FuturesTechs Blog

2012 has started well for equity investors as January has seen gains across the board. A standout performer is the Dax which has gained 10.9% YTD as of the close on the 26^th January. Mainstream financial media would have you believe that the ESM, EFSF, ECB’s SMP, QE 1 and 2 (3? around the corner) and various other three letter acronyms (TLAs) created by the establishment have rescued capitalism and the financial system from sure disaster. Undoubtedly an exceptional amount of liquidity has been made available to financial markets and as a result asset classes have been boosted, but as a Technical Analyst there are signs that particular markets may be due for a pause.

Yesterdays blog post included the FTSE Index approaching a significant Fibonacci retracement and testing a trend resistance line as shown below (Click on the picture to enlarge it)

Today we highlight a similar situation in the DAX (Click on picture to enlarge it)

The chart shown is the Dax Future and highlights the recent rally approaching resistance. An old trend line which has proven both resistance and support, and the 61.8% Fibonacci Retracement level of the July ’11 to September ’11 bear move are both being tested during this weeks price action.

The Dax has a particular relationship with the 61.8% retracement and often provides critical points of consolidation and often reversals. In September ’11 the Dax consolidated around the 61.8% retracement of the 2009 -2011 bull market and whilst the popular press and general consensus continued to call for lower prices the Technicals indicated a reversal was due, which I highlighted vehemently in our reports and in a special webcast. Another worrying sign is the lack of volume attributable to the gains seen so far this year suggesting the weight of ‘Real Money’ is unwilling to partake in higher prices, making them less sustainable.

So while the general consensus is for higher prices supported by unlimited liquidity from Central Banks worldwide, the Technical Outlook suggests the bigger picture Risk/Reward doesn’t favour the bulls.

Please navigate to the relevent buttons above to request a Free Trial of our reports, which cover all the major Equity Indices as well as Bonds, Commodities and Forex.

Liam Roberts MSTA

One of our services offered to clients is providing trade recommendations in UK equities. After taking a step back from the market last July – October when Risk Reward opportunities weren’t viable given the intraday volatility, our service has resumed and run consistently since December. Capitalising on the year end rally and move so far this year recent recommendations report solid returns. (For a spreadheet of our Trade Recs please contact us)

Our current outlook for the FTSE itself remains bullish in line with the recent trend higher although a lack of volume is worrying as we approach significant resistance as shown by the FTSE chart below.

As such, the Risk Reward for further upside in the FTSE isn’t particularly favourable so our recent recommendations have focused on short opportunities. Obviously such action is risky given the trend of the market which is why we’ve looked into stocks that have recently released fundamental news and reacted with a large increase in volume. Two such instances are Tullow Oil and Morrisons Supermarkets.

Tullow Oil has been trading within a broad sideways consolidation since September but continues to fail around 1470. After releasing an update the stock gapped lower to post an ‘Abandoned Baby’ candlestick reversal. Additionally a failure at the underside of a broken up trend line has provided an opportunity for a short trade running a stop above the recent gap lower.

Morrisons Supermarkets posted a massive reversal candle at the start of the year and hasn’t looked back since. After selling off significantly Morrisons lost further ground and gapped lower following comments from rival Tesco. A counter trend rally has returned to the 38.2% retracement and a break above short term swing highs at 298 was rejected yesterday to post a Bearish Engulfing Candle on good volume. Trade below yesterdays low begins to confirm the Bearish Engulfing candle providing an entry for a short trade whilst running a stop above the Gap.

Both these trades have been sent to our clients and although against the trend of the market their relative underperformance, fundamental news flow, and increased volume increases the probability of the trade. This is why stock selection is key.

Liam Roberts MSTA

We appear to have piqued the interest of a few of you this week by adding the Market Profile charts to our reports. Market Profile is a charting method owned and copyrighted by the CME Group and developed in the 1980s by a chap called Peter Steidlmayer.

Steidlmayer was a trader in the Grains Pits and realised that the market was an ordered “auction” process made up of a number of different players, all of whom had various levels of interest in the short or long term direction of the market. The “Locals” like himself weren’t too bothered by long term moves and merely traded “in and out” over the course of the day. It was the “Commercials” or long term players such as Banks, Funds and (in the case of commodities) End Users, who had an interest in moving markets, and keeping these moves going in their favour!

Market Profile attempts to track this auction process on a daily basis to discover which group is running the market at any moment, and therefore whether price moves are likely to be sustained or reacted against with opposite trade. It is a popular tool with day traders in Chicago, and increasingly well utilised by London’s Prop trading community.

We have long used Market Profile as an additional tool to our daily, weekly and intra-day Candlestick analysis, but have steered away from talking about it for the sake of keeping the reports simple.

Now let’s look at a Profile and some of the terminology:

The Profile (see the graphic below) is made up of a series of letters, each letter representing a half an hour period over the course of the day. Instead of spreading across the chart from left to right like a traditional (30 minute) Bar or Candle chart the letters, known as “TPOs” are pushed as far to the left hand side as they will go, and this produces a distribution curve, effectively showing what price most trade has gone through at.

The longest line of letters closest to the centre of the day’s range is known as the “Point of Control” (D on the chart below) and is, effectively, the “mean” average price, sometimes known as the volume node.

If you move 1 standard deviation either side of this price you get the “Value Area”, so we’re not just talking about a price at that the market gravitated towards, but a “comfort zone” for price. Traders watch the previous day’s value area extremes (C and E on the chart below) carefully and this is one of the reasons we are now going to post the previous day’s Market Profile in our reports.

This means there are three more levels (on top of the previous day’s high, low and close) that active day traders will watch out for.

Another thing to watch for on Profile charts is occurrences of “Single Prints”. The chart below shows a “Single Print vacuum” in yesterday’s “K” period, when the market spiked higher and sustained the bid. This gave us support at 111.58 today in the Feb ‘12 Brent Crude, and as it turned out we spent very little time below here before rallying smartly.

The market tried unsuccessfully to “raid” yesterday’s Value Area, but this was rejected and we “accepted” the new higher valuation.

We did write a Blog about this a few years back. Here is the link:  

http://www.futurestechs.co.uk/blog/2010/01/06/technical-analysis-tutorial-market-profile-1/

We will also expand upon our interpretation of the Market Profile in our daily reports from now on, as we have the charts to illustrate what the heck we’re on about!

In the meantime please do drop us an e-mail if you have any questions (if you’re a client, of course!!).

As per our previous post, where we looked at how we’d done over the year in the Bund, here is a similar excercise for Brent Crude:

Brent has been through a volatile period this year and proved difficult for many investors and fund managers to trade successfully. At FuturesTechs we’ve called things pretty well, capitalising on the move up at the start of the year as the Libyan situation escalated, and subsequently calling the move down. Sideways trade since has proved a challenge, but our trend following mantra and reliance on Candlestick patterns as well traditional reversal signals has ensured a vast percentage of the moves have been captured. The chart and captions below review our commentary and thoughts at some of the major turning points throughout the year.

A: Maintained a Bullish SkewBar throughout the start of the year until a neutral stance during a period of consolidation late January.

B: Highlighted the upside breakout as Bullish and called for a move to 104.98.

C: Maintained a Bullish stance during this pullback as a ‘Buy the Dip’ scenario

D: ‘‘Only a big reversal pattern on the daily chart would see me thinking of anything other than bullish thoughts’’ 24.02.2011

E: ‘Shooting Star no confirmation’ – Still Bullish.

F: ‘‘Bearish Engulfing Pattern. For the first time in a while I might just disagree with an outright bull trend following approach.’’

G: ‘‘Are we breaking this consolidation phase to the upside? YES WE ARE!’’

H: ‘‘Don’t buy Brent Crude today’’ Rule of 9.

I: ‘A drop through 119.03 will give us a Double Top sell signal’ 05.05.2011.

J: ‘We would expect 113.50 to continue to hold and for 115.48-62 to give way some time soon to give the bulls encouragement to head to higher levels. ‘

K: ‘’Our Bull Skew got smashed to pieces yesterday. All change.’’

L: ‘‘The Hammer candle indicates the potential for a change of trend so about the previous days Marabuzo line at 107.13 we’ll back the bulls expecting a move to 110.90-111.73.’’

M: ‘’The failure to sustain new highs for the move followed by a significant sell off suggests the bears have the upper hand. A sustained break below 114.66-78 see’s our Skew firmly back the bears. ‘’ 02.08.2011

N: ‘…a Hammer candle indicating the rejection of the new low. This is a potential change of trend signal and on a move through Marabuzo and Fib resistance at 106.14 and 107.01 respectively our Skew backs the bulls for a move up to 110.58 and 112.13.’

O: Our SkewBar struggled whilst Brent chopped around, then we said ‘This pullback has left a potential Right Shoulder of a Head and Shoulders Top formation on a shorter timeframe chart’ 19.09.2011.
‘Our Skew is in neutral territory requiring the bears to break 108.07 before backing them.’ 20.09.2011

P: ‘’Our chart has taken a step back  today and put the recent price action within the confines of a broad down trend channel, which we have also labelled a-b-c.  This is an Elliott Wave annotation which we’ve added as it’s possible that this recent move lower is the bottom of a counter trend Wave 4. If this is the case, much higher prices are on the horizon.’’ 06.09.2011

Q: ‘’Friday resulted in the 9th Green candle in a row. The ‘Rule of 9’ suggests that this rally will not post more than 9 green candles. So today we expect to post a red candle’’

R: ‘Buying dips was our favoured outlook, but given yesterdays Engulfing candle and a 3 day Evening Star formation  our Skew is going to tighten to the broken trend resistance at 111.45. below here our Skew turns bearish acknowledging the reversal candles.’’

S: ‘A trend line across the recent lows provides the Neckline of the potential Head and Shoulders Top and provides support at 105.93 today. Our Skew is in bearish territory below 113.53 down trend resistance.’

T: ‘’This morning the Neckline of the Head and Shoulders is being retested and presents a selling opportunity at 105.77. The 61.8% retracement at 102.45 is the next target for the bears. The Head and Shoulders target is 95.42’’

The kids have just finished school for the year and we’ve had their reports. I’m pleased to say all the little Lamberts have been working hard and doing well (mostly!!). But how have we done here at FuturesTechs Mews in 2011?

We took a look back at our reports for the Bund Futures over the year to see. You can click on the chart below to make it bigger.

Our trend following approach meant we “caught” the moves higher in April to June and July to September. Our reliance on candlesticks saw us call several of the turning points in the ranging markets seen in Q3.

A - 12th January - turned bearish on trend break (125.44)

B - 16th Feb – Bullish on break of 123.12.

C – 24th March – “We didn’t manage to retake 122.55 yesterday, although we did fail bang on this level (the high was 122.56), so despite posting a green candle the bears are still in the box seat”.

D -13th April – “So we have a trend break and a powerful reversal pattern, and this combination cannot be ignored” – Turned bullish

E – 29th June - Bull stance adopted since April is abandoned.

F - 7th July – “..we posted a decent sized green candle, reasserting the bull trend, and suggesting (as we head into today’ ECB decision) that we can head back to the recent high at 127.57, with interim resistance at 127.03-04”.

G – 27th July - Back to bullish!

H – 25th August - Hit the sidelines once more

I – 26th September – “…this left us with a powerful “Outside Day” in western terms, and a “Bearish Engulfing Pattern” in candlestick analysis. We are now very close to channel support at 137.25 and gap support at 136.83, and if these two give way we will have to rethink”.

J – 5th October – “In candlestick terms yesterday was a Shooting Star, a powerful reversal pattern…”

K - 18th October – “We are testing the bears’ resolve after a really strong session yesterday that has left us with a Bullish Engulfing Pattern and a Bullish Outside Day, all rolled into one…This strongly suggests that the retracement is over”

L - 31st October –”…this looks like a dip to buy”

M – 1st December – “…we posted a third small bodied candle in a row, suggesting that the bulls might well defend this key support zone, and we will retake the broken trendline, and get back to bullish”

So will it all get sorted this week? Can we enjoy Christmas safe in the knowledge that Merkel and Sarkozy have made good the Eurozone crisis, and that 2012 won’t be an annus horribilis for all of us?

If, like me, you read the Sunday Times yesterday you must have (like me!) struggled to get out of bed this morning, because what’s the point??!! Goodness me, I’ve never been so depressed on a Sunday. Well, not since West Ham got relegated last.

But get up this morning I did, as the loyal customers of FuturesTechs expect their daily slug of chart talk.

Another reason to want to stay in bed today is the busy week I had last week, which included 3 days “up north” visiting a chap called Fred Stafford who runs a company called Gann Management Ltd. Their website is www.gann.co.uk. Fred is one of the country’s most experienced (and I’ll also now say most vociferous and interesting) exponents of the work of WD Gann, the legendary Investor and Technician from the early part of the last century. Gann’s name will live long in the annals of TA as a “founding father” of modern day Technical Analysis along with Charles Dow and RN Elliott.

Fred’s analysts suggests that the market is due a big drop, and he talked about a target for the FTSE of 1737 (yes, you read that right, 1737). This seems like one of those “crazy” calls that I often say are ridiculous, let alone irresponsible. Until I read the Sunday Times, that is, then it all seems to make sense.

But I’ve done a bit more reading this week as well. I am a keen reader of books on Technical Analysis and am becoming increasingly interested in it’s history. The Society of Technical Analysts store a huge number of books at the Barbican Library in London for their members use, and I drop by there whenever I have a spare hour or two in the City. Last week I had such a window so headed to the Barbican and straight for the Gann books. Below is an excerpt from “45 Years in Wall Street”, one of the books I found there. It was referring to the crash of the 1930’s.

“Every time stocks made bottom, the newspapers, government officials and economist said it was the last bottom, but stocks went down, down down… They went lower than anybody dreamed they could go. People believed that the Government, by buying cotton, wheat and loaning money, could stop the depression, but once a cycle is up and prices are due to decline, nothing can stop them until it has run it’s course”.

I’ve long said that the best way to resolve a crisis is to “let it run it’s course” and that whatever the politicians of the world attempt, it’s not going to stop it. I always try my best to avoid making “big” calls, especially about governments and policy and the like (funny-mentals, as I call it) but it seems that my “views” are pretty well aligned with Fred’s and his Mentor, WD Gann (and David Smith at the Sunday Times, I guess!!!).

Rant Over!! Have a good week!!

Cheers, Clive.

We are pleased to announce that our ipad/iphone App is now available to download from the App Store (simply search for “Futurestechs”).

We would like to invite you (client or otherwise) to download the App.

We are running a 2 week Free Trial Period when you can look at all the reports (After that access will be limited to 1 “sample” report per day).

We would ask that you pass this e-mail on to any friends or colleagues who you think may be interested.

Also any reviews of the App would be most helpful and appreciated, so if you like it please take the time to add a review to the App store.

As you can see from the screen grabs below (click on them for a full size view) the reports look really good on the ipad and, thanks to our friends at wordflow, navigating around the App and finding the reports you want is really easy.

Anyone who decides to subscribe will also be given free access to our Website Member’s Area (in case the kids are hogging the ipad!!) where all the reports are also posted daily.

Cheers,

Clive.

Dear All, We welcomed an old friend and buddy from the LIFFE Floor days to FuturesTechs Mews this morning and he insisted we did a webcast together, which was great fun. It can be seen on the Naked Trader website here:

http://www.nakedtrader.com/webcasts/tony-laporta—-please-click-here-to-reach-me-directly-via-email/9-26.aspx

Enjoy!

Cheers,

Clive.

In yesterday’s Gold report we wrote: “Are we on the cusp of something trend changing, or will the bulls rescue things once more by keeping us above 1524? We could well have the answer to this by the end of the day”.

We saw a break of 1524, and on a closing basis, so here’s what we sent to our clients this morning:

We broke trend support yesterday, we got an uptick in volume, and we got a move to 1511.4 before the buyers woke up. In overnight trade we have got back up to 1522.5 as we write, and will likely give the trendline a retest. It is at 1526.2 today.

A failure here, or shy of here, will give the bears further ammo, and we’ll look for a move to 1475 to unfold as we start the unwinding trade.

Bigger picture this could see weakness to 1416 or even 1370.

Click below for today’s Chart, plus our Technical Levels and our unique “SkewBar”, showing we are now Bearish below 1526.2.

To request a Free Trial of our Daily Technical Analysis Reports please click here.

Individual traders can have a look on our website on a trial basis by clicking here.