Stockmarkets (Profit Summary)

In my prediction from my Blog-post on Thursday, January 28, 2010 "Stockmarket on the Rise" I predicted short term (1-3 months) positive growth of about 6% to 5600 (for the FTSE) and potential gains of 10% for more mid-term holding periods.

It turns out this prediction was spot on right, and looking back a good deal of money could have been made on this recovery push on FTSE index futures of ETFs.

Currently this is where we are price-wise on the FTSE index (source: yahoo finance)



In fact, let's look at what would have happened if we'd traded long (buying / speculating on an up-move in the market) over the period, which is the trade you'd do given my brief analysis from 28th January.

Bought at the non-optimal price of 5142.2 and sold at the common price over last days and not quite high of 5820. The transaction size being the smallest allowed with most brokers of only 3 pounds-per-point, then the profit generated would have been a respectable £1'800 and bagging in a 12% profit. This would be even higher would it not be for the daily financing costs of the trade. Table below summarises such a trade:

Stockmarket on the Rise

Shown is the FTSE-100 index over the past 2 years, as I am sure you can gather from the chart without much of Technical Analysis experience, there is now an uptrend / recovery ongoing. Since about July 2009 the capitalisation of UKs top companies increased by about 30%... pretty strong growth if you'd ask me! (actually this isn't growth as such, but the immediate prospect of financial failure probability rapidly having disappeared...)

See the 5 year chart here, to gain a fuller picture of where we are in terms of historical price behaviour.

Conclusion: Speaking from a Technical Analysis perspective, we can expect a rebound and further short term (1-3 month) growth in the market, i.e. 5300 to about 5600 points, thats about 6% growth in the immediate future with a potential to cash in on a good 10% growth in a more mid-term time frame!

Fundamentals aren't so interesting, but to be honest, compared to where we were a year ago (politically, economically,...), things are looking rather good! i.e. 1% economic growth, housing/morgage figures, (+)ve anticipation of general elections, ... on the other hand, the tax cuts are wearing off (VAT back to its old level), threatening taxes & regulation for investment/corporate banks...

...any comments, please feel free, I apologise for the moderation, but with all the spamming going on I am sure you understand. Thanks.

Recession RECOVERY is here!!!

French & German GDP figures for the second quarter show it clearly - black on white, finally the economic growth substantiated. Technically this means Germany and France are out of the recession, yuppiii, yep yey, you might think.

This is not quite the case thought. It seems most of the growth was spawned by govermental rescue packages and incentives that initiated good levels of consumer spending (i.e. old car exchange incentives). Export levels in germany have indeed increased, however imports have fallen which in fact inflates the GDP figure with a certain uncertainty.

Let us hope the largest shrinking of worldwide economies is over soon, but maybe getting too excited too quickly will be a mistake.

Markets are on a big move!!

Most main markets are very highly correlated (correlation is a statistical measure, it indicates strength of relationship between data). Specifically, the big falls and rises tend to happen in tandem. DAX and CAC, or FTSE and DowJones on a daily basis on average might move by differing magnitude and direction. However, what correltion tells us is that there are some moves that tend to co-occur. A simple analysis of the indices data shows that it is the large moves that tend to co-occur most often.

Today the 6th July (Monday) is one of those days, a large and negative move throughout all main markets has pertruded world markets. Also on a larger granularity, over March, April, May FTSE market has steadily increased in value, and a negative trend is clearly emerging during June and July! Dow Jones, DAX, CAC, NYSE, etc... show all the same pattern, not surprising since mass psychology affects every market participant to a degree.

In my opinion, July will with certainty see some decrease of valuation over all major indices. Reasons??! A number of them: Macroeconomic figures, Company outlooks, political, environmental stability and most Technical Analysis points towards investors' uncertainty surrounding recent price advances.

Monday 8th Dec 2008

FTSE rose to 4300 by 6% today. A good time to sell short might be tomorrow, this depends on overnight movements in markets. However 4400-4600 is a strong resistance against upward moves, so plunging into any long trades with both feet would yet not be a wise move.

Todays' bullish world market performance (Nikkei 5.20%, DAX 7.63%, CAC 8.40%) is attributed to Barack Obama's rescue package plans [see http://biz.yahoo.com/ap/081208/wall_street.html].

Catching the big Moves

Most trading seems to be sideways (I'll do an empiricall analysis sometime soon, when I get a spare moment), however at breakout points strong trending action tends to occur and this are the best places to get into positions with good stop loss order strategy. Especially then (with a loss limitting strategy) when you are wrong, it doesn't matter too much!! Famed trader Bruce Konver talks about this in Market Wizards [pp. 59]: Michael Marcus taught me one other thing that is absolutely critical - You have to be willing to make mistakes regularly; there is nothing wrong with it. Michael taught me about making your best judgement, being wrong, making your next best judgement, being wrong, being wrong, making your third best judgement, and then doubling your money.

I just experienced such a situation yesterday. Friday close & Monday open FTSE-100 rolling bet price was at around 4200 and I felt dead sure on selling short. Unfortunatelly I lacked the concentration & peace of mind to execute this trade, during the day the price fell down to 4000 with literally no big %tage up jumps that could trigger a good stop loss with reasonable bet sizes. With a 20 bet-per-point transaction size this would have produced a £4000 profit with only ever giving a virtual loss of around £500 during the trading day. The best thing of all, if I didn't manage to sell at end of trading, I would be able to sell for even less the next day untill 10am Greenwich Time.

You could say it is a shame I missed this trade, but this is completely beside the point. I have learned a lot by observing what my trade action would have been without putting money at stake. Next time a market price builds up that I am completely confident about its point moves, I hope I will have the guts to listen to my intuition and trade on it. Quite obviously it is conforting and true what Robert Petcher sais about this psychological problem all serrious traders epxerience at a certain point: It is difficult enough to develop a method that works. It then takes experience to believe what your trading method & intuition is telling you. But the thoughest task of all is turning analysis into money.

9.84% Up day

The FTSE-100 opened with an up gap and rallied towards the end of the trading session to close at 4153 points. The psychological price level of 4K is being highly disputed by nervous market participants, as Citigroup receives a bail out package of over 20bl and the UK treasury announces further tax rate cuts in an effort to inspire more consumer spending and pump money into the economy.

Germany and France have also seen over 10% growth, whereas Nikkei 225 performed poorly with 2.7%.

To be honest it seems the 4K level will not be given up without a fight. It is always easier to find reasons for a move after it has occured and I am certain nobody expected such a strong rally on European Markets today.

So no approval, hmm...

Rescue package didn't gain congressional backing. There was always the possibility of this happening, the rescue package of $700b announced on 19th September has failed to get approval by lawmakers. The effect was a fall of UK's FTSE 100 index by 3% before recovering to rise to 0.3% by later morning hours. Biggest losers was the banking sector in the UK, with HBOS down 10% and Royal Bank of Scotland 10% lower. Relevant articles can be found on http://news.bbc.co.uk/1/hi/business/7643441.stm and http://biz.yahoo.com/ap/080930/wall_street.html.

• Dow Jones fell on Monday 29th by 6.98% (777.68 points) one of the largest one day drops ever
  
• In the UK, FTSE 100 fell by 3% early morning but recovered quickly. Hopes in Europe are still strong on getting a rescue package approved soon.

FTSE-100 & 19th September

Wow, the current stock-markets are serriously volatile!

The 19th Sept 2008 (last Friday) has seen an 8% rise on the FTSE-100. The biggest rise since its inception on 3 January 1984. This was the reaction to US, Bush backed plan to pump $700bn into the markets http://news.bbc.co.uk/1/hi/business/7628144.stm. Even thought this plan still needs congress approval (which it is expected to get next week, before the pre-election break commences), it has immediately spurred immense optimisim within investor circles.

A 700bn fund that promises to buy out a lot of bad loans and CMOs, CDOs, ... is a pretty hefty rescue package. It is a real strategy / plan rather than tactical ad-hoc case based interventions that we have seen up to this point.

A couple links to nice educational videos about the products behind the mortgage/debt crisis are below:

• Mortgage Backed Securities - http://www.youtube.com/watch?v=DHLcD405VsI&feature=related
• Structured Securities - http://www.youtube.com/watch?v=-Ycjn8xzszA&feature=related
• Asset Backed Securities - http://www.youtube.com/watch?v=3_pRi0BThJM&feature=related

have fun!!