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

Fibonacci retracements have worked like a dream of late in the Dow, and they’re currently causing our recent bullishness a bit of trouble. Let’s first of all reproduce the commentary we’ve put out today for the Dow:

Now lets go through that and work out what Fibonacci has got to do with it. We have several articles on this blog and in our Website members area concerning Fibonacci so this time round I’ll just assume that you’re happy with the idea that when a market is in recovery mode it quite often recovers 38.2% or 61.8% of the previous move. The sell off from January 6th to March 6th took us from 9048 to 6460. The 38.2% retrace of this move is 7450. See how this featured as a target once we started rallying. The 61.8% retrace of this same move is 8060. This, again referencing back to our commentary, was the next target once 7450 was seen off. We hit this level today. In fact it’s the high of the day. This is a slight worry. This may be just a temporary “blip”, and this is how we’ll treat it for now. But there is now a chance we can move back to 7450, and if this level were to break we’d have to forget being bullish and look for further weakness, back to 7071. We don’t expect any selling from here to get below 7450, let alone 7071 (for lots of other reasons besides the Fibonacci work). But If it did we’re totally wrong about the March low being THE low. You can see the symmetry of these numbers in harmony from the charts we’ve posted. Because today’s high is BANG ON the 61.8% retracement of the Jan-Mar sell-off, the 38.2% retrace of the recovery is EXACTLY THE SAME as the old 38.2% retrace (of the Jan-March selling): 7449. One last interesting thing that will shape the bigger picture outlook: The 38.2% retrace of the selling seen between May 2008 and March 9th is up at 9012. And what is the year’s high from January, the start of the last big down-leg? 9048… Making for a pretty important area of resistance, wouldn’t you say? Have a good week.

Technical Analysis is an essential tool if you are going to trade using CFDs or Spread Betting.

The vast majority of professional day traders use technical analysis in some way shape or form during their trading day. They are aware what the important technical levels are for the markets that they trade. some do this work themselves, some rely upon services like FuturesTechs, knowing that we’ve got an 8 year track record of providing this information to the bulk of the UK Pro trading community.

Many newbies to trading struggle with how to “structure” a trade. Hopefully we’ll shed some light on this with today’s blog post.

It’s all about the levels, and that’s what we do here at FuturesTechs each day: We look at the levels that the market may be looking at, where things may change, where the buyers may return after a sell-off, where the sellers may wake up if the market starts to rise. These are commonly known as support and resistance.

Support is the name given to downside levels; prices below here the buyers may have returned previously, or where they may return today. If we fail to hold support levels the bears are obviously dominating; not giving the buyers the chance to defend these key price levels.

Resistance is the name given to price levels above the market where there may be some”action”. Either we’re going to get to these levels and fall over, or the market should see a strong reaction if we break above them.

These levels are quite often something as simple as old highs and lows, however old they are. We have found markets reacting to levels from over 20 years ago. The market has a long memory, and with charts readily available to all and sundry there’s no excuse not to be armed with the important lines in the sand as you head into each trading day.

The best traders in the world react to a bunch of different things to put on their trades: They wait patiently for a piece of news to come out, or for a technical level to break or hold, or for the market to do a certain thing that they’ve been expecting. They wait patiently. Lots of money can be lost doing trades for the sake of it. Boredom or the need to be involved is a dangerous emotion that a trader has to deal with.

There is little point in trading in between technical levels. The levels are created because they are the prices where things changed previously. They are the “action areas”. Why mess around trying to put trades on in “no mans land”? If you want to buy the market, chose a support level and put your buy order at or above there.

If you need somewhere to put a stop order you can again use a technical level.

Here’s an example: We were bearish of the Eurostoxx 50 Futures today despite Friday’s gains. We had a bold resistance level at 2704. Our bold levels are the important ones. So if we’re bearish and the market rallies to a bold resistance we would suggest selling before the level with a stop above it. The high this morning was 2698….

If you had sold at 2690 with a stop ay 2710 (or our next resistance level at 2728, if you want to give it a bit more “breathing space”) you would have got short and never been far offside.

On the same report we have bold supports at 2640 (the overnight gap) then right down at 2467 and 2418.

So this is the bit that isn’t “harry hindsdight”, just in case you want to jump on the idea that I’m writing this after the event: I will look to cover the short trade at 2470, but if we hold 2640 today I would just get out and cover the trade for either a small profit or at worse nothing. I think we need to break 2640 today to give this trade credibility. In other words we are using another bold level (this time a support) to add weight to our trade. If we don’t break below 2640 then maybe the bears aren’t ready to push us lower just now.

IT’S ALL ABOUT THE LEVELS.

So If you’re just starting out trading, whether it be with a Spread bet account, or CFD’s, or DMA (Direct market access) I would urge you to make technical analysis part of your daily process, AND TO TRADE THE LEVELS.

Be Careful!

Someone should buy Ben Bernanke and Hank Paulson a pair of super-hero suits, because they’ve come to the rescue again!

Back in March (the last time were down at these levels) they stepped in to rescue the markets when they were on key Fibonacci support levels… Today I’m going to post the mail I sent out to all of our professional clients and contacts at that time. You may get a feeling of Deja vu reading this:

“Anyone who looks at Dollar/Yen will know that the BoJ intervene at key technical levels. THEY LOOK AT CHARTS.

I mooted something in the Bund report this morning that may have had a few people questioning my sanity; the idea that the Fed are stepping in to hold Equities above key supports.

Let’s look at the evidence: The last big move from the Fed was the 75 bps cut in January, just when the S&P was threatening to shank through 1281.70, the 38.2% Fibonacci retracement of the March 2003 - October 2007 rally. A BIG LEVEL!

They did the same thing yesterday when we were once again back at these levels.

In terms of the medium term technicals there is a strong argument that many people will be looking for weakness to 1187.50 then 1093 if this level breaks.

The key here isn’t whether this move can or will unfold; it’s the number of people who believe the story, and if intervention means the sell trigger doesn’t come, and a solid base of support is found, then the intervention would be deemed a success.

In the Dow Futures the corresponding KEY support is 11651.

In the NASDAQ it’s 1699″

The NASDAQ has done fine since then and isn’t threatening these key levels but the Dow and S&P dipped below them last week…. and Treasury and Fed stepped in…

More tomorrow. Watch this space.

PS. Follow this link for my latest CNBC appearance. I was making a point about not needing to “pick bottoms”. It could have been any number of charts from the Banking or Building Sectors, really, so no offence to Bradford and Bingley…