Trading Day

Back online now! I know, nobody has missed me, hence am changing slightly the way I write these Trading Days. If I see some comments posted and the development of a readership I may change again. As there is an obvious delay between my trades and my comments, and a further delay for when the comments get posted, I don't think it necessary to try to make comments as 'live' as possible. This also means I can concentrate on the dealing screen and write comments at idle moments. I will experiment with this format and see how it goes.

What is ultimately important is developing trading tools and strategies that work and make money. Once those are in place then my trading comments become superfluous. We can all see the same data and use the same indicators, so will concentrate on longer articles.

Anyway... back to our programming.

FTSE

Yesterday touched 5580, which was also the low on 31 March. The Dow overshot its crucial 11750 by ten points then rallied. Today sees the Fed announcement on interest rates but as always this is after London closes, at about 19:15 BST. Depending on where you are in the world, this is often worth being awake for, as otherwise you will see the movement reflected in the FTSE's open the following day. The Dow's 11750 level is its March lowest close. The FTSE is still some way away from its March low at about 5460. Now, for the Dow this is more than just a local support - it is about the high of the 2000 tech bubble. A drop lower means that anybody invested in the Dow has been wasting their money for nearly 10 years. In contrast, the FTSE has been moving sideways for 10 years.

Just look at, say, a 20-year chart of the two indices. The tech bubble took the Dow to just short of 12,000, folowed by a credit bubble taking it up to over 14,000. However, the FTSE's twin peaks are at the same level, just shy of 7,000. From a purely technical perspective, this looks ominously like a double-top and there is no good reason why we can't see the FTSE back into the subterranean 4,000's.

I am reminded of the often quoted statistic that in the long term stocks have outperformed bonds, but only if you reinvest dividends. In a sideways market this last little proviso makes a huge difference.

Anyway, coming close to such important levels will no doubt see another bout of increased volatility, so I wouldn't be surprised if the market rises again to meet the 30DMA at about 5840 before falling further. It could, of course, just sink to 5500. I think it too late to take any long-term short positions, using the daily chart, but the 1-hour chart continues to be profitable, with the 100EMA line showing good trends over a 4 to 5 day period.

Bottom? Who knows!


GOLD

Gold has been twisting around faster than a dog chasing its tail. With the dollar on a weak upward trend and oil trading sideways it is hard to gauge the short-term future. The 200DMA at $868 is holding but gold fell away very sharply from trying to reach $910. After a period of what looked like nicely tradeable signals it now looks unclear until it makes a move outside this narrow $30 range.

Trading Day

FTSE

Dow sits a slither above 12000. FTSE around 5760 in pre-market. Last support at 5700. Came sharply down from the 30DMA, now sitting at 5930.

GOLD

At the top of its current range, just shy of the 100DMA at $896, with the 200DMA at $867. Seems to be following oil but gold's peak was back in March, showing some demand weakness since then, although propped up by its hedge status.

Just as a reminder that what are considered traditional relationships between markets may break down some days as sentiment flips.

Trading Day

No time for a preamble...

TRADE
FTSE
SELL @ 5842.8
1-min chart premarket

TRADE
Gold
Buy @ 844.4
30-min chart

Trading Day

On Gold: in one session gold went from its 200DMA up to its 100DMA. This morning it sits more or less in the middle of this range. Yesterday was boosted by falling dollar and oil spiking to a new record just shy of $140. Still needs to break through $900 to call a new rally.

On FTSE: yesterday was a poor trading day. Was probably just my not reading the script, but was very choppy and ended just below 5800. After a relentless fall from 6400 to 5700 the FTSE is taking a breather. The daily chart is still giving mixed messages, with a possible upswing but also just as likely to be a pause before 5500. The same thing happened in April when the SAR signalled a sell but the MACD remained weakly positive. Under those conditions it is a wait-and-see signal! Indeed, in April was wise to do nothing as the market turned upwards again within a few days.

Trading Day

Back to another see-saw week on the markets. The FTSE daily chart has finally broken the SAR and so we are now looking for further upward movement. The only caution is that the MACD is still in the red. However, as we've seen over the past few weeks, the FTSE has tested and re-tested every support and resistance, so perhaps no surprise that it will now test its resistances. The first one coming up is the 30DMA at about 5965. It needs first to move up convincingly from its current pre-market 5820, which was the April support. This could now herald a period of holding on to upward movements rather than downward. I would still look to a positive MACD before committing myself.

Gold looks less healthy, just $3 away from hitting the SAR to indicate going short. Continues to sit just above its 200DMA. No great entry point to buy, although if it were to get to $875 then that could signal a lurch up to at least challenge $900.

Waiting for the right trading signals.

The Clouded View: On Gold

There are enough gold newsletters to fill a bullion vault, so why bother writing about it? Well, ever since a brief stint at a commodity broker, it has been one of my favourite markets. And since starting to write this blog have come back to it; initially as an important factor in the movements of the FTSE but recently as a market in its own right. It has more potential for medium-term trends and is a truly global market (unlike the stock indices).

As an example of the current state of technical analysis on gold, here is a recent article from Reuters. As usual, headlines seem designed to deceive, as the article seems to champion a rally back up to $1,000 an ounce. However, a closer read shows that there are numerous dissenting voices, usually citing weak global demand. Now, I don't run any econometric models, I don't have a stash of gold bought at $900 to flog, and I don't have any private clients who hang on my every word. I have no vested interest in the future price of gold. I do have a vested interest in trying to read the charts correctly and finding signals for profitable trades. Whether you are day trading, spread betting or hoarding little gold bars, it is important to get the timing right. The article quotes Goldman Sachs as lowering their 3-month projection to $860 (which is no great insight as that's where we are now) and their 12-month projection down to $800. To give them a little credit, in January 2008 the same broker predicted gold at $1,000, although at that point (in the middle of January) it was already at $900. They also predicted an average price for 2008 of $915. I know, predictions change in the light of changing markets. But in November 2007 the same Goldman Sachs advised clients to sell gold, contradicting a research note from one of their own analysts. This didn't start off as an inquiry into broker recommendations, but it just shows you how wrong (and how self-interested) they can be. For all their big offices, expensive suits and computer power, they are no better than a laptop, charts and a brain.

So what do the charts tell me? The only gold charts I have found of any use are the daily and the 1-hour time periods. As of today gold is trading at $870, a whisker above its 200-day moving average. This 200DMA has held solid since the recent gold rally starting in August 2007. On the 1st and 2nd May 2008 it tested it then rose to $935, only to fall back to re-test it now. The 200DMA sits at $866. The 100DMA is at $897. The last 3 weeks have seen the gold price squeezed between these two levels. This suggests to me a break-out coming pretty soon. The pressure at the moment is undoubtedly downwards, with this 200DMA being the last critical support. The market has already tested $845 on 2 May, which was also the November 2007 high. A break down through this and we are looking at $775 as the next support, this being the low during Nov-Dec 2007. But why the doom and gloom? Surely gold will leap up to $1000 again on the back of rising inflation, bullish oil prices and falling stockmarkets? Well, I am a poor lonely trader without the resources to simulate my own global economy and, given the results of those who do, I feel better just looking at the numbers. All the pushes and pulls on the gold price are reflected in... the gold price. So why look elsewhere? So, to complete my down-side view, the last two days have seen the gold price dip below $866 but on both days has closed above. There may be a pocket of resistance at $850 but below this it's a long way down.

What about the up-side? Well, before we can call a new rally it really needs to get out of this trough. Even going up to the 100DMA at $897 won't be enough, but would obviously be a start. The daily chart shows a string of lower highs, which is hardly bullish, so we really need to see one higher high at $910 and then $935 and then $950. Whatever happens, it looks to me like it will happen within the next month. So how do we trade this?

The daily chart is good for trends and support/resistance levels but doesn't inspire me with great-looking trading signals. For these I switch to the 1-hour chart - but keeping in mind what we've learnt from the daily chart. A look at the 1-hour chart shows almost an identical image for the last 6 days as for the last 4 months - a fractal if ever I saw one! Pure coincidence, but proves why different timescales (different magnifications) can reveal interesting information. One crucial difference, however, is that the 1-hour chart seems to give pretty good trading signals. Over the last week we have seen lower highs and lower lows and have now just come off $860 with a buy signal at about $868. These are short-term signals that can last from 6 to 48 hours and should be taken within the context of the daily trend. The range between the 200DMA and 100DMA is just $30, so I don't expect it to stay here for very long. Using the combined SAR and MACD indicators has yielded some very good trades recently. What the 1-hour chart allows you to do is to catch the new trend before it shows up on the daily chart. At the moment it has signalled a weak buy, but I don't like holding on to trades over the weekend. The markets may be asleep but the world certainly isn't. A move down to $865 will probably trigger a sell signal. As always, I don't make predictions. You can look at the same charts as I do and make your own conclusions. All I really want to do is look at markets with trading signals that work.

One brief note on trading gold on spread betting platforms. As usual, will take IG Index for my example. There are not too many instruments available for gold, which I find slightly surprising. The only binary spread bet available is a simple up/down bet. There are no futures options available, merely daily options - which I generally find poorly priced. Perhaps more importantly, gold is one of the few truly global markets, traded round the clock, and as can be seen from the 1-hour trading signals it is totally ignorant of human sleeping hours. This means many trades will need to be left open overnight and using the daily options one will have to close one option then open a new one, with loss of the spread. As I have written elsewhere, the bungee bets are identical to the daily options, so no more need be said about them. So we are just left with a pure play on either the daily spot price or futures price. The minimum stop on IG is $2 but that seems overly tight and I prefer a $4 to $5 stop loss.

Enjoy the ride.

Trading Day

TRADE
FTSE Daily
BUY @ 5762

pre-open so spread wider than within market hours. Take quickly at any sign of a loss.

Game on!

Trading Day

Where are we going today? The FTSE daily chart shows absolutely no signs of recovery, with 5500 and below looking likely. The resistances are so far away that they are as likely to be touched as a cathedral vault. Oil, banks, housing and retail are our four horsemen of the apocalypse - all we need now is another dumb war as a parting shot from a lame US administration. Of course, the reason to manufacture a war is to manufacture arms and thereby help a large but selective part of the economy - the General Electrics and Westinghouses of this world.

Resistances

6000
5800

Supports

5680
5500
5415

Trading Day

TRADE
FTSE Daily
SELL @ 5837.5
3-min chart

Still have a Jun 5700 put which has been losing in time what it has been gaining as the FTSE has dropped.

As I said, 5800 was the obvious first support, and I still don't see much support other than 5500 after that. Possibly 5700, which was a support mid-Jan to mid-Feb.

oh yeah...
TRADE
BUY @ 5822
Profit = 15.5 pts
not a bad start!

Trading Day

The Bank of England announces its decision on interest rates at noon.
Brace yourself.
Could be a boring morning. Any sign of it just treading water and I'm taking a break and coming back later.

The mood seems to be of gloomy resignation of interest rates staying at 5%. The BoE obsession with inflation above and beyond anything else has painted it into a corner. Even more of joke is that real personal inflation is closer to 10% than 2%, but the authorities now love to take out of their official inflation figures anything that might actually be inflationary. Data Corrupted.

Is Gordon Brown likely to be the only prime minister never to win an election?

OK, time to watch the numbers...

Far Out Trades

Been ignoring these lately, so here's a spread betting wet dream!

FTSE down 100 pts
40 mins to close
Dow rising
FTSE to finish down > 50 pts
SELL @ 96
Cost 4 pts

Go baby! Go!

Trading Day

Another of those mornings when the spread betters have pushed the FTSE down to ape the Dow. Expect it to rise to meet last night's close. There is probably a strategy lurking in these movements but the profit potential seems so slight compared to the risks. What it does mean is that even if it is a down day this isn't the right time to go short.

FTSE closed above its 90DMA, although as of writing sitting some 30 points lower. Long term daily trend still bearish but has been putting on a good fight for 6000. The next level up (if that's not too wildly optimistic) is 6095. On the down side it still looks to me like fresh air down to 5800.

Waiting for the bell...

Trading Day

Resistances

6105 (30DMA)
6095 (200DMA)
6043 (90DMA)

Supports

6000 (barely a support but did close a nose above this)
5800

In terms of day trading, the 1-hour chart needs to go above 6000 to confirm a positive trend, as does the 30-min chart. It would be worrying if the charts didn't tell us the blindingly obvious! A drop below 5970 to confirm bearish session.

Trading Day

Was feeling good about having taken my put option at 91 pts on Friday, seeing it at about 75 before the open. Now am not so sure! Oh well, one that got away.

Missed the big leg down but grabbed it at the 30-min chart entry.

TRADE
SELL @ 6032.5
FTSE Daily

Been watching it creep back up but have now managed to move my stop down to 6030 so safe for this first trade of the week!

Now decidedly below all 3 daily moving averages. A break below 6000 and I think we're staring at 5800, the mid-April low, then 5700 and 5500... but surely those are for another day!

The Clouded View: Commodities and Stockmarkets in Sync?

We are so accustomed to seeing headlines such as "Markets tumble as oil hits new highs" that we are also prone to believe them. The traditional view is that high crude oil prices feed into inflation, erode profits and hence lower stockmarkets. The traditional view is that gold is an inflationary hedge and hence will rise and fall in tandem with oil. The traditional view is that as both oil and gold are priced in US Dollars then a fall in the currency will lift these two commodity prices so that for the non-dollar world their value remains more or less even. the traditional view has been completely and utterly wrong in recent months.

From its mid-March low of 5416 the FTSE then rallied to 6360 only to recently fall back to this morning's 6045 (-5.5%). In the same period the Dow has gone from 11670 to 13139 and then fell back to a recent low of 12441 (-5.4%). At the same time crude oil has gone from $98.60 to $134.20 a barrel, only to soften to $126.40 (-7.2%). Gold has shown a slightly different trend, peaking at $1032 just when the other three were at their recent lows. However, from mid-May it has shown the same 7% drop as oil. It is this short-term drop in both indices and commodities that I initially found puzzling, then noticed the longer-term trend between oil and the indices. From mid-May the gainers have been Sterling versus the Dollar (up 2.3%) and the Dollar against the Euro (up 2.5%).

So what about this supposedly negative correlation between crude oil and stockmarkets? The FTSE charts show all the signs of it being a commodity-based index and ignoring the broader market. If you look at the FTSE sectors (all traded on IG Index) you will see some very different markets going on. The Mining, Oil and Gas, Oil Equipment and Engineering sectors are all on a high. The rest are either in decline or treading water. The FTSE has some serious players in this area and, on its own, the rise in these sectors looks like stating the obvious. The Dow has less of a commodity weighting yet has shown a similar pattern recently. The thing that I find puzzling is that the rest of the FTSE market sectors seem to be unsure how to respond.

I hate making predictions, but rather just look out for the signals that herald major moves. In this case the key issue is the negative correlation between commodities and stockmarkets. The recent positive correlation must surely break down at some point. To which side is a matter for tipsters. But if inflation fears return, coupled with falling real estate prices, then the other FTSE market sectors are heading south dragging the broader index with it. The commodity sectors will merely cushion the fall. On the upside there seem to be few good signs for the UK economy so that in the short term we may continue to see these resource sectors leading the way. A real unalloyed rally will have to wait until the UK consumer feels wealthier again. There is, of course, a third option, and that is that raw materials and resources will continue to grow in importance and that the FTSE will increasingly resemble something like the Australian market. In this case, the disconnect may be between the FTSE and the Dow. One of these days I'll believe those headlines again.