FuturesTechs Blog

I have been on CNBC this morning talking about the outlook for the FTSE and Eurostoxx after a big week last week.The link for the interview is on our “Media” page here.

The crux of the comment was that the FTSE Futures broke higher to new territory for the year last Thursday, getting above it’s Arpil high at 5796.5. The big question when you get this sort of news driven breakout news is whether it’s sustainable, or whether you should “buy the rumour, sell the news”. In other words are we going to fall over as swiftly as we’ve broken higher? Friday’s price action, I think, offered a clue. We had a big support level at 5822 and it held firm. This suggests to me that the bulls are in charge, and hot to trot.

The next big resistance level above is 6396, the May 2008 high.

The Eurostoxx 50 Future is a different story and still has a few big resistance levels to see off, as I mentioned on CNBC.

Another market making positive noises is Oil, and Brent Crude is now breaking higher, although it has a big level to see off above at 89.58, so we’ll keep a close eye on that situation.

Gold is a hot story and has reached psychologically important resistance at 1400. We aren’t that worried by this level but have a target above that we’re aiming for.

Silver is a standout, and we’re bullish on this one while it’s above $25, and are advising our clients to buy dips to support while we’re holding firm at these levels.

Finally something for the Fixed Income mob. The Bund saw a decent turnaround last week and is back above 130.00. It now looks good to head back to it’s all time high up at 133.26.

Our clients receive reports every day on all of these markets and many more. We are happy to offer a free trial upon request, so please click here to get this set up.

We also provide an extensive service for UK Equity Fund Managers, Traders and Brokers, giving buy and sell recommendations on large cap stocks as well as daily technical signals,  adding a unique new dimension to your daily routine.

Have a good week,

Cheers,

Clive.

PS. I’ve just joined LinkedIn, so look me up if you want to “connect”!

Weekly Roundup, 19^th to 23^rd October.

Last week was a fairly mixed affair, particularly in Equity markets. The FTSE’s range for the week was 5166- 5299, and Friday saw the top end of this retested just before the US Markets opened, which triggered some afternoon selling. Quite often Friday afternoon sees traders tidying up positions that they’ve been holding all week, so if the market is long then you see selling on Friday afternoon as some of these longs are trimmed.

As far as individual stocks are concerned Miners and Resource stocks are still amongst the leaders, whereas Bank Stocks have been having a much tougher time. The “strong” banks like HSBC and Standard Bank are the safest bets for longs. We are seeing Utility Stocks finding support and starting to turn now and this is something that often happens at tops, with the real money moving into safe havens. We suggested buying United Utilities and Shire Pharma to our clients last week, which gives a clue as to our thinking. We are starting to short consumer related stocks as their charts are starting to agree that we are still in recession and things aren’t really improving.

The Dow has, as we suspected, shown a complete disregard for 10000, but we do seem to be having trouble getting through 10110-120, where we topped out each and every day last week. We are happy with our current “cautiously bullish” stance, and we continue to advise our clients not to get too excited about the prospects for higher prices.

Gold continues to go sideways, frustrating all of those who have piled in And got long because we got through $1000. We always thought $1034 was more important, and we’re happy to be long of this while this important technical level is holding firm.

In last week’s round up we talked about the change in skew we’ve been forced into in Oil. We had been favouring the bears but then we got above $75 to change our stance. Sure enough this has continued higher, and we want to see $78 holding now to give us a launch pad for a move to $90 and beyond.

Finally can I remind you it’s the World Money Show at the end of the week and we’re going to be exhibiting. We are running a competition to win an Apple iPod 3G, so if you can make it please come along and say hello.

Click here to register for free.

To request a free trial, with no obligation, of FuturesTechs’ daily analysis service please click here.

Have a good week,

The FuturesTechs Team.

Every week we send out a weekly round up e-mail to our database, and we figured it would probably be useful to post it here as well, so here goes!

FuturesTechs Weekly Round up - 19th October.

Here is your latest roundup of price movements on the major asset classes in the Investment arena. As regular readers will know by now we at FuturesTechs only look at the price action to determine what trend an instrument is in, and where this suggests it can head in the future. Many technicians use Cycle analysis to make longer term calls, and this is what allowed us to make the “call” that we were near a bottom back in March for Equity markets like the FTSE and DAX. Currently our analysis suggests there is a pullback imminent, but so far each time the market has threatened this sort of move the buyers have stepped back in and bought into the dips. There was some price action towards the tail end of last week that was slightly worrying, but once again the bulls appear to have averted the threat.

The Dow may be above 10000 as we write, but it’s failing to convince and we prefer maintaining a cautious stance for now. I heard a great line on the financial news channels last week. Someone said they were “at the party, but dancing near the door”. That sums up how we feel about the present state of things.

So we’d warn against getting too complacent about this recent rise, and we’d warn against worrying that you’ve missed the boat. Generally tops are formed when people pile in thinking they’ve got to get in because they’ll miss out otherwise!! If our analysis is right there will be a pullback soon, and it could even be a deep one, and just when people think we’re heading back to those March lows is just the time you want to be buying!

Gold has been front and centre on people’s minds of late, and the amount of mainstream press it’s been getting (all bullish) worries us, as far as whether this rally can sustain itself is concerned. BUT it has held above some important technical support levels like the $1027 to $1034 region, so we are happy to stay with the trend and back it to keep heading higher for now.

Oil has been the one that has surprised us. We weren’t expecting to see $75 again in a hurry but we’re above here at present, so now there’s scope for higher prices and we’ve been forced to readjust our thinking.

The Dollar’s weakness is the other big topic that many have had on their minds of late. We are keeping a particularly close eye on Dollar/Yen, actually, and want to see a move through 91.15 to take further pressure off the dollar.

Finally just a reminder that we are exhibiting at the World Money Show this year. It takes place at the QE2 Conference Centre in London (bang opposite Big Ben) on October 30^th and 31^st. Admission is free, so register and be sure to come along and say hello. Click here to register

If you wish to benefit from our analysis on a daily basis it is just £50 a month (+VAT). You can become a member by clicking here.

Have a good week,

The FuturesTechs Team.

Clive has recently started a weekly slot on CNBC, where he’ll be explaining concepts in technical analysis and reviewing the current state of play in the markets. Tune in on Thursdays from around 6:30am, or check our archives.

Here is today’s appearance, discussing Marabuzo lines in the context of what’s been happening recently with the FTSE, S&P 500, Bund and Brent.

One of the features we added when we made the free suite of levels is a collection of moving averages for each market we cover. These complement the pivot points and market profile levels which we had already been providing on a daily basis.

The moving averages are on 3 different timeframes: 10-day, 20-day and 50-day. We colour these numbers green when the 10-day is higher than the 20-day and the 20-day is higher than the 50-day, or red if the 10-day is lower than the 20-day and the 20-day is lower than the 50-day.

But why do technicians look at moving averages? The simplest way to put it is that the moving average is a smoothed trendline, and one of the most efficient ways of grasping the trend of any market. Unlike other technical tools (candlesticks and chart patterns, for example), the moving average is not designed to be an immediate predictor of future price action or key pivot points (though it does sometimes provide support and resistance levels). Instead, its job is to gives us a handle on the longer-term price direction. On the basis that trends tend to persist, aligning ourselves with this direction is usually to our advantage.

We use “simple” moving averages: this means that for the 10-day MA, for example, we simply calculate the average of the closing prices of the previous 10 days. There are other types of moving average (linearly weighted, exponential, etc.) which assign greater importance to more recent closing prices, or include data from all previous days using various different formulations for weighting the data, but the simple average remains the most commonly used.

As a lagging indicator, the moving average doesn’t react as soon as the price begins to trend, and it doesn’t reverse as soon as the trend changes course either. But in return for missing out on the exact start and finish of a trend, we get a measure of direction which doesn’t get knocked out by immediate fluctuations, helping us to stay true to the longer-term moves and resist trading too frequently.

There are a couple of variables which go into the makeup of the moving average. Apart from selecting which type of average to use, as already mentioned, we also need to choose the timeframe and the price to be entered into the calculation. While most people think that closing price is the most meaningful number as compared to the opening price or some other figure, there is no strong consensus about the choice of timeframe. The trade-off in this decision is between significance and responsiveness. A longer-period timeframe will certainly avoid being whipsawed and stay with the biggest moves, but it will also spend a great amount of time on the losing side when a trend changes course. A shorter-period timeframe will much better react to changes in trend, but will also get whipsawed more frequently and suggest more losing trades when there is a relatively weak trend.

One way to combine the best of both worlds is to use more than one moving average on the same chart. We can then look at moving average crossovers as buy and sell signals: when a shorter-term moving average crosses the long-term equivalent from below, we get a buy signal, and when it crosses from above, we get a sell signal.

This can work beautifully in markets with a well-defined trend. Using 10-week and 20-week moving averages to trade Brent crude oil, we would have got a buy signal on 19^th March, 2007 (closing price that day at $63.20), a sell signal on 25^th August 2008 (at $115.17), and a buy signal today (closing price somewhere around $52).

The problems arise in a trendless or choppy market, where the dangers of getting whipsawed increase and relying on moving averages can lead to ruination.

Suppose we tried to use 10-day and 20-day MAs to trade Brent crude in 2009, and in the most naïve way imaginable. How would it have worked out so far?

The horror show above doesn’t prove that these timeframes won’t work in the future (a rally from here could make the recent buy signal at $43.90 look inspired) but it does prove that they were the wrong timeframes to use over this trading period.

The lesson is that moving averages, as with any other indicator, must be used appropriately for the market under consideration, and in combination with other indicators and insights.

What we provide on our levels sheet are the 10-day, 20-day and 50-day MAs for the markets we cover, allowing members to get a feel for the price location in comparison to a decent selection of averages. As mentioned above, we point to the bullish or bearish alignment of these averages by highlighting them green when the 10-day is higher than the 20-day and the 20-day is higher than the 50-day, or red if the 10-day is lower than the 20-day and the 20-day is lower than the 50-day. Some traders who want to ride confirmed medium-term trends will wait for this kind of ultra-strong triple alignment before taking a position. The extreme case is when the price and moving averages are all aligned, and all moving in the same direction. Now that’s a trend!

But here’s a chart of the FTSE Index over the past 10 months, with the 10-day (red), 20-day (blue) and 50-day (black) MAs included, another example of the potential outcomes when using just one indicator:

Following the signals, and only closing out our positions when the moving averages turned to neutral, would have been great for the two downward moves in the first half of this chart. However, it also would have proved costly during the ranging market from November to January, which produced three false signals. To avoid being topped and tailed, we’d have to change the exit strategy during this time in order to take our profits much more quickly – something the moving averages will not help us to do. But the momentum of the averages should still be enough in most cases to ensure that the action continues in our direction for at least a few more points. Our level of confidence in the ability of the market to trend, combined with short-term indicators, should help to advise us on the correct course of action.

The point is that if you want to trade in the direction of a big trend, wait until you get the green or red highlights on our summary page. If the numbers are black, then there is simply no reason to get involved (at least, not from the point of view of the moving averages).

In the coming weeks and months we’ll be expanding the resources offered on our website to include exclusive files for our members covering new markets and new indicators. If there are particular markets or indicators you’d like us to cover, please let us know. For now, we hope you enjoy the levels sheet and find that the addition of the moving averages contributes to your successful trading!

Graham Neary (graham@futurestechs.co.uk)

Another busy week in the markets:

Bond markets have pretty much gone one way all week, and it’s been quite tidy, barring the first hour blip in the Eurex Bund Futures on Monday. I have spoken to several traders this week as it was the IDX Exhibition in London. To a man they said that Monday was one of the craziest moves they’d ever seen in these markets. Technical Analysis allowed us to step back from this and suggest it may be a selling opportunity. Sweet!

Equities have been pretty predictable, I think. Across most markets is looking increasingly Bearish and I said at the SII Risk Forum last night that I think we’ll see a fresh test of the Year’s lows soon in things like the FTSE, DAX, Dow Jones and S&P. The NASDAQ has been the most resiliant of late, but even that has now given a sell signal.

Oil is a market for the brave right now. It’s just insane!!! In the Brent Crude Oil contract on ICE we’ve seen so much volatility that it does smack of a top, but as yet we haven’t broken any really important supports, so we’re not calling a top. In fact we still consider that weakness should be bought.

And a football tournament that I have absolutely no interest in is, I have to admit, somewhat strange. I really want Holland to keep up the good work, partly because I really like the Dutch people anyway, and partly because Monday’s game was (what I saw of it) a real joy to watch.