Spread Betting Quoted Prices

Spread betting companies such as IG Index will be losing money this week. They always do when the market is so obviously moving in one direction. It is one of those strange industry facts that spread trading companies do not hedge their positions, instead relying on their spreads and market volatility to do the job of losing money for clients. Only a small percentage of traders make regular profits. However, when a market makes a decisive move in on direction - down in this case - everybody jumps in with the same trades and everyone is making money. Everyone, that is, apart from the spread betting company.

There are always tell-tale signs when this happens. In extreme cases you will see the prices indicating telephone dealing only. In cases like the last two days you will see prices being manipulated to reflect not just the underlying market but also the profile of bets on the trading company's book. Remember that spread betting companies are not market brokers but bookmakers. They may look and smell like brokerages but the taste is as much casino as it is stock exchange. Contracts such as binary bets and daily options are not covered by the FSA, and it was with the daily options that I finally saw the most flagrant price fixing.

I was trading Wall St daily options and had made good profits on put options but also had a call option hedge. Late in the session the Dow rallied bringing that call option into profit too, which was nice. However, as I stared at the Dow index price and my option price I was getting worried. The option was being priced at below its market value. At one point the market was 45 points above the option strike price and yet the option was being priced at 35 points - a huge 10 points below its value with no time value, or indeed negative time value, to speak of. I was tempted to wait for the market to close and then the option would have closed at a fair price. However, the indicators were pointing to another turn around so I sold it with a pathetic profit. It seems obvious that the calls were all hugely under-priced and the puts over-priced, no doubt reflecting the profile of the positions taken. But in my case this was a raw deal as I was already holding a position. This is the first time I have actually seen such a blatant mis-pricing. The only lesson is to be aware that these things happen and allow for it. During a "normal" day this rarely happens but you will see small price spikes as they are either adjusting the volatility setting in the options formula or, yet again, just trying to balance their books so they are not over-exposed and in the hope people will close early if they see the price start to go against them. The other option is not to use daily options, but sometimes they are useful, especially in a highly volatile market. Just be careful.

Trading Day

If June was depressing for stocks then July has so far been indecisive. The FTSE has traded in a narrow 200 point range. The wise thing would have been to just stay out and do nothing, as the intra-day volatility has increased so the indicators so useful in a trending market have been failing. A lesson for the future. The last time the FTSE did nothing for so long was last October, which just goes to show, if any more proof was needed, that we are at a decisive level. As bad news just piles on top of more bad news the support at this level seems to be purely technical. That doesn't mean the support is not real, just that historically the oversold indicators have predicted a reversal, even if temporary. For example, on 11 June the daily RSI showed an oversold market and the FTSE went up for 4 straight days before continuing its downward spiral. It could be as little as that or it could be much larger. The RSI gives no indication of the size of the reversal. As I've said before, it could be just enough to switch off the oversold red light. Fridays are usually volatile days, although if nothing much happens will hang on to the options till Monday as the Dow has been making significant moves in the last hour.

Trading Day

Nothing quite like a sucker's rally to brighten my morning! The Dow took a nosedive last night after Europe tried to rise. Perhaps time to decouple a little as the US and Europe are in slightly different economic cycles. Today will be the eighth trading day with indices stuck in this narrow range. We may end up with a similarly shaped day to Tuesday, with the FTSE and DAX having been pushed down overnight and slowly regaining their losses until the Dow opens. Nobody really knows! To short the FTSE again I want to see 5350.

Trading Day

A look at today's daily charts shows that some indexes have a bullish air about them. Perhaps all this talk of bottoms will stop being a fetish for a while. Also, I said before that the oversold indicator was likely to put a brake on the fall. Not because the market cannot fall further but just that technical analysts would expect some kind of rebound. The most telling moment was when the Dow hit 11150 bang on the nail and spiked up in what had all the hallmarks of automated computer trades.

So, the FTSE has hit the SAR and MACD is positive. One can never tell how far markets will move but the first test is the 30DMA at 5643, then the 5700 level. The whole thing could sink like a lead balloon if oil starts to rise again. There is one small crumb of comfort here in that the Chinese authorities have ordered all industry around Beijing to close during the Olympics, for fear of showing the world what a polluted capital they live in. So putting aside woeful corporate earnings, on just an energy point of view it is possible to have a month upwards.

TRADE
FTSE AUG 5750 CALL
BUY @ 60.3

The DAX has the same shape as the FTSE, the MACD is slightly positive but the SAR has not yet been taken out and stands at 6418.

The Dow also has the MACD positive but has hit the SAR on both the up and the downside in the last couple of days and I really would like to see it at 11400 before committing to more than excessive froth.

All three indices have come off their oversold indicators. The signs of an upswing are there in all three cases. However, I have only taken one call option out of the three. We should know this week if this is more than noise. Looking for FTSE above 5500, DAX above 6400 and Dow over 11400.

Trading Day

Half an hour ago IG Index was quoting the FTSE as opening 105 pts down, sitting at 5400. This seems to have more to do with the Asian collapse as the Dow is also quoted lower than last night's close. Now, we often see that the cash market needs to catch up with its out of hours prices, so with such a big drop I'm sticking my neck out.

TRADE
FTSE Daily
BUY 5420 call @ 26.6

Yesterday the FTSE was just 10 pts away from breaking the SAR indicator, which today stands at 5518. This is the first indicator to be flagged for any upward movement. The last few hours have shown it was wise it didn't touch it! The 30DMA is somewhat further away at 5645.

Trading Day

Another week, another bear market. A bright and sunny morning has quickly clouded over as FTSE heads for 5400 and the DAX 6300. Dow finally comes back into play later, and we shall see if it gives up on 11331. Talking of bears, the FTSE enters bear territory at 5400, hence has been flirting around this level for a week. The investment banks have been issuing conflicting advice of late. On the one hand we hear attempts at bullishness stating that equities are historically cheap and that much of the bad news has been factored in, and yet at the same time we see stocks downgraded on a daily basis. A case of watch what they do, not what they say.

From now on I will also be looking at the DAX. The FTSE and DAX have fairly similar shapes in the long term, but intra-day can behave somewhat differently. The DAX is largely composed of industrials and financials, without the heavy weighting in commodities. Hence, the DAX reactions to commodity and currency movements seems more clear cut than with the FTSE. We shall see if this continues to be the case.

Trading Day

Yesterday was another roller-coaster ride but today is the 4th of July and usually the FTSE is fairly quiet. The last couple of years have seen a small 40-50 pt range. But today is also a Friday, so I think will give a chance for the UK and Europe to think about their own economies. The paroxysms of the last few days are signs that this market will move sharply again - in which direction is a matter of speculation. The FTSE has fallen over 1000 points in six weeks - well oversold. The daily FTSE SAR is down to 5598 so within touching distance. Ironically, we may need to wait for the oversold warning light to switch off before a further leg down - this just requires a bit of sideways movement for a week.

Useful Trading Websites

I will update this as and when I find anything interesting. To suggest a site just leave a comment.

Economic Calendars

So you know when market sensitive data and announcements are released.

Bloomberg Economic Calendar
Pretty good, although heavily US leaning. Powered by Econoday, who have a personal subscriber version.

IG Index Monday Morning Briefing
Good on company announcements and economic data but strangely never mention central bank interest rate decisions - no idea why they miss these important events.

Trading Day

Last night we officially entered a bear market for the Dow - 20% down from its peak. Such labels may be merely cosmetic, but must have some psychological effect in that the bears can now look smug. The whole bulls and bears narrative sounds more like some forgotten mythology than a description of financial markets. I don't really give a damn about which way the market moves so long as I can find signals that catch those moves early enough to make a profit. But in the big wide world with lots more money to lose than me, many people have a vested interest in giving their unbiased advice. I really don't trust broker and bank recommendations as they just smell of self interest - there should be more independent monitoring services. Just take General Motors as an example. Two days ago the news was saying that the Dow's 200 point late rally was due to GM's better than expected sales. Their sales figures still sucked big time, but not as much as expected. Actually, that rally looked more like a reaction to oil coming sharply off its highs. Anyway, 24 hours later GM gets downgraded and its shares crumble - no new announcements, just another pump-and-dump play from the oh-so-wise big boys.

Well, last night was interesting in that oil did not retreat late in the day but remained stubbornly high, prompting the Dow to finally give up its bull dream. I expect this is in anticipation of the ECB hiking rates today, which will further weaken the Dollar against the Euro and thereby increase dollar denominated commodities such as oil and gold. Looks too easy a play so we shall see what will happen. I imagine much of the moves have already happened this week.

FTSE

Not so many support levels left to break. Looks like 5300 and 5100. The 5100 level may prove a bouncing off point as was the Feb 2005 high (5080) and then the Oct 2005 low (5130).

The ECB interest rate announcement is at 12:45 BST with a news conference later at 13:30 BST.

Trading Day

FTSE

Well, last night we seem to have had the customary pump-and-dump in crude oil. It closed higher but nearly $3 off its high. This gave the opportunity to the Dow to rally 200 points and save itself from a technical bear market at 11331.

All this froth just goes to show that these are important levels and one best be careful not to end up in the market the wrong way round. FTSE SAR down to 5689 and the MACD weakly negative. Yesterday the FTSE touched the same March low and only thanks to the Dow's overnight rally is it back to 5500. I think at the moment best use the 1-hour or 30-mins chart for daily trades. Seem to be working fairly well with just one or two trades a day.

Gold

Gold, oil and the dollar have been playing out their merry dance on a daily basis. This makes it difficult to keep hold of long-term trades as the last hour often sees a turnaround in fortunes. Having said that, gold is up some $60 in just 5 sessions. The 1-hour chart currently showing downward pressure.

Trading Day

FTSE

The FTSE has bounced off 5500, just as it did at 5700. The daily SAR sits at 5725, so won't call a rally until it hits that. It could, of course, be back below 5500 by the end of the week. For today, it currently sits at 5620 at pre-market and the 1-hour chart shows possible downward movement but am waiting for the SAR at 5615 to be touched. The market still seems fixated with oil as the fuel for inflation and a general economic slowdown, and not surprising as it hits record prices every couple of days.

Dow

Wall St has fallen further than the FTSE, due to its lower weighting in commodities. It is now almost at its January low. The first upward trigger is the SAR at 11625. On a daily basis the 1-hour chart still looks positive but very early for the Dow.

Gold

Gold has reached its May high of $935 then came off sharply to now sit at $923. Both the 30DMA and 100DMA are at about $900. Apart from a general weakness in its demand from jewellers gold's fate has been back in the hands of oil and the dollar.

IG Index has reduced its minimum bet size from £10 a point to £1. This means a $1 move in gold could be a £1 move in a trade - not a huge amount of money to be made with such small bets but useful to practise with real trades without breaking the bank.