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.

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.

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.

21 feb tech sheet

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.

24 nov bund tech sheet

18 nov ftse tech sheet

17 nov ftse tech sheet

15 nov ftse tech sheet

15 nov bund tech sheet