The FTSE’s outlook hinges on the Fed meeting and their forward guidance

This week we find the FTSE 100 trading around 100 points lower than last week when I last sent my analysis to you. It seems that the London index wasn’t capable to hold on its previous gains and it’s kind of natural to see a mild correction after a really impressive rally. However what really interests us at this point is what to expect next and how to trade the FTSE 100 this week.

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It is useful that I write this analysis to you today just a few hours ahead of the key event of this week which is no other than the Fed meeting on monetary policy and interest rates. We know beforehand that the Fed is in no place to raise rates today but what is more important is their forward guidance. This becomes even more important as there is no meeting next month and their next scheduled one is on June.

So today’s meeting and the accompanying statement that will come along the rates decision will act as guidance for the next 2 months and there are still voices out there that believe that a June rate hike is still a possibility. So given the increased importance of the meeting we expect the Dollar and the global stock markets to react to the tone that will come out of the meeting.

Expectations are set for the Fed to remain cautious and not hint towards a rate hike in the next couple of months given the recent deterioration of data in the domestic market of the States. Such a development will of course offer renewed support to the stock markets and the FTSE 100 is expected to benefit on the back of it. In that case my trigger lies above the 6,300 points’ level and my targets extend to the 6,330 and 6,400 points for the next few sessions.

In the opposite case that the Fed officials surprise us and disregard the recent string of bearish data from the US and instead focus on the positive developments abroad then the FTSE might extend its correction to the downside and the 6,150 points’ area is my short-to-medium term target. In any case though we need to be extra cautious in such a scenario as the broader bias for the stock markets is bullish so a quick reaction is advised.

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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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Increasing position size….

Here’s a scenario that most traders will experience. Trading has been going well and as a result you decide it’s time to start increasing your position size. After all, you’re not looking to change a single thing about how you trade as it’s been working really well.

As an example you decide to increase your position size from £1 per point to £2. Murphy’s Law establishes itself and the first trade you take with the new position size becomes a losing trade. You don’t mind as you almost expected that to happen anyway as a result of Murphy.

But what happens over the next month starts to concern you. Your success rate has dropped and you have in fact had a losing period. Like a seasoned pro, you put it down to coincidence and know that you must trade through the drawdown. However, trading continues to be up and down for the next month. You’ve started to worry about the size of the positions and really don’t like the size of the trades that lose. It’s affecting your ability to take trades and you start cherry picking, trying to only take the very best setups.

This only makes it harder for you as you get to a point where you can’t even decide what a great setup looks like anymore. You’ve hit a brick wall as fear of loss has become too large a factor in your trading. The solution? Downsize your positions to a level where you don’t fear loss. This could even mean going down to 50p per point so that you can find your confidence levels again. Then, once confidence is regained you can start increasing position size once more. The initial problem was that position size had been doubled and this subconsciously was affecting your ability to do what you previously did so well.

The best advice I can give to a trader who wants to start increasing position size is to do it gradually. Small incremental increases are much easier to deal with mentally than trying to make giant leaps. As always, one small step at a time is often the best approach to building that account up. You’ll be amazed at how quickly it can grow even when only making small increases in position size.

Over to the markets, the AUD/USD has had a strong start to the year, rising from lows just above 0.68 to above 0.78, a 1000 pip increase. It has reached its monthly 20sma which could act as potential resistance plus there’s a couple of rising trend-lines that could come into play. In fact the steeper trendline is already breaking which could open the door to a run to the next one. Look at the daily chart because there could be plenty of activity on this pair over the coming weeks with these trend-lines in play…

simonaud

 

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Charlie Burton

Ezeetrader

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The FTSE 100 sustains its gains for now and looks bullish enough to continue higher

Last week we were discussing whether the break higher in the FTSE 100 would be sustained and if the index could continue rallying higher. Today we’re looking at the FTSE holding strong for the time being trading around the 6,400 points which is not far from the 6,480 points’ highs where the London index was at the end of last year.

As I mentioned in my analysis last week I am conservatively bullish over FTSE’s medium-term outlook and it seems that the current uptrend could have more room to grow to the upside. The momentum pushing the FTSE higher seems to be less strong compared to last week but my analysis indicates that the index still has the potential to go on, at least from a technical standpoint.

My targets to the upside remain around the same area I highlighted in my last note which is the 6,450 to 6,480 points’ area but for that to take place we will need fresh momentum and a further fundamental backing. The economic calendar this week might not prove stimulating enough to drive the FTSE to higher ground for now so we need to remain equally vigilant over a correction lower in the short term.

In case the FTSE pushes lower as a short-term correction might develop then I would like to trade it below the 6,350 points and look towards the 6,300 points’ level as my target. A more meaningful push lower than that area would indicate that our bullish views might be too enthusiastic and we need to take a step back and re-evaluate our views. However liked I said above my primary scenario suggests a long trade above the recent highs of 6,420 points targeting the 6,450-80 levels.

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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 desire to be right….

Last weekend I gave a couple of presentations at an FX conference in Bratislava. There was an audience of around 250 people of which around 50% had been trading for less than 2 years. When presenting to a group of traders I don’t know, I always like to get a gauge for what type of trading they’re interested in and what their expectation levels are.

I tend to find that a very large percentage of traders want to have high win rate strategies. This desire to be right is not in itself a bad thing. In fact it is trained into us right from childhood. We are taught that being ‘right’ at school leads to better exam results which lead to further education which hopefully leads onto a great career. Once we do join the workforce, doing our job to the best of our ability is again programmed into us, mistakes are something we try to avoid….

When it comes to the markets, we may as well throw everything we’ve learned about being right out of the window because it’s not always the best way to approach trading. Don’t get me wrong, having a profitable high win rate strategy is of course great, but it’s not necessary in order to be profitable.

Newer traders will naturally want to be right as much of the time as possible because they find it more difficult to deal with having losing trades. I was speaking with a trader recently who gave a friend a strategy that was right 40% of the time but when its winners came in they had very large profits. His friend simply couldn’t deal with having losing trades and so started cherry picking trades, trying to be right. As a result he missed out on the big winners and thus underperformed the strategy. So he asked if the trader had something that was right more often. The trader said that he did but it wasn’t anywhere near as profitable. The friend said that’s ok, I’m happier to just be winning more often!

The desire to be right is what also results in some traders deciding not to use stops or use stops that are simply too big. That way they can avoid being wrong (getting stopped) as much as possible.

So back to the traders from last weekend. What would they rather me discuss, high win rate setups or low win rate setups? Yep it was the former. Well I guess I’m happy enough discussing high win rate setups, it leaves the cream for me….

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Over to the markets, one of the potential big FX market movers this week could be the ECB press conference on Thursday. The comments and actions taken by Mario Draghi will influence that of the Euro/Dollar pair among others. If the Euro gets back up to 1.1450, I suspect it will breakout this time and make a run to new highs. A close below 1.12 however would likely bring in more sellers and a potential run for the trend-line indicated on the chart. Either way, volatility could well increase later this week….

simoneuro

 

Have a great week

Charlie Burton, Ezeetrader

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A Great week and another Positive Technical Pattern ahead.

The stock market had a very good week with the falling wedge on the Ft100 breaking upwards as anticipated. The Oil price has surged by two thirds since the January lows. This helps the markets directly by increasing the share price of many counters and also indirectly by taking the heat off junk bonds issued to the junior oil companies and frackers. In the last year 12 oil companies with liabilities of greater than 500 million dollars have thrown in the towel. The large US banks reported large provisions for bad, oil related debt, in their first quarter reports.

Also a driver of the market has been the first few of the quarterly earnings reports. Both Alcoa and JP Morgan reported reduced earnings but these were higher than expected by the market. This, some decent data from China for a change, Oil and the general dovish note from the FED, produced the “Green Lights” we saw on the home page of VectorVest.

The Dow 30 has broken and kissed the trendline defining the highs of the market high last April and the high at the end of 2015. This is a very positive break with the market camped as I write at highs of December 2015. My chartists mind sees this as large double or even treble bottom. If you draw a horizontal support line through the lows of October 2014, August 2015 and the lows of mid-February 2016, the pattern is easy to spot. It’s shown below.

david

Conventional charting suggests that when the high between the lows is exceeded a move is probable. The target of this move would be the vertical distance between support and the high of last December. Without getting a slide rule out, that’s a move of 2000 points on the Dow. A definite break of the highs of last December is needed to confirm this move.

The SP500 has been strong but not as strong as the Dow 30. The 500 share index still hasn’t broken the trendline which connects the highs of April 2015 and the highs just before Christmas last year. As I write the high of this week is defined by that trendline.

Over the weekend there is an important Middle East conference on oil production levels. This will be critical for the stock market in the week ahead.

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JD Sports reported excellent results. The City was expecting good numbers but they upstaged those. The share has broken out of an ascending triangle pattern and with a decent market looks set for more. Victoria and Dart are performing well but like the market look much overbought in the short term. A pullback in Dart to the last old high of 600 is probable so all reading, who are holding the stock, need to ponder on that. There is no right and wrong save the exit rules that are in your trading plan.

My building shares are under pressure with board room ructions causing Persimmons to be the week’s poorest performer. It’s still on a hold recommendation and I will get rid of it should that change to sell. I took a good dividend from the share so not unhappy. Builders normally tread water between April and October each year.

I have high hopes for Trifast. The share has been pushing on the highs of an ascending triangle for the past few weeks and sooner or later I feel it will break and move much higher. The share is highly illiquid so please bear that in mind. Illiquid share are a little like marriage. Easy to get in and very expensive to exit.

The DEW market timing system remains on a BUY signal and I will sit until this changes. If the Dow and SP500 breaks the technical levels discussed above then be prepared for a very pleasant ride. They come when we least expect them. It’s hard to believe that its only two months since the doom, gloom and desperation of Mid-February.

I will continue to trade the market and NOT the forecast.

David Paul

April 15th 2016

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FTSE 100 breaks into higher ground: can we trust the break or not though?

So finally the FTSE 100 has decided to break out from its sideways trading range after weeks of staying confined within this area. Yesterday morning the market opened higher and the rally that followed drove the index to the top end of its previous range around the 6,250 points and it seemed that we might finally see an exit from this pattern. And indeed this morning the London index opened higher once again and at the time I writing these lines to you I am looking at the FTSE crawling towards the 6,350 points’ level running an impressive 200 points’ advance within a couple of days.

So what’s behind this rally, can we trust it and what’s to come next? Overnight a key release from China reaffirmed that the second largest economy in the world has been gaining momentum as Chinese exports returned to growth and indeed the biggest gainers in the FTSE this morning are commodities-related companies. Investors believe that a positive rate of growth for Chinese companies will increase the demand for these commodities hence the rally in their price that is pushing the world’s major stock indices higher.

However can we trust this rally and what’s coming next? I believe that a major factor in the stock markets’ behaviour over the short-to-medium term will be the release of the US Retail Sales report later today. Analysts expect the report to print in a positive manner sending bullish signs over the domestic economy’s progress. However would that mean that the Fed bulls will also gain support over their rate hiking agenda? Because we know that the prospect of higher interest rates won’t be good for the stock markets.

My advice is to be very careful and not declare this bullish reaction in the FTSE 100 as a done deal, at least not in the short term. If the Retail Sales print in a bullish manner then investors will start wondering whether the Fed will push forward with their hiking intentions and that might take a toll on the FTSE. My view though over the hiking agenda is that we won’t see a lot of hikes this year and definitely not any soon enough so I am conservatively bullish over the stock markets’ outlook.

So what I am saying is that the FTSE might run a correction attempt if any pro-Dollar sentiment picks up pace but on a broader approach I am of the view that the current break will hold. Looking higher I believe that the medium-term targets lie around the 6,450 to 6,480 points’ areas where last year’s highs are found. Be careful over today’s Retail Sales report but in general I think we can expect a positive reaction from the FTSE – barring any surprises from the Brexit referendum of course.

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 as the bullish power degrades. We expect that there will be one more bullish push, perhaps with a breakout to new highs.  Unless there is central bank intervention, the odds are high that this will be the short term highs in the market.  Once this reversal confirms, we will put on a strategic short position and expect price to work its way back down to retest the lows for the year.

SPY 4-10-16

 

Gilead Sciences (NASDAQ:GILD) passed its test and has accelerated away from the 50sma (orange line).  Now, price has reached an area where we forecast price will begin to struggle.  This presents an elegant place to lock in approximately 10% in gains in this stock!

GILD 4-10-16

 

Genworth Financial (NYSE:GNW) is just adrift within the green zone as it retests areas of 50sma (Orange line) support.  Our forecast is still for a bullish resolution…However, these odds are degrading and stop loss orders may need to be updated next week.  The longer the price stays stable, the more the bullish energy that attracted us to this stock will “leak” away. GNW 4-10-16

Bo Yoder

RBJ Financial

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The number 1 sin of a trader?

Last week, we opened the doors to our live trading room giving visitors access for a couple of days. We periodically do this as it allows people to see what we do on a daily basis. The questions we often receive whilst visitors are in are diverse and probing which makes for very interesting sessions when we are not in the middle of trades.

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One visitor made a comment about the use of stops which pricked up my ears immediately. He stated that he used ‘mental stops’ instead of physical ones because he felt that if he placed physical stops, his broker would somehow manage to move the entire FX market in order to stop out his position!

He would have a level at which he would manually close his position and he had in fact had a good run over the past several months. But…. What would happen if he had a power cut or his internet went down just at the time the market was moving against him? How long would it take to get through to his broker to close the position? If the market was moving fast, he could find himself taking a bigger loss than he wanted.

However, there’s a much bigger problem with using mental stops. At some point in the future, he’s going to get over-confident (it always happens) and when a position moves against him and runs fast through the level he might normally close out, he decides to wait. For whatever reason on that specific day, the trading stars will come into alignment to get him. Maybe he got out of bed on the wrong side or maybe a cow flew over the moon, whatever the reason, he elects to wait and see because so often the market will come back in his direction anyway….

On this special day that the daisy flew over the moon, the market decides not to bounce, in fact it presses on against his position like the red arrows in strike formation; fast and aggressively. He now doesn’t know what to do, the position is seriously under water and yet the market keeps pushing. He sits there in a cold sweat, cursing why he didn’t close out earlier and hoping the market will still turn around for him.

It has a couple of small bounces, only to head lower once more. He still can’t bring himself to close his position which would now give back a months prior gains. So he decides to wait until the following day because if he keeps his cool, the market is likely to still bounce. The following day comes (after a stressful night’s sleep) only for the market to drop lower again. He’s now really in the hole. He had decided to add into his original position because that way it doesn’t need to rally as far to recoup his losses. Now the market is falling with him in a much bigger position he should be in still with no protection. I’ll cut the story short here because we all know what happens eventually – he blows a significant amount of his account and gives back several months or a year or more of gains (if he’s lucky).

Although in the short term, using mental stops can work, traders are putting themselves at serious risk that at some point in the future, it will all fall apart and that’s why if you speak to any broker, they will tell you their clients who don’t use stops always end up losing. There’s no need to not use stops, they are there for good reason…..

Looking at the currencies, I’ve selected cable this week for observation. It’s been chopping either side of its 50dma lately (black line) but looking at the bigger picture, its trading within a descending trend channel that I have marked on the chart. I’ll be keeping my eye on whether it comes down to the lower trend line or rallies to the upper trend line. In either scenario there will most certainly be buying or selling opportunities….

cablesimon

Have a great week

Charlie Burton

Ezeetrader

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A positive chart pattern on a weekly chart of the FT100.

david - 8th april

Above I show a weekly chart of the FT100 stock index. The pattern which I have roughly drawn with the blue trend lines is a “falling wedge” and it’s a bullish pattern which has very defined entries and exits.

The blue lines (defining the tops and the bottoms of the pattern) are coming together and should meet at some point in the future. The pattern is composed of 5 waves which charts 3 drives to a bottom.

For the brave, the place to buy was where the price touched the lower blue trendline which defined the lows of February to the tick. This level in both time and price was defined in advance by drawing a simple line with an old fashioned ruler. I am more than happy to admit that’s its always very easy in hindsight.

At that time the VectorVest MTI indicator was signaling that the market was much oversold with a reading of less than o.6. There is no need to be a war hero at the low. It’s OK to wait for a little confirmation although my mentor MR Gann instructed to get aboard at support. The Primary wave on VectorVest turning to UP after this point was an excellent but confirmed, low risk entry. This is where I started to build my first positions and have done my best to catalogue those in this forum.

I have used the falling wedge and its brother the rising wedge (a bearish pattern) for many years on all time frames down to a 5 minute chart of stocks, indices and Forex. In that time I have noted that an up sloping trendline, drawn as I have shown above, provides an excellent target. For the Elliott analysts reading, this is a line between wave 1 and wave 4 of the formation. If this occurs on this occasion then it means that the Ft100 is heading much higher to around 6670. This would be most welcome. I will spend some time on the targets from both rising and falling wedges in the webcast that I take next Monday afternoon at 130 UK time.

The wedge pattern traded bravely has a very high hit rate with an enormous risk to reward ratio and its right up there with the Gartley 222 in my list of “desert island” trading tools.

The FT100 and the VectorVest Composite UK has been in a range for the last week. If the Ft100 breaks the range then I feel there is a high probability of a strong and fast move to 6800.

Note I said probability. I am holding my positions as long as the VectorVest DEW market timing system stays “long” and positive. If the market breaks and I observe green lights on the VectorVest “Color Guard” then I will add to those positions but wary that the MTI is becoming overbought.

If these terms of “Green Lights” and DEW sound like Outer Mongolian to you, then please come along to one of my live events in London or a webcast. Details of the live events are at www.vectorvest.co.uk or just call support at 0800 014 8974 in the UK or 0800 981 891 in SA.

David Paul

April 8th 2016

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The Great Crisis remains on investors minds

The US and UK economies may have returned to growth but the fear of another meltdown remains close to the surface, in the minds of many, within the investment community. This wasn’t the case prior to 2007.

Engaging Prize winning economists proves no real help in that they are polarized in their opinion of the future. Many point to the fact that the assets and wealth in the “rich” nations of Western Europe and the US, vastly outweighs debt and that there is nothing much to worry about. Other similarly qualified fellows suggest strongly that the debt burden is unmanageable and that sooner or later a large default is due.

Never let a good potential crisis go to waste, is the motto of many of the sales emails for stock market news letters that somehow invade my inbox. The general theme here is that the “world is doomed” and so will you, if you don’t subscribe to my newsletter.

There is nothing I like better, than to discuss where the stock market is heading, with my peers. Given a second I will be labelling waves, constructing Gann boxes, Andrews Pitchforks and the like. This is a great fun, BUT, I was taught by my first mentor “to take off my opinions” at the same time as hanging up my jacket, when I arrive at the trading floor. The master is the market itself and the trick is to get yourself out of the way and just listen and observe. This is remarkably hard to do as many of you reading will attest.

My dear late friend Eddie Toppel has written a wonderful little book called “Zen in the markets”. The books objective is to melt away the ego and to simply listen to the market. I heartily recommend the book. It has helped my trading more than any of the hundreds of technical analysis books in my bookcase. Eddie was a floor trader in the Chicago pits and knew his stuff. His short book I assure you will help your P/L much more than the utterances of prize winning economists.

In the last week the Primary Wave on VectorVest has been whipped back and forward as the stock markets of the world struggle to make headway through the resistance offered by a 786 retracement of the widely followed SP500 index. Yellens dovish remarks during the week pushed the index through the level and today (Friday) the index pulled back to the level and found support there. The week ended with the Primary Wave on the VectorVest Composite UK being down.

Non-Farm- Payrolls came in with a good number of 215000 new jobs being created and the US Government also upgraded the February figure. Construction and services recorded good gains while manufacturing continues to struggle. Average hourly earnings in the US increased to an annualized figure of 2.3%. In the last 5 months over 2 million people have joined or returned to the workforce.  Federal Funds futures traders show little prospect for an interest rate hike in April but a high probability of such in June 2016.

The longer term trends on VectorVest remain bullish with the underlying trend, the DEW and confirmed calls all UP. The DEW in particular has been calling this market very well over the volatility of the last year. The technique gave an early BUY signal in the middle of February and that signal is still in place at the end of trading on the 1st April. Simply following this technique is a form of “listening” to the market and that’s what I am hopefully doing.

I have added two positions during the week and have now 9 shares in my portfolio. I bought into Trifast during the week. The share has good fundamentals and looks likely to break from an ascending triangle formation. If it does so I will add to the position. I also bought into Keller due to a Wyckoff “spring” pattern on a weekly chart. The “spring” setup is similar to the Lost Motion entry point that I have spoken about many times here. Again a small position to which I will add if the trade goes my way.

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I am holding Dart, Victoria, Gleeson, JD Sports, Marshalls, Persimmons, Trifast and Keller. The list is sorted by VST. Please remember that I am often wrong but over the years I have been taught to protect capital by exiting quickly and without fuss. Charles Darwin’s famous quotation sums it up well. I have a stop loss in mind for each investment and will not hesitate to take action.

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

I explained the overbought levels on the MTI in last week’s report. At 1.47 the MTI is saying that the London market is much overbought and that I need to be careful with open profits. The Composite is showing bearish normal divergence with most momentum indicators including the DPO. The latter is an integral part of the DEW market timing system which is the system I am using to enter and exit the market. The divergence is shown in the chart of the VectorVest Composite below.

david

At the webcast last Monday I put forward the case for a pullback in commodity shares and specifically a pullback in Anglo to around 400. That hasn’t happened as yet but its early days. The 400 level is a 62% retracement of the rally in Anglo over the last few months. The Midas Touch has given a long tern BUY signal in this share (and in many commodity shares) and I am endeavoring to finesse a decent entry level. The danger is here is missing a big move. As a technical analysts it’s my belief that the larger the bear the larger the subsequent bull. The bear market in commodities was the longest in history. When the dust settles there will be lots of money to be made.

Steady as she goes.

David Paul

VectorVest UK

1st April 2016

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