11th April 2011
Equity Overview

Focus on FTSE 100 Futures
Equities posted another week of gains last week as the recovery from the Japanese disaster stretched to it’s third week. The FTSE 100 Future is now trading within 60 ticks of the high’s made in February.

Thoughts from the trading floor
The FTSE June contract closed higher again on the week, closing just below the 6000 handle at 5997. It was a relatively quiet news week for the markets, with the main focus on Trichet’s ECB press conference and the eventual acceptance from Portugal to ask the EU for financial aid. The Portuguese news have very little effect on the markets, with many participants believing for some time now that this was an obvious outcome, despite claims to the contrary for many weeks from the country’s politicians. With Trichet producing little in the way of surprise in his press conference, the markets were mainly range bound for the week.

Technically the market remains bullish with the yearly highs of 6087 within 50 ticks of early morning highs on Monday. There is minor resistance at 6040-50 before we reach this highs but if both can be taken out, then the market will look to 6150 as a further target. There is cause for concern however in that the market has topped out in the 6015-25 range for three straight days without a further drive higher. If the market fails again here on Monday we may start to see some week longs flushed out and see some profit taking. Short term support lies at 5945 and then at 5918, but major support is seen at 5820-50. As long as the market can remain above these levels the bulls are in control.

UK CPI is out on Tuesday along with the German ZEW which may give the market some direction heading into US data out later in the week. We also have option expiries on Friday at 10:15am BST, and so we may some moves towards one of the bigger handles (6000, 6100) as we approach, with volatility expected in the final few minutes.

Important events this week.

● Tuesday: UK CPI, German ZEW
● Wednesday: EU Industrial Production, US retail Sales
● Thursday: US Initial Claims and PPI
● Friday: US CPI, New York Manufacturing, Industrial production and the Michigan Survey

Bull View
After another week of gains the bulls will look to push higher again and take out the years highs, paving way for moves to 6150 and beyond. They must keep the market above the 5820-50 range.

Bear View
Bears will look to defend the 6015-25 range that saw the market top three times last week and hope to take out week longs on prolonged selling should another failure at these levels occur. As previously mentioned, the 5820-50 should be the first target.

Futex View

We are still bullish equities in the long term and expect the highs of the FTSE to be tested and broken in the coming months. However, due to the range bound nature of last week we favour buying retracements down to 5950 and major support until we see the market make a meaningful move through the recent highs.

1st April 2011
Macro overview

Focus on the Risk markets (Equities, commodities & USD) and Non-Farm Payrolls.

Today sees the release of the monthly US employment situation report. The build up to the number over the last two weeks has seen a steady move lower in the USD and the continuation of this trend may be pivotal on the release of this report. The headline Non-Farm payrolls number is expected at 190K, with the unemployment rate expected to remain steady at 8.9%.

Thoughts from the trading floor

Wednesday’s strong ADP number bodes well for the Non Farm Payrolls today, with last month’s ADP numbers correctly guessing the NFP number.

Risk markets have turned strong despite recent volatility. The continued weakness observed in the USD against most of its major high yielding currency pairs over the last 2 weeks has seen this tight relationship with equities return somewhat and so today’s reaction to the numbers may have a ‘tell’. The USD against low yielders should reflect recent developments of hawkish central banks. A good number should see the USD rally against them and a bad number sell-off. Last month, equities had an inverse relationship to the Euro currency after the kneejerk.

Interestingly last month, equities had a decent move lower (on the back of in line on the headline and a lower unemployment rate). A great deal of expectation had been built into the numbers at the time. However, the unemployment rate number seems to be driven by participants falling out of the labour force and thus the market may ignore it once the detailed breakdown of the report is out of the way.

We have started to see an interesting new dynamic emerge for the markets over the last 2 weeks. Increasingly hawkish FOMC voting members have started to cause broad based market reactions. There has been talk that the Fed may start to outline an exit strategy at the next FOMC meeting at the end of this month and it seems that any prospect of QE3 is quickly diminishing. Therefore a very strong number may be met with selling in equities after an initial move higher, and cause a sharp break down in bonds also. The inverse is may be true if the numbers are particularly weak.

Bull View

It is likely that the current trend higher in risk and lower in the USD will dominate markets. Perversely, a slightly weaker than expected NFP number may be required for risk bulls going into next week.

Bear View

The bears will see these moves over the last week as a potential sign markets are looking to turn and the NFP number may provide this catalyst. A weak close may signal a decent sell-off next week for equities regardless of a strong or weak number.

Futex View

We favour the bears. We see the markets primed for a short-term correction having rallied into the end of March on very thin volumes. Although we may need to wait until Monday for this to occur, especially if the numbers are particularly strong.

28st March 2011
Equity Index
Overview
Equities across the board last week posted strong gains and continued their recovery from the sharp losses seen in the aftermath of the Japanese Earthquake and Tsunami. Despite negative downgrades on some of the Euro zone’s sovereign ratings and mixed news from the week’s economic releases, markets on both side of the pond showed their strongest weekly gains in months.

Thoughts from the trading floor
Technically, the S&P 500 future continues to show bullish signs with a continuation of the bounce seen off the lows made at 1241.25 at the beginning of last week. The contract closed the week at 1310.00, breaking through resistance seen at 1304.00 and is now trading back above levels seen before the shock of events in Japan. This has left a significant swing low and further resistance will now be eyed at 1327.00 and furthermore, the 2011 highs of 1342.00. Short-term support is seen at 1280.00. The Dax future had a particularly strong bounce last week. After an impressive first hour on Monday the Dax retested the week’s opening lows on Wednesday but failed to break. This paved the way for further gains with the contract closing two previous daily gaps at 6872.5 and 6995.0. Although a strong bounce, the Dax is still some way short of the yearly highs at 7470.0 and resistance is eyed at 7050.0 and 7100-10.00. We would have to see a move below 6730.00 before the bears were back in control.

Although the charts have painted a strong picture this past week, negative news continues to provide the markets with reasons to be cautious. The markets have shrugged off the downgrades of both Spain and Portugal’s government bonds in the past couple of weeks, but after Portuguese politicians voted against the austerity measures proposed by the government, the country may finally have to seek a bailout from the EU.

Over the weekend there have been more violent clashes in the Middle East and further political unrest may cause traders to look to book profits on recent longs. The situation with Japan’s nuclear plants also remains a danger. While the markets have showed little worry recently over the situation, further radiation leaks must provide a cause for concern as we enter the third week since the Earthquake struck.

Important events this week

● Monday: Pending Home Sales
● Tuesday: UK GDP Final Q4, US Consumer Confidence
● Wednesday: ADP Jobs Report
● Thursday: US Chicago PMI, US Initial Claims, US Factory Orders
● Friday: US Non-Farm Payrolls, ISM Manufacturing

Bull View
After an impressive bounce following the Japanese Earthquake, the bulls are firmly back in control and will be confident of testing the 2011 highs of 1343.00 in the medium term.

Bear View
Bears will look for further negative news on the Eurozone economies as evidence of continued unsolved problems, along with clashes in the Middle East to try and regain some downward momentum that was reversed last week.

Futex View

We were bearish last week but despite a general negative news-driven week, the markets proved to be surprisingly resilient. Although in the longer term we expect the highs to be tested, we will look for some profit taking going into the month and quarter end, especially after the strong bounce witnessed in the last two weeks.

21^st March 2011

Equity Index

Overview

Last week equities stabilized after seeing sharp weakness on Tuesday and Wednesday. The German Dax Index, in particular, saw the heaviest losses when compared to equities on both sides of the pond.

Thoughts from the trading floor

From a technical perspective the S&P 500 future continues to look bullish in the short-term. The S&P future bounced rather smartly off the lows earlier last week at 1241.25 and is now trading around the 1289.00 handle this morning. A move through the 1298.00-1304.00 area would see the market regain a bullish chart posture, and mark the recent weakness down to 1241.25 as a significant swing low. This would then pave the way for a move back to the recent high prints for 2011 at 1342.50. For the Dax future there is a significant gap at 6872.5. If the market is to recover it must take this level out, otherwise it remains vulnerable to capitulations. If this level is taken, a further gain to the 6970.0-6996.0 area is favoured. The short-medium term outlook may be determined by price action around this level. This morning’s move higher needs the 6884.0 highs to remain intact. If this level is taken and the usual hourly close below here is achieved, we may see already nervous longs throw in the towel.

This week traders will continue to follow the developments from Japan. We have seen more positive headlines over the weekend that the nuclear plant issues have started to ease which has helped sentiment this morning. However, the issues remain an ongoing concern and any hint of a further deterioration in the status of the nuclear plants may result in market participants panicking out of recent longs.

Over the last week, we have seen a gradual escalation of social unrest in the Middle East. News that the UN will enforce a no-fly zone above Libya has helped energy markets recover from the panic liquidations seen last Tuesday. The situation in Bahrain and Saudi Arabia also remain a grave concern. This may prompt market participants to look to exit recent longs on rallies.

Important events this week

• Monday: US Existing Home Sales
• Tuesday: UK CPI, RPI.
• Wednesday: US New Home Sales.
• Thursday: US Durable Goods
• Friday: US GDP

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 1343.00.

Bear View

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

Futex View

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

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.

22^nd February 2011

Bond Overview

Bonds have achieved a positive week. This is the first noteworthy gain in German 10 year Bunds since the start of the year. The global fundamental picture is still causing large concern, as political stability in the Middle East seems to be disintegrating, which is slowly filtering into the markets.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have resurged out of their slump, under a fresh wave of buying. The market bounce off 122.29 lows, back to above the 123.00 handle. Buyers should be encouraged by recent progress, momentum indicators have ascended into higher ground. This should indicate further upside gains over the next few days; buyers will be targeting 124.36 and 124.53 levels. If these levels are cleared with ease the 125 handle is likely to be challenged. On a more negative tone, the medium to long-term trend is still bearish. It is unlikely that sellers will not give in without a fight. To maintain a negative bias for the next week 123.76 is an important daily swing low which buyers will have to be defended.

Portuguese bonds have seen a difficult week, with once again speculation of a EU bailout rearing its head. As well as this we have seen further indecisiveness amongst policymakers over a long term solution to the debt crisis. Wednesday’s Portuguese’s auctions did produce some interesting results as investors paid 3.99% for a 1 year auction. This catches the attention to us as trader as it is a lot less then yields paid in November and December. However this may be down to the fact that the ECB brought a large sum of Portuguese bonds early last week and investors are simply following on their coattails. This could signal a more positive note that investors are happier to gamble that a restructuring of Portuguese debt is a lot less likely to happen, with a 4% yield to good a chance to miss.

Important events this week.

• Tuesday: Consumer Confidence (US)

• Wednesday: BOE Minutes, Existing Home Sales (US)

• Thursday: Durable Goods Orders (US), New Home Sales (US)

• Friday: GDP (P) (UK)

Bull View

Bulls have finally regained their vigour and put in a significant gain over the past week. However their gains are small in comparison to the larger picture. To make a meaningful impacted in the market buyers should look to take and hold the 125.00 handle, as a building block for a larger up swing.

Bear View

Bears have slowly lost their tight grip on the market and have let a fresh buying wave commence. To stop a significant bounce sellers should cap the market below 124.36, but this may prove to be a challenge as the tide as turned against them.

Futex View

We have taken a natural stance on German Bunds, for weeks the market has slowly ground lower. We believe a considerable retracement is overdue, but we are still bearish in the medium to long term and will bide our time before selling again.

Overview

This week’s Weekly Strategy Session reviewed the reaction of the equity and bond markets to last week’s Portuguese and Spanish debt auctions and considered the market sentiment going into the third week of 2011.  High on this week’s agenda for our traders is the release of further important fourth quarter earnings in the US and key German sentiment data.  Also, our traders are still very aware of the state of affairs in the Eurozone and will be keenly watching the Spanish auctions to gauge sentiment and seek out trading opportunities.  Our leading indicator throughout the European debt crisis has been the peripheral sovereign yields.  We will continue to monitor these closely to help us pre-empt impending market instability and the volatility we thrive on.

Thoughts from the Traders

Last week witnessed market uncertainty on Monday morning with high peripheral European yields and question marks hanging over the future of the Eurozone.  This state of affairs was ahead of Wednesday’s Portuguese debt auction and Thursday’s Spanish debt auction.  Monday evening brought back a level of certainty to the markets when Japan announced that it planned to buy into the European Financial Stability Facility (EFSF), injecting much needed confidence back into Europe. This was the first of a chain of positive events for the Eurozone which included successful bond auctions in Portugal on Wednesday and Spain on Thursday, demonstrating that investor confidence had returned to the Eurozone and market stability was renewed.  A key beneficiary was the Euro currency which strengthened against its major partners, as well as Portuguese and Spanish yields which dropped and stabilised.

This renewed stability painted a calm backdrop for the ECB Interest Rate announcement on Thursday which saw rates being left unchanged at 1%, as widely expected.  However, it was Jean Claude Trichet’s press conference which turned out to be the key market driver as he commented upon Eurozone inflation increasing from 1.9% to 2.2% and the ECB’s bond buying programme.  Trichet’s hawkish tone, highlighted by his use of the key phrase “monitor closely” when referring to the current level of inflation in Europe, caused a general sell-off in core European bond markets.  New traders must familiarise themselves with such key phrases and words.  Their use by the ECB in the pre-prepared statement, or during the press conference, has historically highlighted to the markets an important shift in policy thinking/strategy.  Such preparation is key to trading successfully as it allows you to rely upon your trading instincts safe in the knowledge that they are built upon a sound foundation.  The mental clarity that this affords will make executing effective trading decisions much easier giving you the ability to recognise market trends and patterns swiftly, providing you with money making opportunities.

Going into this week we currently see stability concerning the state of the Eurozone as a whole.  However, following Thursday’s ECB press conference we know that any hawkish or dovish comments/news concerning Eurozone inflation and/or interest rates has the potential to unsettle the markets.  With this in mind, our traders will be paying special attention to ECB speakers - both scheduled and unscheduled.  It is your responsibility to research which ECB members are hawkish/dovish in order to provide you with an advantage upon the release of any relevant comments.

 Aside from the Eurozone debt crisis and ECB comments, a key driver of the markets this week will be fourth quarter earnings.  Traders should pay close attention to price patterns upon the release of earnings from sector leaders or other important companies, as these patterns often repeat in the markets on the back of subsequent earnings releases.  A profitable trade historically for our traders has been to fade aggressively the release of Goldman Sachs’ earnings.  This pattern and trade concept is very difficult to execute accurately whist containing your risk but will be something we will be paying close attention to this week.  Such trade ideas do not always endure over the quarters so you have to be quick to spot them and fearless in your execution of them.  The markets’ reaction will also give you an indication of overall market sentiment.

On the third Friday of every month we see final positioning before the expiration of standardised options contracts.  It is important that traders are aware of such events as they can produce volatility and thus tradable, short-term price movements.  Good traders will again identify repeated patterns in the markets around these specific events and develop money making opportunities as a result.

Summary

This week witnesses plenty of fundamental market drivers which should provide daily opportunities in the markets.  Bond traders will be very conscious of ZEW and IFO from Germany, whilst equity traders will be looking extremely closely at fourth quarter earnings and the markets’ behaviour in advance of options expiration. The Eurozone crisis has once more faded slightly to the back of our minds, but with the Portuguese yields now settled around the 6.8% level, it would not take much for them to breach the key 7% level once again and for the crisis to return to the forefront of our trading.

17^th January 2011

Equity Index

Overview

Last week equities continued to push higher buoyed by strong earnings from JP Morgan and easing fears amongst European peripherals. On Friday the S&P 500 future reached an annual high of 1290.00, a level that represented the market’s highest point since September 2008. This week traders’ focus will be on US earnings with many large US firms reporting including Goldman Sachs and GE.

Thoughts from the trading floor

From a technical perspective equities continue to look strong. The S&P 500 future has achieved gains for seven straight weeks and shows few signs of slowing. Last week bulls achieved their primary objective of consolidating above key resistance/turned support at 1277.00. This week they will need to capitalise on this technical break or risk facing a loss of momentum; their next objective being a test of resistance at 1313.50. A failure to hold above 1277.00 could see the market fall back to 1245.50 with further support found at 1216.00.

Last week witnessed the beginning of the earnings season which to all intents and purposes got off to a strong start. JP Morgan comfortably beat expectations setting the tone for this week’s releases. This week’s focus will be on other financials including Goldmans and Morgan Stanley. US bellwether General Electric is also scheduled to report, their numbers always garnishing substantial attention and one definitely to watch. We expect the strong tone set last week to continue providing world equity markets with a further boost.

Last Thursday the ECB announced their latest interest rate decision which, as expected, was unchanged. However, Trichet did manage to surprise the market during his press conference when he raised his concerns regarding short-term inflation. This provided equity bulls with a shot across the bows as it increased fears that rate hikes may occur sooner than anticipated. At this stage no rate hikes are priced-in in the short term, so if we see a general toughening in language from leading Central Banks, this would have bearish implication for equity indices.

Important events this week.

• Tuesday: Zew Survey (GE), Citigroup & Apple earnings
• Wednesday: US Housing Starts, Goldman Sachs’ earnings
• Thursday: Phili Fed, MS earnings
• Friday: Retail Sales (UK), IFO (GE), GE earnings

Bull View

Bulls will now be targeting resistance at 1313.50, hopefully aided by strong earnings this week. Their main concern will now be profit-taking as investors look to realise profits after 18 months of strong performance.

Bear View

Bears will be desperate to see the S&P drop below 1277.00 opening the door for a break lower. Trichet’s comments last week regarding inflation will have given them hope.

Futex View

We believe that the current bullish trend in equities is coming to an end and a pullback is around the corner. When it finally arrives it will likely be aggressive; further European sovereign concerns may provide the catalyst for this move.

14^th January 2011

Macro-events overview

Developments in the Eurozone debt crises this week

The latter half of this week has seen euphoria enter the markets on the back of easing fears regarding the Eurozone debt crises. Peripheral debt yields have witnessed solid retracements from their recent highs and peripheral stock indices, such as the Spanish Ibex and the DJ EuroStoxx 50, have surged higher since dipping sharply lower on Monday.

Thoughts from the trading floor

There have been several macro news factors that have hit the markets this week to help stabilise the ongoing issues in the Eurozone:

1. On Monday evening the Japanese government released a statement which reassured investors that they are looking to invest in the European Financial Stability Facility (EFSF). This helped markets stabilise after sharp risk aversion trading seen on Monday morning. The previous week also saw China making several statements to this effect.
2. There has been talk emanating from the European Commission that steps are being taken to expand the EFSF, with the Core Eurozone countries being asked to increase their contributions. However, several leading German politicians have expressed concerns over this.
3. Wednesday saw Portugal successfully sell their debt to the markets, a very positive event for the peripheral markets. Spain also managed to successfully sell its debt yesterday.

These Factors have helped stabilise the markets this week. However, we are still far from reaching a logical conclusion to the debt crises. Almost certainly we will see peripheral markets under pressure again during this quarter. At that point, bulls will need to see China and Japan turn their rhetoric into action and come to the aid of the Europeans. However, such aid will likely be required to save Spain rather than Portugal as it seems as though the market has already entered an end game with regards to Portugal’s fate.

Bull View

The bulls will look for the markets to brush aside concerns over the next 2-3 months. With global support for the Eurozone likely, should the peripheral markets start to disintegrate again, bulls need a period of stability so that the politicians and governing bodies can work out a system for extra market support.

Bear View

The bears will remain wary of these measures being put in place to aid Europe. The fact that every time further support is provided to Europe more has to be done at some later stage reveals that the markets lack long-term confidence.

Futex View

We continue to favour the bears. We believe that the Eurozone crises will enter the start of the end-game at some point during the first half of this year.

Last week equities performed strongly with the S&P 500 future setting new 2010 highs; peaking on Friday at 1241.50. This week sees a busy economic calendar with many releases.  Traders will be most concerned with the latest FOMC rate decision and US Retail Sales both released on Tuesday. (more...)