FuturesTechs Blog

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

Our clients are short the miners and banks - are you?

Over the last few weeks our viewing of the Technical Analysis charts has seen us increasing our bearish slant on the FTSE, mainly citing Financials and Miners as the sectors looking most vulnerable.

Last week we issued short trade recommendations in BHP Billition at 2125, Xstrata at 1198, Barclays at 365 and the FTSE Index at 5632.

Incidentally some of our best results in April were trades in the Finance Sectors, where we were long. We are not just banging one drum. We use Technical Analysis to tell us which way the market’s heading, and we issue our trades accordingly.

We’re still running the short trades mentioned above, as are many of our clients who follow our service. In situations where trades start to make good money we cover half the position, usually for a 5-8% profit, then run the balance by adjusting stops and targets, allowing Technical Analysis to manage trades for maximum profit potential.

Our daily reports have been increasingly warning of a pullback and our next target for the FTSE is 5340.

Why would you not want to access this invaluable, independent analysis?

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.

In Brief: All I keep hearing at the moment is how we will have a 10% correction, so, let’s have a look:

The “funnymentalist” community, particularly Stateside, seem pretty happy with the idea that this pullback will be a “normal” affair and will pull back 10% from the January highs, at which point you can happily pile in, buy the dip, and carry on where we left off…

I thought it would be useful to know where this level is on the markets we watch. So here goes, and we’re looking at the Cash Indexes here, NOT the Futures:

Dow: High was 10730. 10% pullback level is 9657 (currently 10023)

S&P 500: High was 1150, pullback level is 1035 (at 1065 right now)

NASDAQ: High was 1897, pullback level is 1707 (1743 now)

DAX: 6094 was the January high, 10% off that is 5485.  BROKEN

FTSE: 5600 high, 5040 is 10% pullback. 5033 was last week’s low, so holding…

Eurostoxx: Pulled back from 3044. 10% back from here is 2740. BROKEN

CAC: high was 4088, so 10% back from there is 3680, BROKEN.

So to summarise,  if anyone stateside says to you about 10% pullbacks the simple thing to say is “thanks, but we’re already beyond that!”… especially if/when the FTSE breaks 5030-40.

Keep safe in these markets.

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:

This is a quick summary of important candlestick patterns. It’s presumed that you know the basics of candles: if you don’t, see the article links in our Members Area.

Without further ado, let’s begin.

1. Bullish Marabuzo

Number of candles: 1.

Description: long green candle which opens near its low, and closes near its high.

Implications: BULLISH.

2. Bearish Marabuzo

Number of candles: 1.

Description: long red candle which opens near its high, and closes near its close.

Implications: BEARISH.

3. Doji

Number of candles: 1.

Description: candle which closes near where it opened.

Implications: REVERSAL.

4. Shooting Star

Number of candles: 1.

Description: candle which closes near where it opened, at the bottom of the period’s range.

Implications: BEARISH REVERSAL (in an uptrend).

5. Hammer

Number of candles: 1.

Description: candle which closes near where it opened, at the top of the period’s range.

Implications: BULLISH REVERSAL (in a downtrend).

6. Hanging Man

Number of candles: 1.

Description: candle which closes near where it opened, at the top of the period’s range.

Implications: BEARISH REVERSAL (in an uptrend) (only weak effectiveness)

7. Inverted Hammer

Number of candles: 1.

Description: candle which closes near where it opened, at the bottom of the period’s range.

Implications: BULLISH REVERSAL (in a downtrend) (only weak effectiveness)

8. Bullish Engulfing Pattern

Number of candles: 2.

Description: green candle with a lower open and a higher close than the previous candle.

Implications: BULLISH REVERSAL (in a downtrend)

9. Bearish Engulfing Pattern

Number of candles: 2.

Description: red candle with a higher open and a lower close than the previous candle.

Implications: BEARISH REVERSAL (in an uptrend)

10. Harami

Number of candles: 2.

Description: candle with a real body contained within the range of the prior real body (which must have moved in the direction of the prior trend).

Implications: REVERSAL (only weak effectiveness)

11. Dark Cloud Cover

Number of candles: 2.

Description: red candle with a higher open than the previous candle, but a close in the bottom half of that prior candle.

Implications: BEARISH REVERSAL (in an uptrend)

12. Piercing Pattern

Number of candles: 2.

Description: green candle with a lower open than the previous candle, but a close in the top half of that prior candle.

Implications: BULLISH REVERSAL (in a downtrend)

13. Morning Star

Number of candles: 3.

Description: long red candle followed by a small-bodied candle which gaps lower. The third candle closes in the top half of the first candle.

Implications: BULLISH REVERSAL (in a downtrend)

14. Evening Star

Number of candles: 3.

Description: long green candle followed by a small-bodied candle which gaps higher. The third candle closes in the bottom half of the first candle.

Implications: BEARISH REVERSAL (in a downtrend)

Graham Neary MSTA (graham@futurestechs.co.uk)

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.