Stock Market Update 19 August 2011

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Financial Spreads: Spread Betting and CFD Trading

UK Stock Market Spread Betting: 18 August 2011

Markets are opening lower with the FTSE 100 currently trading at 5230 having tried to bounce off the support at 5260/65, which proved resilient on Tuesday and Wednesday, but finally gave way.

Spread betting investors may start to focus on the 5200/05 as the next target. On the upside the same barriers as yesterday hold good at 5320/25, 5355/60 and 5370/75.

There does seem to be a certain negative miasma over market commentary on the news channels which, while not meaning anything particularly, may keep buyers on the back foot for the time being.

The DAX 30 is not looking great either with markets slowly giving up the bounce of Thursday and Friday last week.

Over and above everything hangs the GDP number which came in so weak versus expectations. The thinking is going along the lines of 'if growth was trundling along nicely at the end of the previous quarter then it must have literally run into a brick wall towards the end of Q2 to record just 0.1%' i.e. the last month must have been severely negative.

If this is true, and since then we have had all this financial market chaos and Eurozone worries, then what are the figures for Q3 going to show?

The DAX 30 has broken lower and is currently off some 190 points at 5760 and struggling even here. There is support at 5700, a nice round number, and 5665/75 and 5595/5600, with resistance at 5840/50 which buyers must hope will at least be challenged.

UK Stock Market Spread Betting: 17 August 2011

The FTSE 100 spread betting market is currently trading at around 5300. If we break below 5280/5290 support is still 5210/25 and a new support can be seen at Tuesday's lows of 5260/65. Resistance is at 5320/25 and 5355/60 and then 5370/75, all the same as yesterday.

For the DAX 30, support held yesterday at 5830/40 and we bounced quite violently from here as the US came in on the buy side. Late action saw markets push to the down side and this morning is weak as well. However, it must be said that if the GDP numbers are to be believed then possibly the German market is one to be slightly wary of for the time being.

The German index, as it only has 30 stocks, has been violent in the extreme at the moment. It can turn, bounce or drop massively at a moment's notice and for no good reason that I or anyone else can seem to find.

As mentioned, support is at 5830 and 5800 with resistance still at 6050 and 6100.

UK Stock Market Spread Betting: 16 August 2011

Weaker than expected German GDP data has put some pressure on the financial markets this morning.

This data is particularly troubling given that much of Europe is relying on Germany to help them through the economic problems they are currently facing. Any indication of a slowdown will not be taken well by the financial spread betting markets.

Shell have managed to blot their copy book with a minor leak in the north sea that would, probably, have gone pretty much unreported if the Deep Water Horizon disaster had not occurred.

As it is we can expect finger wagging and possibly more regulatory oversight which will further push up the cost of exploration/extraction. Shell's share price is off about 30p this morning in line with the general market falls (0.5%) but we may find margins under yet another compression.

Volumes yesterday were pretty low as the markets attempted to drag themselves out of the mire and many commentators have been expressing the view that this is a weak indicator.

The argument revolves around the idea that if investors were truly convinced that a low had been reached then there would be a significant volume of Bottom Pickers looking to pick up stock at good returns. This is not to say that they would be right, just that there would be sentiment to buy.

As it is CFD investors are, quite naturally, a little shy of leaping back into a market that has just cost them a pretty packet. The problem is that while people admire Mr Warren Buffet's 15 year investment cycle, hardly anyone can actually live with it.

Immediate losses are, well, losses and it takes a strong nerve to hold on both when you are losing and indeed when you are winning. We are actually seeing clients on our spread betting platform more comfortable buying today than yesterday so there may be a bit of support around at least in early action.

Following the German GDP data, the FTSE 100 is currently back just below 5300, bang on the strong support level mentioned yesterday, 5295/5300. Should we get significantly through this then technical analysis traders will be looking for 5210/25 as the next target.

If the support holds, there is weak resistance at 5320/25 and then up at yesterday's closing area around 5355/60 to 5370/75 where we foundered for much of yesterday's session.

The US markets were quiet yesterday, only a 200 point range for the Dow Jones, giving up at just below 11500 before retracing to the current price of 11360.

US stocks are currently looking a bit pricey versus the Europeans so it would not be a total surprise if there was some underperformance over the coming weeks/months. Support remains at 11320/30 but we have staggered sideway through the short term rising trend below here is 11270/80 and then 11215/25.

UK Stock Market Spread Betting: 15 August 2011

Results this morning are dominated by Michael Page's half year numbers. While the figures themselves are good, when compared to H1 2010 they were actually about £5m below expectations.

Investors have also been unnerved by the total lack of any mention of current trading conditions, apart from the mention of a hiring freeze in the UK banking sector, 10% of their annual revenue.

The Michael Page stock is off almost 15% in early action and investors will be concerned that Michael Page is a better indicator for the UK economy than many government statistics. If the recruitment companies are not doing well then maybe nobody is.

In the face of no actual bad news over the weekend the markets are doing better on the open. The FTSE 100 is currently about 30 points to the good and the DAX doing even better, up by 70 points.

Day trading investors will be hoping for more of the last few weeks, with the increased volatility creating opportunities galore, although to be fair creating fear in pretty much the same measure.

The FTSE 100 has pushed above 5295/5300, a feat which proved too hard on three separate occasions last week. Our spread betting account holders will be watching to see that there is no pressure to fall back below this mark as the reaction sell offs were violent to say the least.

We can see support at 5320/25, 5295/5300 (strong) and below here the volume trading area in the low 5200's 5210/5225.

Resistance is at 5385/95 but above here there is quite a bit of fresh air with the next serious resistance up at 5495/5505. Risk/reward would suggest the up side but traders should be very wary of a lurch back into 'fear' from 'greed'.

The US markets are also looking perky in early action but it must be noted that, compared to Europeans, the returns look less attractive. Of course in the long term the US is in a better position as they merely have to deal with their own problems and not worry about everyone else.

The dollar could take up much of the slack if the US administration refused to do anything to address their budget problems but this would make them very unpopular with their trading partners.

The volatility of last week which saw the Dow Jones trade a range of over 600 points no less than 4 times is, we hope, unlikely to reoccur this week.

The Federal Reserve seems to have stopped its knee jerk reactions of the past three years and it must be hoped that this will become more of a policy in coming crises. Resistance is at 5370/80, 5430/40 and 5500/10 support at 11320/30, the upward trend line from the lows on Thursday, 11275/85 and 11185/95.

UK Stock Market Spread Betting: 12 August 2011

With volatility being the name of the game this week, the European Securities and Markets Authority stepped in yesterday to flex their muscles.

They decided to put a ban on short-selling in four of their key Eurozone nations, well, for at least 15 days.

With Italy, Belgium, France and Spain all being thrown into the cage, there were certain guidelines for this ban. France was prevented from short-selling bank equities, while Spain was restricted from dragging down all financial instruments.

As per usual though, the UK did not follow suit, with the FSA (now FCA) stating it "has no plans to introduce a short selling ban". Even with this news, market pessimists did not get the impression that this would help the quickly decreasing market size, warning that the ban would not help. Many investors referred back to 2008 when UK and US bans failed to stop panic selling.

Across the globe, things weren't looking any rosier, as the Japanese Nikkei 225 sunk further below the 9000 level as traders continued to rock the boat during the most volatile week since the March 11th quake.

The strong yen focused foreigners' concern, prompting them to sell carmakers and assisting in pulling Toyota to its lowest level in 2011.

The UK's blue chip index saw, as it has the rest of the week, a choppy session yesterday trading between a low of 4943 and a high of 5172.

Financial spread trading investors seem to be focussing on the big question mark hanging over the heads of European nations. Questions are mounting about the stability of funding markets and authorities struggling to solve a crisis of confidence in Europe.

UK Stock Market Spread Betting: 11 August 2011

Whilst the riots around the UK look to have dissipated the markets have not seen the end to their chaos as yet another sea of red covered traders' screens yesterday.

The Dow Jones gave back most of Tuesday's gains and so the big bargain hunt was proved to be short lived with the great bullish "hammer" that was formed seemingly ending up being a false signal.

Fear is still gripping investors as the prospect of slower global growth keeps the bears firmly in control of proceedings.

Needless to say many people are blaming short sellers again for the recent crash, but if you are a rational investor who is concerned about the situation of French or German banks, then you are going to sell, sell, sell.

Even if you don't own the underlying stock somewhere along the line you're probably exposed to UK banks and so why shouldn't you be allowed to short a stock?

However, the FTSE 100 this morning is perkier again as Asian stock markets didn't follow through with a sell off following the big move lower in the Dow Jones. Many people seem to believe that if you buy now, you should be in good shape come year end.

At the open the FTSE 100 is up by some 90 points around the 5100 area.

Caution remains though as volatility remains at well above average levels. The major moves in the indices markets are a characteristic of markets following such a substantial move to the downside.

The FTSE 100 has been jumping in 20, 30, 40 point leaps regularly making trading conditions exceptionally exciting, but at the same time exceptionally dangerous.

As I often say in this comment during these sorts of market conditions, the best trading strategy is often to simply sit on your hands.

In the UK the outlook is particularly gloomy after the Governor of the Bank of England downgraded UK GDP forecasts and reiterated that inflation could peak at 5%.

Many indices are already in their so-called bear market, classified by a 20% fall from the highs, in particular the German DAX which is 24% down now.

For now the Dow Jones and FTSE 100 are yet to fall into that category. However, they are worryingly close. It might just be a matter of time before they too succumb to the bear's claws. For this morning though the bulls haven't quite given up the fight yet.

UK Stock Market Spread Betting: 10 August 2011

The turn around yesterday could prove to be a signal that the selling has come to an end.

For all those calling stock valuations incredibly cheap now, investors finally listened to them and buyers filled their portfolios with supposedly cheap equities.

Across many markets bullish candlesticks charts in the form of 'hammers' were formed in yesterday's session. These are seen as a possible sign of a change in the trend and, as we all know, the trend has been pretty much one way of late.

Yesterday's volatility proves once again how difficult trading conditions have been in the past couple of weeks.

Not many people would have thought of, or advised, buying at the low of the day when the FTSE 100 had plunged down nearly 300 points early on in the session. However, for those few of our spread betting account holders who did, the rewards would have been justified for the bravery of going long at such a time.

Comments that followed the Federal Reserve did little to sooth investors' concerns and caused big moves in either direction. Nothing was said that could quell the volatility and so 100 to 200 point ranges within 10 minute periods were the norm. Even though chances of a renewed bout of QE increased, this initially was not a welcome sign for the Dow Jones as it weakened but recovered later on.

The market demanded signs of further QE and got it. This consequently sent the US dollar tumbling, gold soaring and equities seeing further severe volatility, but at least for the bulls US stocks ended up firmly on the side of the angels.

Today sees the FTSE 100 being controlled by the bulls who seem to be back in town for now and firmly in the ascendancy.

At the time of writing the FTSE 100 is set to open higher by some 70 points to 5235, although we were calling the market as high as 5300 overnight.

This comes as investors get drunk on the prospect of low interest rates in the US and an increased chance of QE3

Over the short term this move might see us push through the recent down trend so to the upside bulls will now be looking to test resistance at 5315, 5385 and 5535. Meanwhile they'll be hoping that support at 4820, 4710 and 4520 will remain intact.

UK Stock Market Spread Betting: 9 August 2011

So far this morning the UK 100 has bounced incredibly strongly considering that we were calling it down almost 400 points overnight.

There were two significant levels that our spread betting quote hit out of hours last night.

The first level is that the UK 100 has retraced to roughly around the 50% Fibonacci retracement level between the March 2009 low and this year's highs.

The second is that we are around the support levels that the market bounced off following last year's "flash crash".

This might be enough to stop the haemorrhaging, and may even tempt bulls back into the market, but the feeling is still that investors are trying to put a sticky plaster on an artery wound.

You could probably also throw in the 5000 level as a bit of a psychological area of support. However, considering that the sellers have treated support levels up to now with utter contempt it might not be enough to stop the exodus.

Meanwhile, in and around London, looters and rioters are causing wide scale damage and politicians are returning from holiday to try and quell the unrest.

The real concern for the police is the speed with which things have escalated as the culprits use messaging software to coordinate their attacks. There are rumours of continued unrest, with areas of central London being targeted, so it may not be long before we see the army on the streets. All of this is certainly not helping the mindset of London traders this morning.

Whilst writing this comment the UK 100 has continued in very volatile fashion having started down 100 points before rallying to flat and even positive briefly. Right now we're back in selling mode firmly below 5000 to the mid 4900 area. It would seem that nothing can stop the selling at the moment.

Investors are crying out for some good news and some will hope they get a firm indication that the Fed is willing to do another round of QE, but on reflection is this really the answer?

We saw indices recover to mid 2011 levels but the past rounds of QE haven't been enough to stop a correction as severe as the one we are witnessing today.

UK Stock Market Spread Betting: 8 August 2011

Markets are lower again after a poor start to the week from Asia but the fallout in Europe so far hasn't been as bad as we were previously predicting.

We had been calling the FTSE 100 to open lower by well over 100 points but at the time of writing the market is almost back in positive territory which is some degree of encouragement.

Over the weekend the announcement that the ECB will purchase Spanish and Italian bonds is bringing some degree of calm back to the market but the big question is how long it can last.

The events of last week caused mass panic selling across global stock market indices. Whilst the mood in this office was not one of alarm, it was a mixture of sombreness and almost sheer disbelief that the markets could fall so quickly in such a short space of time.

As the volatility remains high we can expect investors to attempt to second guess whether last week's sell off has gone too far or not far enough.

As is often the case after a big shake out, the following trading sessions can see big swings as the bulls and bears jostle for position. After the crash in 2008, 200-300+ point daily changes in the FTSE 100 were the norm and similar volatility could continue in the coming days and weeks.

The US's rating downgrade at the end of last week was not a huge surprise as the financial spread betting markets had been warned consistently that there was a chance it could happen. Now it's only a matter of time before the likes of Fitch and Moody's will follow suit.

The CFD trading markets have little to go by today from an economic data point of view so proceedings will continue to be dominated by what's happening in the bond markets.

Tomorrow evening could be exciting as the FOMC rate decision could well hint at further quantitative easing. This might be welcomed by the stock markets but would only go further to make a bad debt situation worse, as if we hadn't learnt enough in the last two weeks.

By Simon Denham, 19 August 2011

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