FuturesTechs Blog

Neither, I suspect, is the answer to the above question, at least not as far as where we are at this very moment is concerned:

We have been bullish since early March, and have seen the market “climbing the wall of worry” as we predicted, with no-one quite believing the rally. We are not doing the “Harry Hindsight/told you so” bit here. Just ask one of our clients, or feel free to check our “Media” page on our website and listen to what we’ve said on CNBC in recent months.

But just now everyone (else) we seem to see and hear on CNBC and Bloomberg TV is getting bullish. So we’re starting to think we’re near a top for now on that basis (when too many people are getting bullish it’s time to find the exit!), and the last few days have seen some pretty uncertain price action to back this up.

When I say “starting to think we’re near a top” I don’t mean the top of a bear market rally, though. We think there will be a pullback some time soon, which may well last the whole summer (“Sell in May and go Away” is a pretty watertight strategy if you don’t take it completely literally, and if you exercise some finesse or process re timing your “sell”!). During this time you will see many commentators saying “told you so” with respect to the bear market rally story (probably the same guys who this week have been saying we’re going up; Hmmm…).

But we will not make a new low. In fact we don’t think the S&P will drop below 766, or the Dow below 7240 , and we will look for the FTSE 100 to hold above 4000 or at worse 3850 on any retracement move. The sell off will only go on long enough to get the weak longs panicking out, and only long enough to have the “bear market rally” camp saying “told you so”. THEN we will start to rally again, and we will end 2009 in fine fettle.

Our customers will benefit from knowing if and when our views change, because we WILL happily change our skew if we are proved wrong, such is the flexibility of a short term approach utilising Technical Analysis.

For now I am preparing to “Sell in May…” and it will be interesting to see what happens this week, prior to my appearance on CNBC on Thursday evening (May 14th). For now key supports are holding and we’re still short term Bullish, but this could change very quickly, and evidence is mounting in favour of a pullback.

I have been bearish of this market for a good while now and it’s proved fruitful, but today I am thinking that shorts should be covered.

Why, when the Dow has just printed it’s lowest price since 1997, would I suddenly start to think bullish thoughts?

Because I read the papers and listen to the financial news channels, and upon making this new multi-year low the world seemed to collectively shrug it’s shoulders. Ambivalence is the order of the day? Dow to 6000? Yeah, why not (you hear people say in a resigned tone).

(The FTSE is faring slightly better, holding above last years low for now, and when I trawl through the FTSE 100 stocks I see many stocks that are nowhere near making new lows compared to last years)

If you are regular readers of this Blog you’ll recall the “Sentiment Cycle” chart we posted back in October. Here it is again.

This was first published in a book called “The Nature of Markets” by a New York based Technical Analyst, Justin Mamis, back in 1991.

Note that the bottom of the cycle, when markets ultimately bottoms out, is “Discouragement” - -I think that’s what it feels like now…. and I think we’re hitting bottom.

Remember, when everyone’s sold who’s gonna sell, when everyone’s short who can be short, there’s no one left to sell it, and the market cannot go down any more if there aren’t any sellers left!

Have we got the banner headlines of doom, gloom and despair on the front cover of things like Newsweek and the like? Are Taxi drivers telling you that the Stock Market is finished? Let me know!!!

Be Safe,

Cheers,

Clive.

We often get asked “How can I use your product?”

FuturesTechs provides support and resistance levels to professional traders across a range of different Futures markets. They use our levels as the basis of their day trading.

Unfortunately I often come across traders using them in different ways, so it’s tough to give a definitive answer to that question. We are all different, and do things in different ways, and the individual’s interpretation of the levels we produce is no exception.

Let me make something clear right now. A lot of what we do here at FuturesTechs is basic common sense. We are almost “reporting” the technical news.

Take today’s FTSE Futures price action as an example. In our report this morning we talked about how important resistance at 4220 was, and we made this a bold level to make sure our readers got the message!

It was a VERY obvious level, being Friday’s high: Quite simple, unless you decided to ignore the simple and obvious.

It gave us the high this morning, not once but twice.

The low between these two highs was 4174, so we got a sell signal (Double Top) on the short term (eg 10 minute) charts once this gave way. We had 4163 posted as our first support, so on the way back down (if you hadn’t sold at the bold resistance at 4220) there were two more opportunities to sell; once we broke 4174, or even safer once we sold off through 4163.

Where to get out? We had a bold “area” of support at S5 in today’s report, between 4051.5 and 4064.5. The lunchtime low was 4066.5, where we suddenly started posting reversal candlestick on our trusty 10 minute chart - time to cash in.

Hopefully this gives some insight into how one can use technical levels to help decide where you put on trades, and where you get out.

Ideally you should aim to create trades with a basic set of criteria.

• Trade in the direction of the overall trend.

In other words In a downtrend sell ahead of an important resistance with a tight stop if it breaks.

Buy ahead of a key support level in a rising market.

• Targets should be acheivable, especially considering the current market conditions. It is Martin Luther King Day in the US today, so large swings of volatility are unlikely.

• Targets should also not be “blocked” by large resistance or support levels. For example if you decide to buy a Stock at £1.03 with a stop at 99p then you want to have a target of at least £1.11, to give a 2:1 reward to risk ratio: You are planning to make twice as much as you’re willing to lose - the way it should always be.

But if £1.10 is an old high on several occasions it is hopeful at best to ask the market to trade £1.11, so you have set a target that’s going to be tough to achieve.

Whenever you’re looking for trades to put on you want to try and skew things so that it’s going to be tough to get stopped out, but much easier to head to your target.

This doesn’t mean you’re not ever going to get stopped out, it just means you’re stacking the odds in your favour. This is what Technical Analysis does, and what we hope to help YOU to do when you use our service for YOUR trading decisions.

And one last thing while we’re talking about stops. RESPECT YOUR STOP. It is very easy to move a stop further away if a market’s getting near to triggering your loss. If you have set a stop, then LEAVE IT WHERE IT IS!

So far 2009 has been a tough year to call. Volatility has dropped, but we haven’t gained any firm directional traction yet in most anything. Although it goes against our usual mode of operation to give longer term calls we are still happy with our overall view for Equity markets for 2009; that we will make a new low in the early part of this year, but end the year quite a bit higher than where we are now…