FuturesTechs Blog

Our clients who trade Spread Bet and CFDs often seem rather perplexed around this time because the Futures are rolling over and all the talk is of “expiry”, “triple witching”, “quadruple witching”, “roll-over”, “new front month”, “rolling off the board”, “options expiry” and the like.

The Spread betting firms have simplified things over the years so you can trade something like the FTSE on a “rolling” basis; basically replicating the Index, or the “Cash” as it’s known in market parlance. So why do the Pro traders all trade the March, June, September or December Futures? What’s that all about?

By definition “Futures” are trade-able instruments that are priced depending on where the market thinks an instrument will be at some time in the future. The traditional set of expiry months for these sort of contracts has been March, June, September and December. You will find that Commodity markets are different. This is mainly to do with seasonal differences, so people can trade the crops that are about to be harvested or have just been harvested.  Saying that I’ve never understood the logic behind the Precious Metals expiry cycle so if anyone ever wants to enlighten me please feel free!

Anyway, as we write the March FTSE Futures are very close to expiring, getting to the end of their life. Futures traders who want to bet on or hedge future price movement therefore need to “move down the curve” and trade the June expiry, which is a bet on where the FTSE Index will be in mid June. The March contract is therefore “rolling off the board” and anyone who wants to keep their exposure to the market has to get out of the March position and move their interest into June. They are “rolling over” their position.

If you were to hold your Futures position into the expiry the exchange will demand that you do something to settle your contract. Many Financial Futures instruments are cash settled, so you just pay an amount of money, or (hopefully) receive an amount of money, depending on where you got in versus where the contract settled on the Expiry day. This is why there can be a big mash up in the minutes before the settlement of any contract. Futures exchanges have taken several measures over the years to calm the volatility at these times, as there have been lots of incidences of what could be described as market abuse during Futures expiries in the past.

So much so that the expiry days have taken on an almost mystical aura amongst market participants. The hour when everything expires has become known as the “Witching hour” and when you get expiry of more than one instrument it is called “Triple Witching” or even “Quadruple Witching”.

Triple Witching is when the Futures, Options, and the Single Stock Options all expire on the same day. It can cause havoc, but as I mentioned the exchanges have worked hard over the years to iron out any foibles thrown up, all in the name of keeping an orderly market. With the increased use of Single Stock Futures these can also be thrown into the equation to give you a “Quadruple Witching”.

Anyway I digress. Let’s get back to settlement of these instruments. As mentioned many contracts are “cash” settled, but some are settled with physical delivery. In Bond markets a holder of a Long Position in the Futures has to pay up the full price (forget margin at this point!!) to receive a lump of Bonds. In Commodity markets a holder of a short position in, say, Corn, would have to delivery a set number of bushells of Corn to a specified warehouse on a specified date in a certain condition. So speculators are usually pretty keen to “roll-over” their interest and not end up in this situation! I always remember working for a Broker on LIFFE and they were always very concerned on Expiry day that we didn’t have any errors that might result in having to physically delivery something they physically didn’t have!

So around mid morning on Friday if you see the markets wobble, pick up in volatility, or make a sudden unsuspected move, you now know why: Roll-over. The Witches at play!!! From this moment on the Futures traders are all looking at a new instrument; trading the June Futures, until the next roll-over.

We always suggest to our Spread Bet or CFD clients that they trade the market that tracks the Futures. for starters this is what we are analysing on a daily basis, so it is the truest reflection of what’s actually going on. Also the Futures are open (in the case of the FTSE) from 8am til 9pm every day, so you always have a “real” market price to reference off.

If you haven’t had a Free Trial of our reports before why don’t you try us out? We have been used by Professional traders for 10 years now, having first started writing our reports when the LIFFE Floor closed its doors in 2000. In fact FuturesTechs is celebrating it’s 10th birthday at the start of April.

Click here to request a free trial.

Below are some “general thoughts” on the FTSE that I sent out to our “Pro” client base this morning:

I was sticking with the trend until yesterday, and looking for levels like 5400 in FTSE Futures and 1127 in the S&P Futures to hold firm. Alas they didn’t.

Obama changed all that.

At the same time as being bullish at the start of this year, I have mentioned to many of you that I’m looking for a pullback some time this year that will take us back to somewhere like 4750 or even 4250.

Is this it? Let’s look at the last two sell offs; the 23^rd October – 3^rd November move, and the 23^rd-27^th November sell off. The first of these shed 317 points on the Futures, the latter 299.

So far from high to low this time we’ve lost 314 points - very similar, suggesting we could be in dip buying territory.

We won’t need to wait long to find out, and for now I would be getting defensively positioned because the risk of a swift move is with the bears. In the coming sessions we will likely either grind higher (and the bear threat alert will lessen considerably once 5341 is retaken) or we will sell off through 5245 which will make this move bigger than anything we’ve seen so far, and therefore “the real deal”…

The latest appearance by Clive on CNBC:

WHAT DO WE THINK NOW?

At FuturesTechs we analyse 28 different markets each day and give our trading clients regular up to date analysis on the current thinking and market’s state of mind. We look at Bonds, Forex, Commodities and Equities. At the moment Stock Markets are the most interesting, providing the biggest conundrum for traders and operators.

We believe that Fundamental analysis is flawed (by not taking into account sentimenrt), and that most Economists get it wrong. A far more sensible way to look at the markets is to work out what the trend is, and stick with the trend, then do your best to spot (as early as possible!) any changes in trend.

One thing we’ve learnt over the years is that the market usually tops out when most people are getting bullish, and dashing in to get long, afraid to miss out. In other words when people are getting greedy. This could definitely be applied to Gold at present, and probably also to Equities!

The opposite situation creates bottoms and emerged in March when Equities bottomed out  -

Fear gripped the market and everyone ran for the door. We didn’t. We took a step back, and realised that many in the market had given up, that there were plenty of doomsayers talking the FTSE down to 2500. Our analysts said at the time that the market was nearing a bottom. In fact we said it on CNBC, so if you don’t believe us click below link to have a look.

There is a saying that “Harry Hindsight is the best trader in the world”, and we would suggest that if anyone says “I got long back in March” ask them to prove it!

In recent weeks we have been concerned that this up move is coming to an end, and despite the fact there is usually a “Santa Claus rally” we are still erring on the side of worrying about downside risk. We really haven’t gone very far since September, if you take a step back and look at things.

I used a Warren Buffett line last week in one of our reports and it sums up quite well everything I’ve said above.

“Be fearful when others are greedy and be greedy when others are fearful”.

He’s done quite well out of it!

We follow the trend, but are always looking out for when the market’s psychology gets to an extreme.

Feel free to ask for a Free Trial by clicking the link below. Don’t forget to click below as well to view our comment on CNBC back in March.

Trial FuturesTechs here.

Check out Clive Lambert’s March 4th CNBC appearance here.

Last week’s big highlight was meant to be the US Employment Report. As it turned out all the action was before this, and the numbers were a bit of a damp squib (like the topical analogy there?).

Equity markets have caught a fresh bid, and we were early to catch this as there were several reversal patterns on major indices at the start of last week. We were bullish from Wednesday onwards, so have reaped some firm rewards on the back of that timely change of sides.

Most of our readers are short term traders so they benefit from these timely “calls”. Longer term traders and Investors may be on the sidelines waiting for an opportunity to get in, and coming out of a dip or retracement is an ideal opportunity. Often, as was the case last week, our charts can tell us nice and early if it’s likely that a pullback has come to an end.

We are now looking to see if resistance at 5300 in the FTSE Index will be seen off. If this  happens the next upside target is 5650, a failure high from last August.

Gold is on another big run at the moment and has traded up to a high of $1111 as of yesterday morning. Yesterday’s candlestick (A “Shooting Star”) gave a warning that things may be getting toppy at these levels but so far we haven’t seen any downside moves to confirm this, so we’re sticking to the idea of higher prices going forward, targeting $1192 next, then $1250.

Oil is stuck in a range for now. Brent Crude has traded between $75 and $80 for weeks now. We expect this range to get broken with a move higher, and we would then target $90 and beyond. We have been suggesting to our clients to buy the dips to $75, and whatever their timeframe this has worked out well. Longer term holders would never have been offside, whereas those who trade in and out should have been able to jump out at $78 to $80 on several occasions then buy again at £75 next time it comes off.

If you are uncertain of any of the terminology used or methodologies discussed in this report you could swot up on our website. Feel free to ask for a Free Trial by clicking here.

Yours,

The FuturesTechs Team

If you came to see us at the World Money Show the other week then this is the moment you’ve been waiting for!

We are pleased to announce the winner of our “Witch Way for the FTSE” competition is Lukhvinder Binning, who guessed at 5143. Well done Sir!

Special mention really should go to O Y Tsang who plumbed for 5142, you will receive a copy of Clive’s book along with 9 others who were there or there abouts. It could not have been closer, so well done to all of you, especially considering how bearish things were looking on the Friday afternoon of the show!

Winners will be contacted over the coming days as we need your address to send you your prize!

We hope you will all take advantage of the free trial of our service, and realise the benefit of using Technical Analysis like ours as part of your daily trading routine.

Have a good week.

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.

I thought it would be a bit of fun to ask our Professional client base for their favourite market-related catchphrases, and to do a Blog thereon.

There were two things that I didn’t realise when I embarked upon this idea. Firstly that there are so many that are rude, and therefore may be tough to incorporate into such a blog, but secondly that so many had valuable lessons for any trader ingrained into their meaning.

So here’s a few, and I hope you enjoy this piece, as well as possibly get something out of it!

By far and away the one that came put top was (and I really hope this doesn’t offend anyone) “Don’t be a dick for a tick”. Clearly many of my clients have spent many a year working a 15 bid on something only for the market to trade down to 16 then set off on a stonking rally. It is one of the hardest things to deal with as a trader. I’d say it’s probably harder once you’re in a position and looking to get out. Putting an offer in at 30 because FuturesTechs has a level there, only to find out later that it traded 1000 lots at 29 but never got to trade 30 is highly frustrating, especially if this means a potential profit ends up being a scratch or worse.

The next one that really seemed to feature amongst answers given was something to do with what “Bottom Pickers” get. Apparently this isn’t a very fulfilling pastime. I couldn’t agree more, at least where the market is concerned!! Those who try to buy at the very bottom of a move often get in bother. Whenever I do seminars with people who are new to the City or trading I always try and convey the idea of trading in the direction of the Trend. Markets that are plummeting lower can often keep doing the same for longer than you can stay in your long trade. Actually that was a John Maynard Keynes quote: “The markets can stay irrational longer than you can stay solvent”. This whole debate doesn’t stop at one catchphrase though. There were plenty of candidates. “Don’t try and catch a falling knife”, or the one I heard in October 2008 “Don’t try and catch a falling fridge”. What you really should try and do is remember that “The Trend is your Friend”. Just be careful of the “Dead Cat Bounce” though, and don’t worry too much about those who tell you to “Sell in May and Go Away” – well not this year anyway!

This sort of trading is akin to “Picking up Pennies in front a Steam Roller”. Often people lose so much money on these sorts of ventures that they end up with a “Trade that turns into an Investment”. This is why we need to have stops, as long as we use them. “Stops are for buses” is on the “what not to do” catchphrase list, along with “double up to catch up” and “Don’t get out unless it’s a winner” (Very naughty!).

The better advice for stopping out trades may be that “The first cut is the cheapest”. If you end up in a losing trade it’s best to own up and take the loss. Don’t “stick it in the bottom drawer”, after all “Denial is not just a large river in Egypt”!

Trading psychology seems to enter the equation for a few phrases as well. The ones that cropped up a few times in our little survey were “Don’t get high on your own supply”, “Don’t get too long of yourself” and “Don’t believe your own publicity”. They all say the same thing, and it’s a really valuable lesson for any trader at any time of their career. The market is the most fantastic leveller, it seems!

Finally special mention needs to go to the following responses.

“More Shorts than the front row at a Wham concert” made me chuckle, as did “He who finesses, wears frilly dresses”, “Scratching is for DJ’s”, and “If you want to hedge get a Garden”.

Many thanks to all who proffered replies. It certainly made my Columbus Day go a bit quicker!

Have a good week all.

Cheers,

Clive.