Are we in the middle of another .com bubble?

If it looks like a duck and walks like a duck, it’s a duck. The King IPO is the latest in a string of social media companies trading on inflated valuations.

There are currently two types of companies in the social media asset bubble. The first are those firms which have a significant user base but have yet to figure out how to effectively turn customer relationships into revenue. An obvious example is WhatsApp. Facebook acquired WhatsApp for $19bn – at $45 per user – for a business model that so far has not demonstrated how it can keep extracting value.

The other type are those firms such as King which have one hit app or game which does generate substantial revenue. However, their market valuations are based on the assumption that they are not one hit wonders and can replicate success in future. Companies such as Rovio – which produced Angry Birds – and Zynga – creators of Farmville and Zynga Poker – have so far not been able to recreate their earlier successes.

From an investor’s point of view, asset bubbles are a tricky game to play. Just like in musical chairs, make sure you’ve secured your chair when the music stops.

Shai Heffetz, MD at spread betting and CFD provider InterTrader

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FTSE bottomed, recent data suggest bullish outlook

The FTSE 100 seems to have carved a medium-term bottom at the 6,500 points area that has been tested and held several time since mid-month. After the steep decline from the yearly highs of 6,900 points the recent downtrend has been arrested and positive data coming from the domestic economy support a more bullish outlook.

The encouraging printing of the inflation data earlier this week is a sign that many investors have been waiting for. The report showed that the inflationary pressures that we witnessed in recent months have eased and this allows the Bank of England to continue supporting an extremely accommodative interest rates policy.

This development combined with policymakers’ expressed optimism over the current labor market conditions shows that the economy is continuing on the path of recovery and initial fears that the recovery pace has peaked near the end of 2013 and is now slowing seem to have faded.

Another piece of important data, the Retail Sales report that was released on Thursday surprised on the upside showing that consumer spending is growing even though expectations made word for a lower printing. The FTSE 100 might have not reacted to the report at first but this piece of data adds to the recent string of good news from the UK.

From a technical standpoint, the FTSE 100 looks poised to reach for higher levels and the key resistance area than needs to clear is the 6,650 barrier. If the host of encouraging news discussed above aligns with investors’ risk appetite then we should see the benchmark index revisiting the 6,700 – and potentially – 6,800 points area.

To sum up, I am bullish over the FTSE’s outlook for the next week. There is a number of important releases over the next few sessions with the UK GDP revision and Euro-zone’s inflation report the most notable ones but as long as no surprises occur I believe the FTSE will gain if it manages to clear above the 6,650 barrier.

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AUD/USD pair sees strong performance…

The AUD/USD currency pair has see strong performance in recent weeks as it rises towards its weekly 50ma which currently sits at 0.9259. This still hasn’t been hit as I write but it’s certainly a viable target.

AUD weekly

Although price can over-run a target such as this by as much as 100pips, I would look for short term weakness to enter once this area is hit. Look for divergences on daily charts to give the clue.

AUD monthly

Ultimately I am looking for a test of the monthly 21ma but that could take several monthly to come to fruition. It currently is way up at 0.9679. So in the short term, I will be looking for continued strength into the weekly 50ma zone and then look for signs of weakness for a well earned breather on this pair before seeing it go for that monthly target later in the year.

Charlie Burton

EzeeTrader

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Bo Yoder´s Letter from America

As some may know, I retired from public life and teaching a few years back to focus on asset management.  I did some consulting and through that practice met Roger Khoury, the creator of the 3D Apex Trading Methodology.  This is the set of market forecasting tools that I use every day to analyze the markets.  I was so excited when I saw the power of Roger’s creation that we merged our companies and I came out of retirement to help him build a training program.

 

RUT 3-27

 

It really eliminates stress in today’s violent and volatile markets when you can objectively measure and forecast the odds for upcoming wiggles in the market.  Case in point is this open trade in the Russell 2,000.

 

We were able to correctly forecast the reversal, and the best place to take partial profits…AND then know the odds were high for chop near highs then a retest of the green zone.

 

I am now basing my trade management on power readings selling picks up.  Power has been moving strongly to the downside and that gave me confidence that a breakdown was likely.  The market has begun a new downtrend, and I will now trail my stops and see how far down I can ride this position.

 

OIH 3-27

 

Nothing has changed to my forecast for a possible short position in the Oil Services Sector.  I am still just watching and waiting as this latest bullish wave works itself out.  I am waiting to see a valid reversal candlestick pattern form and will update you in next week’s column if an entry shows itself.

Bo Yoder

3D Apex Trading

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If you want to be a juggler, join the circus!

Juggle: verb, continuously toss into the air and catch (a number of objects) so as to keep at least one in the air while handling the others, typically for the entertainment of others.

 
Don’t you love the circus? All those lions with the heads of daft buggers (trainers!) in their open mouths, trailing elephants joined tail to trunk trotting around the Big Top, daring (and usually scantily clad) trapeze artists dangling away, and there are dwarves, fire eaters and the perennial favourites…the clowns.

 
Alas, my articles seem to be fraught with bringing you sad news: this week I read that the circus is in danger of not drawing the crowds – advertising signage must be curtailed or at least ‘adjusted’ – clown phobia has arrived!

 

What a load of absolute $%^&$s, I hear you cry.

 

Well the good news is that jugglers are alive and well and are still an acceptable face to every fine circus in the land; and it won’t be long before International Juggling Day on the 14th June! Yippee…

 

 

juggling picI recognise this guy!

 

Of course, you will be wondering why I ramble so much….

 

Well over the last few months my inbox has been swollen with letters of the ‘Dear Sir, can you help with my juggling’ variety. It would seem that there is a temptation to take the idea of forex trading to a testing degree; did the Guinness Book of Records recently offer a prize to he or she who can take out more positions than the rest?
I will give one example: a client showed me his open transactions for a two-week period. There were 43 trades outstanding, covering a total of 13 pairs with many hedges in place, and, in all cases, the hedges were locking-in losses.

 
The total account size was less than £20k and the equity remaining was approximately £1300.

 
Perhaps some of you will recognise the scenario, and while I hope not, I suspect that I may be guilty of wishful thinking!

 
Fund managers will normally adopt a percentage-based spread of risk and hence have many exposures across a range of risk assets, however professional traders (bank and institutional) will more usually stick to a narrower range of assets or pairs that may be of particular interest or expertise; or, at least, when looking across the market for current opportunities will limit themselves to what is manageable both is risk/reward terms and their mandate.

 
So why would the retail market trader think they can do differently?
I have no idea! However I can assure you I have met many and heard from others that do. Because they can.

 
I have asked why? Only to be given fluff as an answer.

 
May I offer some gentle advice? The market offers all participants the chance to succeed, and with education, patience and strict risk management you will have an edge over the majority.

 
Keep it simple while you are learning the trade: establish a plan, pick a couple of pairs, adopt some risk controls, and most importantly, don’t become a juggler. Trying to rule the world when Hannibal and his elephants are storming down just ain’t gonna work!

 
I must go and throw my balls in the air…but before I do let’s look at my recent recommendations:

 
The EURUSD, with a consolidating market, has started to look promising: as I am typing we are hovering on 1.3765 and there is no change to my bearish view. Today there has been some significant ongoing selling against the Aussie dollar and the pound (GBP).
euroaud
The EURAUD is a bit of a favourite and when we get the signs we often see large moves; I have missed this one, some 5-6 cents!, but I could see this going another 4 cents or so without a problem.

 
The consolidation in equities is encouraging and my overall view for a gradually firmer USD instils more confidence in my bearish equities view mentioned two weeks ago.

 
The EURCHF has toyed with 1.2200 and trades just below; it will always be a buy (and hold) on dips while the 1.2000 SNB support is there.

 
My new position from two days ago is a modest long, looking OK at the moment, in US Oil where I bought at 99.35 (near the base of the channel) looking for a break of the last two weeks’ H4 channel. It has actually broken in the last couple of hours and as long as we get a close above I will be looking for 104-105, stop at 98.20 – a risk/reward of 1:4 approx; a close above the channel raises the stop to 98.87.
nymex
Nymex May courtesy FXCM
Happy trading!

Author: David Horton is a partner in Market Tutors Ltd in the city (www.markettutors.com). He has had a significant career in financial markets; he is a trader and trainer with a passion for coaching and mentoring.
davidhorton@markettutors.com

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Bo Yoder’s letter from America

In last week’s column, we walked through a profit taking scenario in the Russell 2,000.  As you can see from the chart below, the market reacted strongly to the green zone I had highlighted for profit taking, and is now reaching up to confirm the recent top as forecast.
RUT 3-20
 
Price may chop near the highs here, but yesterday’s bearish engulfing pattern suggests that a secondary peak has been reached and the proprietary 3D Apex Trading Methodology indicators are showing an expansion of bearish power in spite of the recent “wiggle” back to retest the highs.  I would expect to see price retest the recent lows, then would base my market forecast on the power readings at that point.  If they continue to build to the downside, then I would expect a breakdown to new lows.  If we instead see a test on diminishing power, it would predict that we are beginning to form a channel, and this would get me out of this market until the next trading opportunity.
OIH 3-20 
As mentioned in last week’s column, I have been watching the oil services sector for an entry into a “Head and Shoulders” reversal pattern for some time.  The bearish engulfing pattern I wrote about did indeed confirm itself last week, and now I am waiting for that pattern to “set up” by trading below the lows of lost week.  This has yet to happen, so I am stuck in wait-and-see mode as this market digests its recent reversal and builds bearish power for a move to the downside.

Bo Yoder

3D Apex Trading

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Is the price of coffee keeping you awake at night?

Brazil, what a wonderful country. Immediately it conjurs visions of wild soccer fanaticism, Edson Arantes do Ascimento – world ambassador for the limp and needy (Pele to you and I), the Rio ‘Carnaval’ – an orgy of colour, costume, music and dance; then there is the mighty Amazon and it’s rainforest, home to lost tribes of pygmies, the remarkable river dolphin and, of course, the piscatorial predator – the piranha. Not to mention the sun and ‘cheeky’ beaches.

Brazil however, more to the point of my weekly missive, is the largest producer of many a product: sugar cane, soybeans, ethanol and frozen chickens (editor’s note: are you serious??); and, of course, the addictive caffeinous ‘ruination’ of many a good night’s sleep, coffee!

Back in 1946 Ol’ Blue Eyes serenaded on the subject.

http://www.youtube.com/watch?v=H3MqmV47Lq8

Apparently there was and still is ‘an awful lot of it’ in Brazil.  When Frankie was drinking it though, it was only about 5c a cup.  The price per tonne was, I believe, about US$ 34.

Since then the caffeine culture has well and truly taken us to new levels of wide-eyed wonderment and we addicts all know our cappuccinos from our cremas.

With the demand of the last few decades the price has risen accordingly: and in the last few weeks we have seen a ramping from early January trading below USD120 per tonne to a peak of a few dollars over USD200.

I am sorry to bring bad news, dear friends, but we have had a problem: Brazil has been suffering major drought which has affected production and may do so into 2015 and hence the price has rocketed north!

david chart 1

This a daily chart showing the recent climb and potential topping.

I started to look at this last week and although the opportunity is a tad late for some of you, I rather took a fancy to a short after the first day’s fall which I did take at 197.35. As I type this we are trading almost at 180…my stop loss is now at break even with a trailing stop.

david chart 2

This is the weekly chart outlook: the weekly resistance line was broken quickly as the several weeks of short covering brought a bit more panic.

Longer charts tend to suggest that sharp spikes tend to get sold just as quickly. If this week closes back below the trend line we may assume that the move was more panic and position driven; as I said I am using a trailing stop on the trade as this not a typical trade for me – more of an opportunistic one. And it is in modest size in case my logic is ‘up the Amazon’.

To add something to the perspective of the drought effect to Arabica production, Brazil produces almost as much coffee as the next five growing nations!

To review my comments/recommendations from last week:

A quieter scenario on the Ukraine/Russia front has help the market calm down; the market in Euro holdings evened out perceived shorts which I referred to, with CTA longs reported in the Chicago COT reports.

This has meant that the euro may be seeing a topping out and I prefer the short side on rallies now with a stop above 1.4000 (as then my prior scenario should play out). Ultimately looking for a target in the lower 1.30s.

I haven’t change my view on the S&P.

Lastly, for anyone with the wisdom to be taking advantage of the SNB’s ‘gift to the market’, this week saw another opportunity to buy the big dip to 1.2109 where you are already 80 pips in the money. This is a rare case of knowing the downside is protected: a 120 point stop with a target of up to 300 points has to be worth a look – and you don’t need a chart to do it.

PS. The piranhas ate my website!

Our MarketTutors.com website sadly got delayed and will be up this weekend.  Another skinny flat decaf on soy, please barista….before the price goes up!

UPDATE:  22nd March 2014

I am wide awake but smiling: profit taken on Arabica short!

Further to my call that hit the press yesterday in LIW, I am happy to report I have just closed the position before the weekend at 173.70 (late lunchtime London).

I decided that a gift horse should not be ignored let alone considered for dental inspection. Equine halitosis is not for me.

I regret that LIW readers didn’t get to read of the call until after the event, however I hope to change that; at least a number of my clients got in and hopefully some will follow my lead this afternoon.

It was not a case of not liking the position – I did suggest a close today may suggest continuation – however futures markets, like others, can gap dangerously on Monday mornings and it was too good a profit ($23.65 in only a few days) to refuse. Basically a 12% fall.

I will consider going back in depending on conditions on Monday.

Happy days: time for a double ristretto? Just to ruin the taste of the cognac, of course!

Author: David Horton is a partner in Market Tutors Ltd in the city (markettutors.com). He has had a significant career in financial markets; he is a trader and trainer with a passion for coaching and mentoring with a good dose of humour.

davidhorton@markettutors.com

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The FTSE remains under pressure but the upside looks attractive

The FTSE 100 had a series of volatile sessions this week and it seems that this theme will continue over the next trading days as well. Since last Friday when we discussed the FTSE’s outlook a number of events swung the index up and down.

The tensions in Crimea and the referendum that took place there over the weekend was the main risk factor. However, even though the domestic population voted in favor of joining the Russian Federation and Russian President Putin signed a treaty to annex the region stock markets reacted calmly.

There was a widespread fear that the rumored EU and US sanctions towards Russia would escalate the situation there but the fact that nothing more than a war words took place reassured investors and the FTSE threatened to end the downtrend as it climbed as high as 6,670 points.

But it was Janet Yellen’s press conference on Wednesday that put pressure back on the UK index. The new Fed Chairwoman reaffirmed her intention to continue on course with the tapering schedule since the US economy seems to be picking up pace again after the disappointing first 2 months of the year.

What troubled investors was the fact that Yellen mentioned a rather specific time-table to raise interest rates after tapering ends. The Fed boss was quoted saying that it’s likely that they will raise rates “around 6 months” after the end of their tapering campaign which places the supposed raise sometime around the summer of 2015.

Over the next week I see the FTSE being volatile as it currently is, we still have to see how investors will reposition themselves after Fed’s firm intention to reduce the stimulus to the domestic economy. Also keep in mind that the next week holds a number of important events for the British economy, the inflation report on Tuesday and also the aftermath of the positive labor data released a couple of days ago have the potential to fuel a relief rally for the UK index.

alpesh chart

I remain cautious over the next few days regarding the FTSE’s outlook, I am conservatively bullish and I believe that the key level to watch would be the 6,670-6,700 points area as a move above this would put the UK index on track for further gains.

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Charlie Burton on Euro Dollar Pair

The rising trend channel on the Euro dollar currency pair I wrote about last week has now seen the lower trend-line tested. I have included the screenshot I took last week plus have included a zoomed out view as well.

 eurocharlie

As I stated, once price comes down to the lower rising trend-line, we could see a bounce. Well we are on that line as I type so a shallow bounce could be expected. However, as I said previously, that channel was steep and so may not last long.

 euro2

On my second chart this week you can see a longer term trend-line that started off the July 2013 lows. This should now be our next target to the downside once any short term bounce plays out.

 

The Euro looks to me like there is ultimately more downside in it so don’t trust bounces unless it were to breach 1.3950.

 

Charlie Burton

EzeeTrader

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Beware the slides in March

It’s been a ‘funny’ month, said a close trading pal a couple of days ago. Of course one immediately knows by the choice of that magic adjective that he was not on the right side of the market.

It is always a good pointer when odd words give away the game – almost intimating blame on the great beast itself: the market!

Funny? Personally I think not. The Ukraine has been thrown into turmoil. International relations are on edge (nothing new, I know) and in the last few days the tragedies of the missing Malaysian Airlines plane and another explosion in New York immediately made the market jump to assumptions.

As a trader of more than a few years I have seen this all before and it never fails to surprise how the markets get their communal knickers in a knot of doom and despair; the end of the world  will always be nigh and the flight to safety foreseeable. And, more importantly, it will all reverse when the smoke dies down.

There are lessons for traders of all levels when we get a mismatch of what perhaps ‘should be’ and the reality of what it becomes when driven by conflicting themes. If indeed there is any ‘should be’ – the market is the market after all and will take no prisoners, however amusing (unexpected?) the moves and current levels may be.

After all, at the moment the market is watching the geo-political scene and the possible effects of further defaults in China rather than the economic data: whatever the data the reactions are short-lived and frequently reversed.

The Ides of March are almost upon us and as I type the EURUSD has been trying to knock on the door of 1.40; much to the undoubted chagrin of the Draghster and his colleagues at the ECB, this is not the door to heaven whence the euro should be knocking methinks.

Today’s ECB March monthly report led the way with the inevitable arguments that might encourage a cautious bear stance in the single currency:
•    Employment to remain weak and projected to rise slightly in 2014
•    Inflation to remain low into 2016
•    Disparaging comments were made on the performance of Italy, France and Spain

This was followed by the Bundesbank’s Weidmann:
•    Expansionary monetary policy is appropriate
•    Low interest rates can not last forever
•    ECB policy exit shouldn’t be delayed just because of stability fears

•    They have no fx price target for the currency
•    However a strong currency can influence the inflation outlook
•    Forward guidance doesn’t depend upon one variable

And then the ECB’s Klaus Knot:
•    Says negative deposit facility shouldn’t be excluded
•    Rate cut remains an option if CPI falls

The point here is that the euro has fought off all attempts to sell in the last few weeks and here we have general concern and caution from the powers that be. BUT the market is very short and at the wrong levels.

The most important thing in trading, in my opinion, is to be aware of market positioning; the retail market, amongst others, has been wrong and it looks dangerously like a test of 1.4000 is imminent and be assured the shorts will run for the door.

Perhaps when this happens we will see one of the opportunities for one of the above-mentioned slides!

A final squeeze above 1.4000? the MACD looks tight to me, the Stoch is ready to roll and the RSI has bearish divergence…..I might even go and put my sell order in! Failing that there is an exciting channel play building a short from 1.4200 to the channel top with the stop above.
dhchart1
The chart shows the weekly EURUSD, with MACD, Slow Stoch and RSI (from top to bottom).

Let us take a look at the equity markets (specifically the leading SP500) – the other great slider coming?
The market has been strong all through the QE story and has soldiered on regardless of bearish divergences. Makes one quite breathless – must be less oxygen at these recent dizzy heights approaching 1900.
The SP500 weekly chart story shows similar signs to the EURUSD (as we might expect?).
The MACD, STOCH and RSI all showing similar characteristics and a clear channel.

The market has been very long of the equity markets and when we get the turn we can expect significant action; I have spoken recently to several large real money players and read reports from some large funds expecting this turn to be imminent.

Of course we have had many top pickers trying for some while now but my view is that the timing is looking much better.
dhchart2

The weekly SP500.

It’s never fun when it’s not going your way, however you cannot blame the market.

Author: David Horton is a partner in Market Tutors Ltd in the city (markettutors.com). He has had a significant career in financial markets; he is a trader and trainer with a passion for coaching and mentoring.
davidhorton@markettutors.com

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