FuturesTechs Blog

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.

Here is Clive’s latest appearance:

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)

We are often asked how we use Fibonacci retracements, and what time frames they are best used on.

Let’s look at the FTSE Futures chart right now to try and give a flavour of how they can help us.

Since last Tuesday (as we suspected, and as was flagged to our clients) we have seen a recovery rally in the FTSE from the lows just above 3450 set at the start of March.

There have been many commentators who are calling this a “bear market rally”, and are waiting for the first signs of weakness to pounce upon and use as a selling opportunity. As our customers know we’re not quite in this camp, but there you go. We have an article recently written in our members area that expands on our thoughts as to whether this is a market bottom or not.

Anyway, back to our magic Fibonacci numbers.

The Fibonacci retracements commonly watched are 38.2% and 61.8%. If a market has been selling off then we always call off the hounds on the down-leg if we can retake the 38.2% level, at which point we target a move to the 61.8% level. In this instance, as the market started rallying off the lows we looked up to see where the market would have taken back 38.2% of the weakness seen since the start of the year (see chart 1). This level was 3904. We got to here this morning… and promptly fell over.

Chart 1: FTSE Futures Daily Candlestick chart since the start of 2009

So does that mean we’re right back in bed with the bears and looking for a fresh test of the lows? It could well be, but the slightly more cautious can use Fibonacci levels on a shorter term chart to help them with that one as well, because it could be argued that unless we give back 38.2% of the recovery, then maybe the recovery is still going on!

So we start at the low and measure up to the high and find the 38.2% retrace of that move. This is 3738 (and coincides with Friday’s low) so we are using this level as a reference now to see what the market wants to do next. A break below here and sure, the bears are back in charge, and we’ll look to head back down, targeting 3625 (the short term 61.8% retracement) first, then 3443 (the year’s lows), as per the second chart, below.

Chart 2: FTSE Futures, Hourly Candlestick Chart, 9th - 18th March

So you can see we use Fibonacci levels on lots of different time-scales, and they can all have a use in telling us where we are, and what the market’s thinking.

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…