The Cost of Money

The stock markets of the major exchanges capped a week of mostly light trading on Thursday with the broader US market indices showing their first weekly loss since the last low in Mid-February. In the US the fall was led by banks and financial stocks but by late in the day the SP500 index has fought back and recaptured most of the days losses. As London was closed at this time the rally wasn’t seen in the UK.

The stock indices came into the week with a 5 week string of gains that took back all of the damage done in January and early February as the FED stepped back from the rate increases communicated in the last quarter of 2015. To add intrigue James Bullard who is president of the St Louis FED, this week, suggested that a case could be made for a rate hike as early as next month. His remarks immediately drove up the value of the dollar and was the probable cause of the selloff in stocks on Wednesday and Thursday. The cost of money remains high in the minds of market players. The Federal Funds futures markets have priced in a 10% chance of a rate increase in April which is up from zero chance a few weeks ago.  A report that showed US durable goods fell by over 2% didn’t help the mood as did the atrocities in Belgium.  Also it seems that 50% of all fracking related loans are close to default due to the sustained low price of oil. This type of news always comes out when the markets are in a much overbought area.

The SP500 (shown below) has found resistance at a 78.6% retracement of the last daily range as noted in my entry of last week. Those traders with a bearish disposition who have studied FIB and harmonic trading patterns will be short from the level. Those who use candle patterns to confirm the position will also be short of the index after confirmation of a bearish “evening star” pattern after the close on Thursday. On VectorVest the leading properties of the MTI indicator suggest that stock indices need to pullback or go sideways for a period. A reading on the MTI of greater than 1.5 invariably causes markets to stall, while, as we saw in mid-February a reading of less than 0.6 invariably causes a change in trend or at least a tradeable rally. The MTI is very special mix of price, momentum and market breadth and its application is literally money in the bank.

david paul

On the LSE the MTI peaked at 1.5 and has turned down to 1.46 after the close on Thursday. Also of note is the fact that the price of the VectorVest Composite of the UK has made a higher high over the past two weeks while the MTI could not follow and made a double top. I always prefer the price and the indicator to be markedly divergent but the pattern does qualify to be labelled as a bearish normal divergence. This as the name implies is another reason to be careful in long positions.

The Primary wave or short term trend of the UK market is down and there is a red light in the price column of the Color Guard. I have talked in this column about the sequence of a market turn. The first signal is the Primary Wave turning in this case to down and the second signal is a red light. Both of these have fired and as a result the most aggressive traders would be short or thinking of going short if the market breaks lows on Tuesday. Also I see that the VV Composite of the UK closed below an 8 EMA on Thursday and that adds considerable to the probability of at least a tradeable move.

The first two signals at the turn are for aggressive traders only. The third signal which is the red light sell being confirmed by the RT kicker system has not fired as yet and the DEW system remains “Long”. The underlying trend is UP and at a value of 1.46 the MTI has a lot of work to do before any reversal will be made. When the MTI falls below 1 the underlying trend is defined to be down. The most conservative signal on VectorVest, the confirmed call is “long”.

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My shares have had a very good week, while the market was flat, with Victoria soaring. The share has a low RS but both technically and fundamentally (based on the RV score on VectorVest) has a long way to go. Dart and Gleeson have broken upwards very nicely and Marshalls came back and “kissed” former resistance which is a good sign. I am holding 7 positions at present and I have made no secret of these in past entries in this blog and within the webcasts that I do every two weeks. The next of the latter is scheduled for next Tuesday 29th March at 130 UK time. If you haven’t got a link to this then please get in touch with our call centre at 0800 014 8974 in the UK and 0800 981 891 in SA.

If a market selloff should occur then a worry is that the bids on the small cap shares in my portfolio just simply disappear and they can come down just as fast as they went up.

My strategy is to hold high VST shares as long as the DEW market timing system is positive and thus I am holding at present. However I will NOT be buying any more shares until the advice of the front page of the VectorVest program tells me that it’s safe to do so.

The program called the upswing from the middle of February exceptionally well and I have no doubt that it will do the same, if the market turns further down. My job is to stay present in this moment and focus on perfect execution of the process. If I do that then the cash will take care of itself.

In the webcast next Tuesday I will again revisit the turn and again press everyone to decide on which of the possible 5 reversal signals that you are going to commit to follow. The key is to take each signal without fear or hesitation. If you recall taking the buy signal after the selloff in the first six weeks of the year wasn’t easy. They never are, but that’s what our business is all about. The good news is that it gets better with a little practice. I have found that somewhere between 8 and 13 trades are required for the “habit” or “discipline” to become engrained. I say at all my trading seminars that “You are 8 to 13 trades away from the trader that you want to become” That’s all.

It’s certainly possible to be an aggressive trader using a CFD or spread bet in one portfolio and to be much more conservative in another. I am personally trying to achieve this goal and I simply use a spread bet on the Ft100 for the aggressive trades. My signal is the Primary Wave turning up (or down) and that the turn is confirmed by a close below the 8 EMA. I am indebted to a member of the Bristol User Group for his research into this simple but very effective trading system.

As mentioned above, in the conservative portfolio, I am “long” only in high VST shares, using the “David’s Big Hitters” search and using the DEW market timing system. My challenge is to get myself out of the way, take the signals as they come and manage the positions well. Please play the Quick Start Course lecture 2 under the training tab on VectorVest where managing the positions is clearly documented.

I wish you all a very happy and safe Easter.

David Paul

VectorVest

26th March 2016

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Confidence is everything…

A friend of mine is a professional racing driver. This year he’s changed from racing radicals to LMP2 division all of which means little to me! However he was in pre-season testing last week and said he’d lost confidence whilst trying to familiarise himself with the different driving dynamics of this new car. He’s used to being in the top three when driving radicals and is in his comfort zone there. But now he’s moved on, he’s not where he wants to be as a result of this dip in confidence. I’m sure he’ll work on it and then be where he wants to be but having confidence in what you’re doing is everything….

Take trading. I’ve seen countless traders become pretty proficient at trading who were very successful when trading at £1 or £2 per point. However, as soon as they made the step up to trading with larger size, something seems to go wrong and they lose their ability to be profitable.

So what’s changed? They’ve lost confidence. All of a sudden they’re aware of the larger position size and the consequences if the trade loses. They were comfortable trading before when they may only lose £100 on a trade, but now they are trading with larger position size, the thought of potentially losing £300 or £400 on a trade makes them over-think what they are doing. As a consequence, they start getting too picky on finding the perfect setup and whereas previously they would run their profitable trades, they start grabbing profits too early.

The only short term solution is to move back into their comfort zone and trade smaller size again. Obviously this is not what they ultimately want so they will have to work on this issue of which there are techniques to help.

This is just one example of confidence in trading. Many traders, especially newer traders lack confidence about their ability and again this will impact on their trading results until they find a way to overcome it.

Generally speaking, you need to have a bit of arrogance when it comes to trading. Self belief is so important as it breeds on itself and makes you a better trader. I’ve traded with people who technically only have pretty basic trading skills, but as a result of their confidence, they have better records than other traders who are too fearful of what might go wrong and therefore miss too many good opportunities.

Like my racing driver friend, in order to excel, confidence is everything.

Turning to the currencies, Cable has caught my attention as it’s been testing its daily 50ma (black line on the chart) of late. Should it manage to close back above the green horizontal line indicated on the chart, that could indicate buyers are feeling more confident after this week’s sell off. If that should happen, I would look for continued strength to come into this pair. If however, we close below last week’s low, odds increase of a test of the late February lows.

charlie

Have a great week

Charlie Burton, Ezeetrader

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The FTSE 100 seems poised to break lower but could Yellen turn the tables?

The FTSE 100 seems poised to break lower but could Yellen turn the tables?

Before the Easter holiday break the bias in the FTSE 100 was a bearish one and it seems that the sentiment remains negative as markets opened in the red today after the break. The London index that has been trading sideways between the 6,100 and 6,200 points’ levels for the best part of March has been under pressure today and even though the break downwards hasn’t yet occurred it might be tough for the index to avoid it.

The FTSE 100 ended last week with another failed attempt to penetrate the 6,100 points’ support but at the time of typing the index is once again in close proximity of the support level. So my focus is naturally on this attempt and whether the London index will be able to break out successfully and look towards lower levels.

We need to be very careful this week as there is a number of important events coming up and today our attention should be on the Yellen speech in New York. The Fed Chairwoman will be speaking to the Economic Club of NY later today and her comments will set the tone ahead of the Non-Farm Payrolls report on Friday. Depending on how cautious and bearish the Fed chief sounds the stock markets could find renewed support or tumble lower so any premature breakouts might be reversed.

At any case I am focused on the 6,100 points’ support as I mentioned above and should the break take place then my initial target will be around the 6,050 points and a possible extension will take us all the way to the 6,000 points’ area. To the upside we need a clear reversal above the 6,160 points’ area where today’s highs are situated along with the 50 and 200-period moving averages. Should Yellen’s remarks send the stock markets higher again then my trigger is above the 6,160 points and I will be targeting the 6,200 highs.

alpesh

If you want daily trade signals on the FTSE 100 and the Euro, the Pound, Gold and more Forex, Stock Indices and Commodities instruments I am recommending my Sentinel Signals report that has an impressive performance. You can find more information on Sentinel Signals by clicking on this link.

 

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The FTSE 100 remains directionless in the midst of political and social uncertainty

Since the beginning of the month the FTSE 100 has been trading sideways between the 6,100 and 6,200 points’ levels, excluding a brief break downwards that was quickly reversed the next day. It is evident that the London index is looking for direction but the fundamental drivers just aren’t there to convince traders to get behind a move in the FTSE.

My analysis indicates that the most likely direction for the index to break is towards higher levels since the major global economies are doing fairly well. The US are considering raising interest rates sometime within 2016, we might not know when and how many times but they’re certainly not looking to ease and the UK is not doing bad itself either.

However something is lacking, investors are just not truly convinced that the stock markets should be trading higher and remain defensive at this time. Is it the fact that this year was expected to be a strong year for stock markets but it actually started on the wrong foot that keeps investors cautious? Is it that they are not yet fully convinced that central bank easing is behind us and we’re looking towards a tighter monetary environment sometime soon?

Whatever the reason the FTSE 100 remains range bound and today’s terrorist attacks in Brussels make it even harder for the stock markets to break into fresh gains. Europe has been under terrorist threat since the beginning of the year with the Paris incidents, the attacks in Turkey and now with Brussels investors have every reason to be sceptical. Add to that the upcoming Brexit referendum and you see why the FTSE really looks directionless given the uncertain social/political environment.

Having said that though, I am not considering a move lower. Even though the political and social environment is quite volatile and will probably remain as such for now I don’t think there’s any reason for investors to pull out of their stock positions. So I continue to look upwards and again I need a clear and sustained break above the 6,200 points to go long and target the 6,300 points’ area as my first target.

alpesh

If you want daily trade signals on the FTSE 100 and the Euro, the Pound, Gold and more Forex, Stock Indices and Commodities instruments I am recommending my Sentinel Signals report that has an impressive performance. You can find more information on Sentinel Signals by clicking on this link.

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Bo Yoder S&P Analysis

The S&P 500 (ETF Proxy – AMEX:SPY) is grinding higher on lower levels of bullish power. A reversal is likely to begin forming, but our forecast is that this reversal will take the form of a multi-wave reversal pattern.  We are staying on the sidelines in this index while we wait for this price confirmation to show itself on the daily chart.SPY 3-20-16

 

Gilead Sciences (NASDAQ:GILD) has been “surfing” off the top of the green zone for several weeks. Price has now broken above the 50sma (Orange line) and should begin to accelerate to the upside. This week will be a critical one for this positon, if price does not rally substantially this week, it would be a signal of failure and would indicate that taking scratch profits is prudent before the week is out.

GILD 3-20-16

Genworth Financial (NYSE:GNW) has formed a powerful bottom on its daily chart, and is beginning to accelerate to the upside.  It has formed a bullish pennant which should attract buyers to this market in the week to come. The explosive nature of this bottoming pattern allows us to forecast a profit target just below the $4 per share level.GNW 3-20-16

 

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The FED Blinks

The Fed didn’t push up interest rates as was widely expected by futures traders and scaled back on the talk of the multiple hikes communicated in the last quarter of 2015. I have long held the view that the selloff in January to the middle of February was all about the cost of money. The market voted strongly that they didn’t believe the US economy could handle the increases and the FED has taken note.

In January and February when the markets were tumbling an average of 9.1 billion shares were changing hands per day. In the rally of the past month the average volume has been lower at 8.1 billion shares per day. In particular the run up to the Feds decision was on very low volume. The four day window before the announcement was on a volume of 6.9 million which was well below the average for the month and year.

From a technical perspective markets falling on high volume and rising on lower volume is a weak sign.

The SP500 closed on Friday at a 0.786 retracement of the last daily range. 0.786 is the square root of the Golden mean 0.618 and a very important level in markets. Candlestick analysts will also note that the SP500 also charted a “hanging man” at the FIB level and that’s also a worry. A good friend once pointed out that a candlestick reversal pattern has predicted 100 of the last 10 reversals.

Earnings of the SP500 companies fell by 3.3% in the last quarter of 2015 and they are expected the fall in the first quarter of 2016 as well. The Market Climate section of VectorVest adds a 50 day average of SP500 earnings which is massaged between 0 and 2, akin to all other metrics on VectorVest. Below 1 on the Market Climate scale indicates a bear market and that’s where we are situated presently.

The trends of both the US and UK markets speak a much more positive story. In both countries they show that both the short term trend and underlying trend are rising. In both markets the price, momentum (RT) and breadth of the VectorVest Composite are rising day over day and week over week and that’s shown by three Green Lights on the Color Guard on the front page of VectorVest. On both markets there is a star within the Green Light on the price column on the Color Guard and that shows that the price is rising and also being confirmed by rising momentum. In VectorVest speak the Green Light has been confirmed by the RT Kicker timing signal.

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The Market Timing Indicator on VectorVest has some amazing leading indicator properties. The indicator is a combination of the momentum of both the price and the breadth of the VectorVest Composite. In mid-February the MTI predicted the turn up when it recorded a value of less than o.6 on a scale between 0 and 2. Presently the MTI is sitting over 1.5 in both countries and that’s becoming overbought in the same way as 0.6 was oversold. The MTI is saying that even under the most positive circumstances that the market needs to stop for a breather soon.

The UK Composite is shown below.

daVID

In the UK I have added to my holdings by purchasing Gleeson and Marshalls as indicated at the last webcast. All the shares in my portfolio are in the money and on BUY recommendations. Long may that be the case.

I have spent the last few days at the VectorVest “Trading like a Pro” course in Charlotte North Carolina. The course was excellent and has added immensely to my knowledge of how to use VectorVest to find high probability trades each and every morning. I will try and communicate some of this experience in the User Groups and webcasts.

I am sitting in my positions and following the signals.

David Paul

March 19th 2016

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Traits of successful traders…

A trader passed me a document last week released by FXCM giving statistics on their client’s trading activities. Now the information will hardly be a surprise to many of you but I thought I would share some of this information anyway.

Firstly, when looking at their customers who traded the EUR/USD pair, 61% of trades were closed out at a profit. We would initially think this was a pretty good result if the majority of trades were profitable but unfortunately there’s more to it. Although 61% of trades were profitable, the average losing trade was 83 pips but the average winner only 48 pips. It just goes to show that you can be right more often but still lose money if your risk:reward ratio is too skewed in the wrong direction.

Of the profitable traders, 53% were profitable who had a minimum of 1:1 risk to reward whereas of those with inverted ratios, only 17% were profitable.

Managing risk was also a big factor. Traders who took on oversized bets had an increased likelihood of losing (just 17% were profitable) against those who use 5:1 or lower leverage (40% were profitable).

Lastly, traders who were undercapitalised were less likely to be profitable (just 21%  of traders with under $1000 in their account were profitable) than those with larger accounts. This could be explained that newer traders (who are more likely to not be profitable) are more likely to start with small accounts whereas more experienced traders tend to put greater funds into their account.

In all, the information tells us nothing new, but reinforces what we already know!

Turning to the currencies. Last week I noted the consolidation on the USD/JPY. It broke that consolidation to the downside and re-tested the February lows. It bounced on Friday and again so far today. But if it breaks back below Thursday’s low in the coming days, the psychological 110 zone would come into play….

charlie

Have a great week

Charlie Burton

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Fear in trading…..

I’ve recently discussed over-confidence in trading and what this can potentially lead to; over-gearing and the use of either ultra wide stop losses or no losses at all. Over-confidence is an exceptionally dangerous position to be in so traders should always self analyse in order to ensure they keep their emotions in check.

[For 2 free days to Charlie’s trading room (plus his report on how to trade for a living) click here ]

The opposite of over-confidence would be fear. Some traders will never have issues with confidence because they are too worried about losing to make those risky trades. Just because a trader respects risk management rules doesn’t mean they will make money though. A trader who carries fear will struggle to hold onto profitable trades through fear of giving back any open gains they’re sitting on. So they’re likely to grab profits too early.

I’ve heard traders say “no-one ever went broke banking a profit,” and this is totally incorrect as a statement.  If you bank your profits too soon, when you do have losing trades, these will quickly wipe out your profits. A trader who suffers with fear will struggle to even hit the buy or sell button, let alone struggle with holding onto winning trades. I traded on a fund several years back and another trader involved ‘lost his mojo’ and kept banking his winning trades way too early. Then as soon as a couple of losing trades came along, it put him underwater. Needless to say, he couldn’t cope with the pressure of managing other people’s money and was gripped by fear.

So how do you overcome a fear like this? Remind yourself that the next trade is simply one of the next 100 trades you are going to do. This helps you to place less significance on each individual trade outcome and more on the outcome of a much larger set of trades. Also keep reminding yourself that if you keep banking your winners too soon, they will never pay for those inevitable losers that will come along and so ultimately you’re hurting your longer term performance by grabbing that profit now.

charlie

Moving onto the currencies, it’s FOMC week so on Wednesday we are likely to see plenty of volatility in the USD pairs. The USD/JPY has been consolidating of late and has created a nice range. A close either above 114.60 or below 112.10 would likely see a break of that range as highlighted on the chart.

Have a great week

Charlie Burton

Ezeetrader

For 2 free days to Charlie’s trading room (plus his report on how to trade for a living) click here

 

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How to trade the FTSE 100 ahead of the Fed and BoE meetings this week

After an extended time trading sideways the FTSE 100 broke lower last week and as I predicted in my last report to you the index ran a decline towards the 6,030 points’ so I hope you made a good profit out of this opportunity. However what is interesting is that the FTSE reversed its flows immediately after reaching this target and today being a week later we find it trading sideways again.

It is interesting to note that excluding the radical volatility on the day of the ECB meeting that drove the FTSE to the 6,030 points’ area and back up again the London index seems to be trading within the same 6,100 to 6,200 points’ area. So again we need to lay out our scenarios for when the index breaks out again given that we have plenty of important events ahead of us.

The Fed meeting on monetary policy, the BoE meeting, the release of the US Retail Sales and UK employment data are all important events that are bound to attract traders’ attention and spark some volatility in the markets. We need to be ready then with our scenarios at hand to jump into the markets and take advantage of any opportunities as they might be over before we know it, like last week’s drop and reversal.

So to the downside again I need to see a clear break below the 6,100 points’ support and again I am going to look towards the 6,050 points’ area with the possibility to extend my secondary targets to the 6,000 points’ support. Pretty much the same scenario we had in our hands last week and hopefully it will work as well as it did last time.

To the upside now I need to see the FTSE making fresh highs above the 6,200 points’ resistance and should the index manage to clear this area then I am looking to follow it towards the 6,250 to 6,270 points’ levels where my targets will be placed. I need to advise you here to be vigilant and quick in your trades as they can run into profits quickly and then reverse back again before the end of the day.

alpesh

If you want daily trade signals on the FTSE 100 and the Euro, the Pound, Gold and more Forex, Stock Indices and Commodities instruments I am recommending my Sentinel Signals report that has an impressive performance. You can find more information on Sentinel Signals by clicking on this link.

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With the FTSE 100 trading sideways once more we need to be prepared for the break

Since the last time I wrote to you we’ve seen the FTSE 100 trading sideways for an extended period of time and actually since the start of the month the London index is finding it hard to break out from this directionless formation. In my last analysis we were faced with a similar dilemma and as we did then we will now lay out the possible scenarios that the FTSE will follow as soon as it exits its current pattern

Since the beginning of the month the index has been stuck between the 6,100 and 6,200 points’ levels looking for direction but finding none. Any attempts to pick up any momentum towards higher or lower levels have been met with traders’ lack of confidence and the index was left stranded midway. As technical analysts we need to keep our calm and wait for the FTSE to reveal its true intentions and then follow it towards the direction it has picked.

So where are my pivot points, which are the levels I am waiting to be broken before taking any action? To the downside I think it’s clear that for the FTSE to pick up any serious momentum and attempt to really correct lower the support lies at the 6,100 points’ level. This is the level that has supported any recent attempts to break lower and it was the strong resistance the kept the FTSE trading lower up until the end of February and was later transformed from resistance to support.

So to make any serious trades towards a reversal lower I think we need to see a clear break of the 6,100 points’ level and should that take place then the 6,000-6,030 points’ area is my first target. This is an area that has been tested many times in recent weeks and I believe that it will attract traders’ attention should the FTSE start declining.

However, we also need to be prepared in case the FTSE 100 finds enough support to make the break into higher ground even though it looks like the momentum behind the index’s recent rally has been spent. There’s always the case that the London index breaks to the upside and in that case what I would personally want to see before pulling the trigger is a break above the 6,200 points’ level.

Should the FTSE attempt to break into fresh highs and establishes an base of support above the 6,200 points then I believe that it’s clear that the next stop will be the 6,300 points’ area. This is the level where the FTSE ended last year before running that impressive rally to the downside and if we are to see an extension of the current rally higher then this is the area I would place my targets.alpesh

If you want daily trade signals on the FTSE 100 and the Euro, the Pound, Gold and more Forex, Stock Indices and Commodities instruments I am recommending my Sentinel Signals report that has an impressive performance. You can find more information on Sentinel Signals by clicking on this link.

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