FuturesTechs Blog

We always welcome feedback from clients and free trialists here at FuturesTechs, so we can strive to provide the best possible service to aid your trading decisions.

I thought I’d use the Blog to answer publicly a few questions we have been asked of late, so here goes with one:

Dear Clive,

Re buying Technical Analysis, I always find myself thinking the same question: “If it were that easy/obvious……’we’ve been bullish almost right from the start of the recovery’……….’gearing up for a sell-off’…… why do analysts like yourself not just make loads of money trading futures or spreadbetting?

If I found it that easy/made so much money I wouldn’t bother selling my levels…

Regards,

RJ

This is a question I’m often asked, especially at Seminars. People are, quite rightly, confused that I appear to be so well equipped to trade the markets, yet I don’t.

I think there are several reasons why I don’t trade, so let’s try and go through a couple.

1. It could be argued that YOU wouldn’t want me trading, because then I would be skewing my comments and ideas around my own position. If the market was clearly going down but I’d been caught with a long position I might be trying to talk it up, convinced that my position was right, and the market was wrong. The problem with this is that the market’s never wrong! But I am a human being, so I am subject to emotions just like you, and fear of cutting a wrong or losing position is one of the most powerful (negative) emotions in trading. The flip side to this argument is also pretty valid, though. The idea that an analyst should be able to trade their views put their money where their mouth is has merit, sure. The problem I’ve found with this is that good analysts generally don’t make good traders. I’ll come back to this notion in point 4.

2. I don’t have time. I run a growing company that’s trying to reach out to all sorts of traders, through seminars, increasing product breadth, and finding new delivery methods to take the product to a wider audience. Not only that but the day-to-day analysis takes a good chunk of time each day as well, starting nice and early at 5.30am each morning (although I’m not on my own, it must be said!). So I don’t feel I have the proper amount of time to devote to trading. I don’t think this is something you can do properly with 20 minutes work a day, and if you believe in those ads that tell you this then maybe you should think about the old “if it sounds too good to be true, then it probably is” rule.

3. I haven’t made (consistent) money before as a trader. I have had a go at trading a few times. In 2001 I worked in a Trading Room in the City for a year. It was a “Prop” room with a bunch of short term traders doing “high frequency” trading. These guys were happy to make a tick on a trade, and did at least 50 trades a day. Whenever I had a position on in the Bund Futures that was more than 5 ticks onside the rest of the guys couldn’t believe I was still in the trade. I wanted to run it for another 10 or 20 ticks, but found myself taking the smaller profit. In other words I allowed what was going on around me to affect my trading decisions - Bad mistake. The other problem was that my trading was fitted around writing the analysis. I would write the analysis from 5.30am to 8am, then trade until 10.30am, the write the analysis from 10.30am ‘til midday, then start trading again. - Oh dear! The result? I broke even, so lost money over the course of a year, when taking into account expenses like the cost of the desk and the professional trading software.

Then in 2005 I put some money into an account to have a go at trading UK Equity CFDs, all the while continuing with my daily analysis, as well as providing stock tips for a CFD firm. I lost most of my stake because I was long of a bunch of stocks one week in a nasty bear move, when my FuturesTechs FTSE report was as bearish as it could be… So I was bearish in my view, but bullish in my positions. Pretty dumb, huh?!

I closed this account down, deciding that trading wasn’t for me, which brings me on to my final point, because so far, re-reading what I’ve wrote, it sounds like a bunch of lame excuses. There is a much more important reason why I’m not a trader.

The main reason I don’t trade?

4. I don’t enjoy it, or maybe I’m just not cut out for it. I am an emotionally highly charged person. I am extremely passionate about what I do. I am also extremely self-critical. I hate it when I get the market wrong when I’m writing about them, and I’m 10 times worse when I’m trading. I turn into a total pain in the butt, and my wife likes me even less than usual! During the two stints when I was trading I found my mood swings to be unpredictable, I found my home life was affected; snapping at the kids, and finding a quiet corner of the house to have a sulk when my P&L wasn’t going the way I wanted to. I don’t like being this person. While I care passionately about the markets, about Technical Analysis, and the FuturesTechs product, I don’t wish to jeopardise things that are far more important.

So my own personal journey of discovery has led me to make the firm decision that trading’s not for me, and that I am far better cut out to analyse the markets, and continue to aid real traders (who can manage their emotions!!) to trade the markets using Technical Analysis, one of the most powerful tools available to anyone who wishes to make a success of trading.

I’m happy to admit that I’m not a good trader then, which is possibly why I’m doing okay as an analyst, because there is a school of thought that a good trader will never be a good analyst, and vice-versa, just because we’re all “wired up” differently.

Next time I’m going to talk about some more technical stuff; we’ve had a few questions from readers about gaps, and how to trade them.

In the meantime if you are a FuturesTechs member and have any questions that you think would be suitable for a “public” answer then feel free to ask away!! (Click here).

If you wish to have a look at our service please click here to request a free trial.

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.

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.

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)

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.

“Candlestick Charts - An introduction to candlestick charts”, Clive Lambert’s first (maybe not last!) book has recently been released, and you can get your copy now.

Early feedback has been positive. Thank you to those who have already got their copy, and thank you to those who have offered their thoughts

To order your copy we have set up a link (Click here) via the FuturesTechs website to the Global Investor bookshop; the easiest way to get hold of the book, with a decent discount to boot! There are plenty of other titles to peruse as well, so feel free to bookmark the page once you’ve ordered!

Alternatively we are giving away signed copies of the book to new subscribers to the FuturesTechs website when you sign up for 6 or 12 months. As well as the book there are discounts offered for these extended subscription periods. Please Click here to join up and secure your signed copy!

If you are tired of listening to bottom pickers telling you that Bank and Mining Stocks are cheap, then maybe it’s time to subscribe to FuturesTechs and get some real, useful advice, without the bias attached to fundamentals. For example we’ve been very bearish of the Equity markets since Monday morning, and our readers are making money on the short side! Even prior to Monday’s technical sell signal we had been warning that the recovery trade was on a rocky footing.

We are beta testing several new additions to the website at present and will keep you posted as and when these become available.

Cheers,

Clive.

For this blog post we welcome a guest writer, Stephen Desborough, who has worked in the Futures industry for many years as a trader and is now a Performance Coach. He has helped many traders with his in depth knowledge of methods like NLP, approached from a traders point of view.

stephen@performance-coach.co.uk is his e-mail address if you wish to contact him.

Thanks for your contribution, Steve, and Season Greetings to you all!

Cheers,

Clive.

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As the nights and the year draw in, it is a perfect time to reflect back on 2008. As you look back, hopefully you will be able to relish in your accomplishments and the growth that you have made both professionally and personally.

Did you set any goals for 2008? Did you achieve all of the goals that you set for yourself? If for some reason you’ve fallen short, then ask yourself, “why?”. Is there something that you could have done differently, or is there something that you should have done, but for whatever reason you didn’t?

During this special time of festivities, and a well deserved break, spend some time brainstorming the past year and the year ahead. What do you want to achieve in 2009? What is important to you? What are your goals? How are you going to achieve them?

In 1953, researchers surveyed Yale’s graduating seniors to determine how many of them had specific, written goals for their future. The answer: 3%. Twenty years later, researchers polled the surviving members of the Class of 1953 — and found that the 3% with goals had accumulated more personal financial wealth than the other 97% of the class combined.

Some of the reasons that many of us do not set goals:

• Not being serious about your goals. Until you become completely serious about your goals, your chances of success are limited.
• I don’t know how to clearly set out my goals. “As I don’t know how to do it or what I really want. I wont bother”
• The fear of failure. “What happens if I do not achieve my goals?”
• The fear of success. “How will I cope with success and will other peoples perception of me change”

If you have no goals, you are not going anywhere. This is a key reason why people do not achieve their full potential.

So it is important to GAIN DIRECTION IN YOUR LIFE AND DEFINE YOUR DESTINATION.

Even people who do set goals, do not always get the result that they intended. Here is a technique that will help you towards setting and achieving your goals. The SMART criteria.

• S. The more SPECIFIC, that you make your goals the more chance you have of it happening.
• M. What has to happen ? what do you have to see, feel, to know, so that you can MEASURE your success ? Make sure that your goals are MEANINGFUL to you.
• A. State your goal in the present tense. AS IF you are already living the ACHIEVEMENT of the goal.
• R. Make sure that your goal is REALISTIC to you. What degree of certainty do you have to make this goal happen.
• T. Have a precise TIME of when you will have achieved the goal. Make sure that your goal is what you do want as opposed to what you don’t want. eg. “I don’t want my business to struggle next year”. change to “I want my business to flourish next year”. This is stating your goal TOWARD what you want to achieve.As your coach, it is my goal to help you achieve your goals. If you are serious about what you want in 2009 please contact me. stephen@performance-coach.co.uk

It never ceases to amaze me how many people cite Edwin Lefevre’s 1922 book “Reminiscences of a Stock Operator” as one of their all time favourite books on investing and trading the markets.

I am one of those people. I read this book at least once a year. However busy I am (and I’m pretty bloody busy right now!) I make time to re-read this classic tome.

So what’s all the fuss about? This book was written, as mentioned, in 1922. The author, Edwin Leferve, never traded a stock in his life. It is believed that he based the book upon interviews he did for a newspaper column with the legendary Wall Street trader Jesse Livermore, although Livermore isn’t named in the book. The central character is known as Larry Livingstone, and the book is his story, from rags to riches and back again, several times.

So it’s a story about a trader who made and lost loads of money almost 100 years ago. So what’s the relevance?

I’ve wanted to make this a blog subject for a while now, so when I re-read the book this time around I highlighted the “gems” that I considered were totally relevant to today’s markets. Here’s a few:

On the second page: “…there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again”.

If you look at our previous Blog article on the sentiment cycle you will see that we firmly subscribe to this view; that what we’re going through right now is NOTHING NEW.

We need the market to stop trying to pick bottoms and for those same bottom pickers to give up and turn outright bearish before we can make a bottom. The market needs to feel discouragement; tired of trying to find the bottom, resigned to the fact that we can head lower to who knows where. Then we’ll start to rally!!

How about this one; “…I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”

Or this; “…there is only one side to the stock market; and it is not the bull side or the bear side, but the right side”

How about “..in losing money I have gained experience and accumulated a lot of valuable don’ts”

Gems, all of them. New traders: You have to realise that you will make mistakes. Just make sure they don’t cost you your account. And learn from these mistakes. And “don’t” make the same mistakes over and over.

A classic problem traders of all levels of experience encounter is running losses but not running profits.

“They say you never grow poor taking profits. No you don’t. But neither do you grow rich taking a four point profit in a bull market”.

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight.”

One of the hardest things to do is to run a winning trade, beleive it or not, but when you’ve got trends akin to the sort of thing we’ve seen in Oil this year the real money has been made by staying short all the way back down from $147 (or $135, which is where we turned bearish).

I could go on and on, but I’m going to tie things up with a quote that is poetically relevant in the current climate, and adds weight to my loudest recurring rant of 2008: “Stop trying to pick bottoms”.

“One of the most helpful things that anybody can learn is to give up trying to catch the last eighth - or the first. These two are the most expensive eights in the world”.

Thank you Mr Livermore/Livingston. I couldn’t have said it better myself!

As usual, keep safe in these markets,

Cheers,

Clive.

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!

If you are a regular reader of our reports, or if you’ve seen me on CNBC any time in the last few months you’ll know that we’re staying right out of the rush to pick a bottom on this equity market sell-off, a rather thankless task that so many people appear to be happy to do. This is how it works: If you are a market commentator and you’ve been calling the bottom all the way down, you may as well carry on, because at some point you’ll be right. Then you can say for the next three years “I picked the bottom”. It upsets me that these so called experts are happy to continue to give dud advice to people just to try and save their own face.

Here’s something else: The market will only bottom out once all of these people STOP calling it. When the towel is thrown in by the majority, and most commentators start talking about doom and gloom downside targets, is when we’ll get a bottom. Maybe that’s why Hugh Hendry was given an entire hour on Channel 4 last night to pick over the wreckage of the sub-prime crisis. It was a great bit of TV and you can’t but love the man!

As per last week’s Blog on the sentiment cycle, the bottom will most likely come when people give up trying to call it, and when the market resigns itself to a future of pain and misery. So we’re probably not quite there yet…

I looked back at our analysis in 2003 and saw that we were around 400 points off the low before we called started saying bullish things.

The DAX is certainly well off the lows over the past two sessions, on the back of the world’s most spectacular short squeeze. VW shares jumped from 200 Euros to 1000 Euros in two days. I don’t even want to start to explain the ins and outs so here’s a link to the story on Bloomberg’s website.

http://www.bloomberg.com/apps/news?pid=20601085&sid=aWeWGIPhKfnk&refer=europe

The upshot is that Volkswagen has now become the world’s largest company by market cap on the back of a short squeeze. This story will only get bigger (although I don’t think VW’s market cap will!) and we’re bound to hear some fallout in coming days or weeks.

One wry (and somewhat tongue in cheek) observation on this shenanigans: We won’t see a financial stock reacting higher like this in the coming months, because the shorts have been banned…

Finally, In my spare moments right now I am doing something that I force myself to do once a year: I am re-reading “Reminiscences of a Stock Operator” by Edwin Lefevre. THE BEST BOOK EVER ABOUT THE MARKETS. i only got to chapter 1 when I read this quote:

“Another lesson I learned early is that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market to-day has happened before and will happen again”.

Say no more…

As always my best advice if you’re trading these markets is “stay safe”.

Cheers,

Clive.