Technical Analysis of the FTSE100

For readers who are not familiar with the term FTSE100 – it is simply an index of the 100 largest companies on the London Stock Exchange.  The index is maintained and owned jointly by the Financial Times and the London Stock Exchange.

The index came into being on the 1^st of January 1984 with a base value of 1,000.  It reached a record level of 6950.6 on the 30^th of December 1999.  The financial crisis of 2007 – 2010 saw it drop dramatically to 3,500.  Since then it has recovered to a large extent, reaching a high of 6,091.33 on the 8th February 2011.

Analysis

If one looks at the price of the FTSE100 in relation to the Ichimoku Kinko Hyo cloud in Fig. 3.29, it clearly shows that the market is currently in a declining phase.  The price is well below the cloud, which indicates that a long position at the present moment cannot be recommended.

The green Chinkou Span line is also well below the price, which supports the signal given by the Ichimoku cloud.

The Index started trading below the cloud after the earthquake/tsunami disaster in Japan and closed at a low of 5552.50 on the 16^th of March.  Since then it has recovered significantly, but during the last few days it has started drifting sideways with no clear direction being evident.

If the market should recover and break through the upper level Senkou Span A line of the cloud, this could indicate that the previous bull market has been restored and that we can expect further price increases.

A drop below the blue Kijun Sen line will, however, be a signal that the downward movement has gained momentum and in that case traders should look at a short position to cash in on a potentially significant price drop.

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

Guide to swing trading

Swing trading represents a middle ground between fast-paced day trading and long-term trend trading.  Those who follow a swing trading strategy typically hold a stock for a period of time, usually no longer than a few days or weeks and trade shares based on the stock’s weekly or monthly fluctuations.

Keys to Successful Swing Trading

Choosing the right stock:  The most favourable candidates are the large-cap stocks that are most actively traded on the major exchanges, for example Cisco, Intel, Microsoft, etc.  In an active market, these stocks typically move broadly between high and low extremes.  The swing trader follows the trend in one direction for a period of several days or week and then switches to the opposite side of the trade when it reverses.

Choosing the right market:  Swing trading presents some unique challenges in both a bear and bull market.  In these extremes, even the most active stocks fail to exhibit the normal oscillations that occur when indexes remain relatively stable for weeks or months at a time.  In a bear market or a bull market, stocks are carried by momentum in a single direction for long periods of time and may exhibit only subtle shifts that can be difficult to catch.  Therefore, the best strategy during periods of market extremes is to trade along with the long-term trend.

A stagnant market is best suited for swing trading.  When stocks and indexes are stable, there is a greater opportunity to take advantage of short-term movements.  For the swing trader, these short-term ups and downs generate the most significant profits.

Setting the baseline:  Historical analysis has proven that a market favourable to swing trading is one in which liquid stocks tend to trade above and below a shared baseline value.  This value is often shown on a chart with an exponential moving average (EMA).  Once the swing trader has used the EMA to identify a desired stock’s typical baseline, the trader can then adjust the swing strategy to the long or short, depending on the direction of the trend.  Conventional swing trading strategy dictates going long at the baseline when the stock is trending up and short at the baseline when the stock is trending down.

The most important consideration here is that swing traders are not looking to cash in on a single trade; there’s no real incentive to allowing oneself to become preoccupied with precise timing, to buy at a stock’s rock bottom and sell at its ultimate high or vice versa.  Instead, successful swing traders wait for a stock to hit its baseline value and reveal its direction before making a move.

When a stronger trend in either direction is evident, the trader may choose to go long when the stock falls below its EMA and wait for an uptrend or may short a stock that has jumped its EMA and wait for the drop.

Taking profits:  The object of swing trading is to exit each trade as close as possible to the upper or lower limit without being overly meticulous.  Of course, this also increases the trader’s risk of missing the most lucrative opportunities.  In a strong market, when stocks are exhibiting definitive and certain directional trends, swing traders are likely to wait for the stock to reach the channel line before claiming their profits.  In a weak market, when trends are harder to predict, traders may take a profit before that limit is reached in anticipation of a sudden directional shift that forces the stock to miss the channel line.

Conclusion

Swing trading is historically one of the best strategies for novice traders, but still offers substantial profits for more experienced and even advanced players.  Swing traders are able to receive feedback on the trades in a short amount of time, which goes a long way to build motivation for those new to stock trading.  However, the long and short positions that are typical to stock trading last several days; this is generally sufficient enough to stave off distraction.  Trend trading may promise greater profit potential if the trader can catch a major market trend over weeks or months, but few traders actually have the discipline to hold a position for that long without succumbing to distraction.  On the other hand, while day trading may be more intense and exciting, buying and selling dozens of stocks each day usually proves overwhelming for the majority of traders who employ the strategy.  Thus, swing trading is a happy medium between these two extremes.

Spread betting carries a high level of risk and you can lose more than your initial deposit, so you should ensure spread betting meets your investment objectives. 

The contents of this report are for information purposes only. It is not intended as a recommendation to trade.  InterTrader  do not accept any responsibility for any use that may be made of the above or for the correctness or accuracy of the information provided.

The UK, the FTSE 100 and the effects that the Euro difficulties that could impose on sustained UK growth in 2011

Dean Wright ,Senior Analyst ,Fxknight.com

Many questions are being asked this week as the year draws to a close of how the economical outlook for the UK will look in the following year. On the frontlines of media coverage, it would be forgiven to assume that the UK is still at the foot of the hill and struggling to climb out of a recession that has taken hold of the UK economy and not let go. Benefits and welfare have been cut, pubic sector job losses have added to the dire unemployment situation and last weeks protests against raising tuition fees for university students has stamped its mark of perception of a lean treasury chest.

Looking a little deeper into the situation however, it is not so clear to distinguish and the outlook is a little more positive. The office for budget responsibility, the new forecasting office put in place by George Osbourne, has predicted that even though growth will slow sharply in the coming quarters due to the quick fire increase in national output the UK experienced being unsustainable, there will still be a steady increase in GDP output over the next two years.

Employment in the private sector has actually risen and the GDP outlook for next year has been forecasted at 2.1% which is up from 1.8% this year. 2012 has been predicted a further increase in growth, pegged at 2.6 %.

The FTSE has had a steady climb indicating investor’s confidence with the question being raised on whether the FTSE will break the 6000 level this year.

FTSE 100

The ups and downs of the Eurozone has certainly had its effects on the FTSE 100 price with the Greek debt crises pulling the FTSE down to 5060 from 5800 in an unfounded short space of time earlier this year. However, the FTSE 100 is back up to 5826 at the close of play last week, and it is possible investors confidence will continue to grow with the economy and push the FTSE up to 6000 level.

From a purely technical point of view, there certainly is scope for the FTSE to reach the 6000. The initial bull move in July saw a pull back to the 50% level on the daily chart. This level was tested several times as support before buyers out numbered the bears and the price started to rise once again. The 161.8% Projection level has been reached, usually signalling the complete move. However the levels have been respected as both support and resistance by buyers and sellers and has closed above the 161.8 % level at 5826.

If buyers now come in at this level to push the price up then there are a number of targets where bears are most likely to come in. Firstly there is the most recent high at 5904. If the bulls have enough power to push through this level, then anticipation of sellers coming in at the 6000 mark will likely see selling coming in just before this level.

If however the 6000 mark is broken, then the 200% Fibonacci level which is at 6071 could be a final resting place before selling drives the price back down again.

To the short side, the 138.2% and 127% Fibonacci projection levels have been significant levels with which traders have respected and so 5674 and 5602 would be ideal short targets for bears.

However, the forces of economics are seldom, if ever straight forward and taking an eye of the bigger picture, even for a second, could lead to some hard faced realities.

The weather outside

The dangers of the European crises from economies such as Ireland, Spain, Portugal and Greece, may have a substantial effect on the UK output with exporting industries suffering. Rising yield prices and the cost of borrowing for many countries in the EU is increasing the strain on member countries.  A growing resentment from those countries that have abided by the rules having to foot the bill for other member countries mistakes is becoming ever more apparent and fresh whispers about the survival of the Euro have been sparked, further consolidating pro-Euro and anti-Euro camps.

The actuality of any one of these struggling economies even contemplating leaving the Euro (in order to devalue their new currency and hence growing out of their deficit through exports) would be disastrous and would reach out far beyond their own boarders having the effect of the UK suffering collateral. Weaker economies in question could find themselves in the same dangers that Greece faced if allowed to default and if no bailout was offered: A deposit run and outside investors withdrawing capital; both of which would stall economic recovery, thus leading to a knock on effect in the UK and other countries in Europe with trade and exports.

Something to be wary of as we have seen time and again that when slow reactions to a fast changing economic reality can often lead the unthinkable becoming the inevitable.

The provision of third party content is for general information purposes only and nothing sent to you should be construed as providing investment advice or a solicitation to purchase or sell any investment. InterTrader has no commercial interest in FX Knight and does not endorse any recommendation or analysis contained in their material. InterTrader accepts no responsibility for and has no control over the content (including legality, suitability, accuracy, timelines, reliability or availability) of any of the material supplied by FX Knight

Trading EUR/USD – A multi year technical analysis topped with some fundamentals.

In this review on the EUR/USD pair we will be looking to understand from a technical point of view where this pair might be going. The methodology is to look into past performance and find leading indicators that can provide us with clues for the future. For that we will be using a set of overlays and indicators.
I divide the different tools in my into two types. The first are primary tools, the signals they provide are used to take a view on the market. The second type are confirmation tools. Before opening a position most of my indicators should tell the same story. In this analysis I will be using the following
Primary:

• EMA (120) and EMA (60) [Exponential moving average on price]
• MACD (24,52,18) [Moving Average Convergence Divergence)

Confirmation

• RSI (28) [Relative strength index]
• Fibonacci retracements

I recommend for you to either open in a different window or print the Chart below before we continue (Dotted line is EMA(120) and solid line is EMA(60)

Past performance :
In August of 2008 we can see observe the following phenomenon. Price is making a new high where:

• The EMA(60) exhibits a bearish engulfing over the EMA(120)
• MACD plummets from 272 to around 68 
• RSI declines from 73 to 54

Not far after we can see the EUR crashing in a classic 5 wave pattern.


In late October 2009 and at the beginning of November of the same year after the EUR depreciated by 23%, we can observe the following

• MACD is in positive divergence from it’s signal line
• RSI is going up
• EMA (60) is well below EMA(120)

Since only one of the main indicators suggests a reversal I would have stayed on the side lines this time around. In reality price recovers by 16% in less then two months. The reversal is not sustained and a classic head and shoulders formation with a double bottom is formed between October 2008 and March 2009.
Only in May of 2009 we can again see a clear combination of signals suggesting a sustainable trend reversal.

• EMA(60) is cross over EMA(120)
• MACD is in positive divergence against it’s signal line and in an overall bullish trend.
• RSI climbs from to 47 
• Price crosses the 61.80% Fibonacci retracement mark.

All these signals combined and pointing in the same direction suggest to me there is high probability long trade here. When trading, one should always have a stop loss and a target. I tend to use a concrete price for stop loss and indicators for my take profit. The stop loss should be placed at the bottom of the movement dated April 19th price 1.2980 .The take profit target should be when EMA(60) crosses under EMA(120). This method would have produced profit of 850 pips over an 8 months period.

Beginning of January we can see the exact mirror pattern of the May 2009 one suggesting it’s time to short the EUR.

Now that concluded the analysis, it’s time to evaluate where we now:

• EMA(60) is in a 397 pips (2.37%) negative divergence from the EMA (120)
• MACD is climbing steadily and is in positive divergence from it’s signal line
• RSI is in an upwards channel
• Price touched the 61.8% Fibonacci retracement line.

So… It’s a mixed bag. One of our main indicators suggests a high probability for reversal where the other is still far away from indicating a positive reversal. Our confirmation indicators are both bullish.


Action: I am currently short this pair and therefore I would hold for now. If I was neutral I would wait for the pair to test 1.3400 support, If support hold and there are signs of a bullish engulfing from the EMA (60), I would take a cautious long position.

From a fundamental perspective my view on the EUR remains bearish. The latest crisis had a dividing affect on the Euro zone. We have strong economies (Germany, France) that are on the road to recovery where inflation lurks around the corner. On the other side with the PIGS(Portugal, Ireland, Spain and Greece) are in significant debt and I can’t see any light at the end of this tunnel. The divergence may have devastating affects on the EURO as different fiscal policies with a deadlocked monetary policy ,the ECB cannot increase interest rates as it will push the PIGS into defaulting on their debts. Mr George Soros wrote an article published in the FT two months ago about the same, take a few moments to read the article.


Happy Trading ,

Shai Heffetz
Head of InterTrader.com

Disclaimer
The comment in this blog is the personal opinion of the contributors and not InterTrader.com. The content does not constitute financial, investment or tax advice. You are advised to discuss your specific requirements with an independent financial adviser prior to entering into any bet. InterTrader.com is not responsible and disclaims any and all liability for the content of comments written by contributors to the blog, and the content of any third party sites linked from this blog.

Introduction

This is the official Blog for InterTrader.

In this Blog we will mostly provide our personal views on different markets using a combination of Technical and fundamental analysis.

We are not suggesting anyone to take our views and act on them as advise, we merely wish to stir a healthy discussion where traders can post their views and exchange ideas with each other traders. We believe that in order to make better decision one must make more informed ones.

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Happy trading ,


Shai Heffetz & The InterTrader.com team.