Sound preparation is thus vital to seizing such rare opportunities. On Friday the US GDP report will be released and the market reaction to both a strong or weak figure will be fascinating for traders. A weak figure will be linked with the high possibility of the introduction of more Quantitative Easing.  A strong figure, even though positive, could be associated with the market’s current inflation fears and increase the chance of interest rate hikes. In the UK we see the release of the Bank of England Minutes on Wednesday which will be of particular interest due to the current elevated level of inflation. The Minutes may reveal whether the Monetary Policy Committee has become more hawkish and when the expected future rate hikes can be expected.

Summary

Once more Futex traders have had their attention focused on the importance of “the big picture”. Going into this week’s trading their ability to spot those markets which are lead indicators and are going to present them with opportunities is of key importance. With the FOMC meeting, BOE minutes and the US GDP figures being announced this week, opportunities are expected to come thick and fast which means all round knowledge and thorough preparation will be essential in the quest for profitability.

The Dax continued to push higher yesterday.... (more...)

The Dax traded marginally lower yesterday.... (more...)

The Dax future closed lower on the day..... (more...)

The Dax railied strongly yesterday....... (more...)

The Dax pushed higher yesterday..... (more...)