This week – strong start, weak end?

Good morning hope you had a good weekend. Well, this is the week then, will QE be tapered in the US or not yet? We have had a big jump up from Fridays close to the 6650 level, funnily enough the level where we have all 3 Bianca channels for today as you can see below. The S&P jumped up to a high of 1710 and has since dropped back a bit, whilst the FTSE isn’t far off its high. This is all due to Summers withdrawing from the Fed chairmanship race, which means that its possible a looser future fed policy could be in play, basically a continuation of the current stance, as Yellen is likely to be the next one in the hot seat and is seen as positive for markets. In the short term I do have 6672 as a potential area for shorts, which we aren’t far off just now. I mentioned on Friday that I expected a bounce and this is probably that continuing. Looks like the Syria situation isn’t going to escalate into full on war, with a Russian/US deal hammered out for Syria to surrender their chemical weapons. This week it will be all eyes on the Fed and Syria etc will take a slightly more back seat.

Asia Overnight from Bloomberg

The dollar weakened against all its major peers while Asian stocks climbed with U.S. index and Treasury futures as Lawrence Summers withdrew his bid to become Federal Reserve chairman. Crude oil fell after the U.S. and Russia agreed on a plan to eliminate Syria’s chemical weapons.

Summers, a former Treasury secretary, would tighten Fed policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll last week. The Fed will probably trim its monthly bond-buying program by $10 billion to $75 billion this week, a separate survey of economists showed.

“The market prefers Dr. Yellen, she would be the smoothest continuation of existing policy,” Phil Orlando, the New York-based chief equity strategist at Federated Investors Inc., which manages about $380 billion in assets, said by phone. “We know they will probably initiate the taper at the next Federal Open Market Committee and that they will start with about $10 billion. Therefore the passing of the baton is important.”

“Markets were priced for the likelihood of a Summers nomination, primarily for the notion that he might raise interest rates sooner than perhaps other candidates, including Janet Yellen,” Tony Crescenzi, a money manager and strategist at Newport Beach, California-based Pacific Investment Management Co., which runs the world’s biggest bond fund, said in an e-mail. “This news should result in outperformance of shorter maturities” before the Fed policy meeting Sept. 17-18.

“It’s quite positive for equities,” George Boubouras, Melbourne-based chief investment officer at Equity Trustees Ltd., where he helps oversee about $28 billion, said by phone. “It puts Yellen back on the cards as the favorite. She’s more aligned to retaining accommodative policy and is seen as not being as brash as Summers might have been.”

U.S. Futures

U.S. stock and Treasury futures rose, with the Standard & Poor’s 500 contract gaining the most in almost a month, and the dollar fell after Lawrence Summers withdrew from the race to be the next Federal Reserve chairman. S&P 500 futures gained 1.1 percent as of 12:42 p.m. in Singapore, heading for the biggest advance since Aug. 22.

Summers withdrew from contention before a two-day Fed meeting starting tomorrow, at which the central bank is forecast to begin paring unprecedented bond purchases, known as quantitative easing. Summers would tighten policy more than Janet Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.

“Investors are saying that QE may not be as aggressively dialed back under Yellen, who is now the front-runner,” Walter “Bucky” Hellwig, who helps manage $17 billion of assets at B&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “QE is still a very important factor in the minds of investors and we can see this in the potential movement of the stock and bond markets.”

Tapering Expectations

The S&P 500 rose 2 percent last week to close within 1.3 percent of its record high. Treasuries trading is closed in Japan today for a holiday. They are scheduled to trade as usual in the U.K. and the U.S., according to the New York-based Securities Industry and Financial Markets Association’s website.

The U.S. central bank will reduce its $85 billion in monthly bond-buying by $10 billion this week, according to the median forecast of economists in a Bloomberg News survey.

“Summers had been seen as a person who can add volatility to the market given his bias toward more aggressive tightening, should he take up the Fed chairmanship,” Gary Dugan, the Singapore-based chief investment officer for Asia and the Middle East at Coutts & Co., said in a telephone interview. “This brings Janet Yellen to the forefront and the consensus is she’ll build a follow-through of Bernanke’s policies.”

Syria Plan

U.S. Secretary of State John Kerry will meet with French President Francois Hollande and his counterparts from France and the U.K. as he tries to build support for the Syria plan.

Kerry may also meet with ministers from Turkey and Saudi Arabia, both backers of the rebel forces seeking to topple Syrian President Bashar al-Assad. The discussions come as the United Nations prepares to release, as early as today, an inspection team’s report on a chemical weapons attack in Syria that the U.S. says killed more than 1,400 people.

Outlook

ftse 100 prediction
ftse 100 prediction

With the pre market jump we do have a gap on the charts now which will mean that we will likely see 6599 again to close that gap. It was fairly quiet on Friday in the end with a small range however, this week may well be a different story. The consensus is for tapering to be announced and for $10bn, possibly $20bn cut each month – we shall see. I would have thought that the Fed would like to see a stronger recovery before tapering myself to make sure that it really had traction to continue under its own steam. If you have spent a trillion, might as well shove another billion on! We haven’t quiet reached the 6672 level mentioned previously as yet, though not far off and with prices above the Bianca channels as you can see below, the FTSE is likely to dip a little before climbing higher. S&P hit the 1710 area so we are still nudging resistance on a few things. If it gets very bearish, movement below 6561 could lead to 6500.

47 Comments

  1. My approximate year to date pnl per contract on FTSE and DOW. Taking a bath this month!

    FTSE Return – Non Leveraged (%) Return – Leveraged (%) DOW Return – Non Leveraged (%) Return – Leveraged (%)

    September -101 -1.6% -20% -566 -3.8% -48%
    August 138 2.1% 26% 690 4.4% 56%
    July 406 6.5% 82% 590 4.0% 49%
    June 368 5.6% 70% 206 1.4% 17%
    May -153 -2.4% -30% -276 -1.9% -23%
    April 18 0.3% 4% 261 1.8% 22%
    March 51 0.8% 10% 524 3.7% 47%
    February -84 -1.3% -17% -194 -1.4% -17%
    January -79 -1.3% -17% -156 -1.2% -15%

    564 8.6% 107% 956 6.2% 78%
    Capitalisation Per Contract – GBP 500 800

  2. Didn’t come out too well. In summary

    FTSE – 564 points – Non Leveraged Return – 8.6%, Leveraged 107%
    DOW – 956 points – Non Leveraged Return – 6.2%, Leveraged 78%

    1. Not a good few weeks for most of us shorters eh Javed? How the tables were turned against the shorters…a September to remember indeed…we were all expecting a continued sell off in advance of Fed QE tapering this week and we got whacked! Just like Mohammad Ali’s boxing rope-a-dope strategy !!

  3. Long at 6630 looks fairly comfortable on the 2hr chart. In addition i support Nick in thinking that it will drop towards the end of the week, or after the FED. But seriously last week and today DOW went up 700 points just 50ish points shy of all time highs… Good short with few points and very wide margins

    1. Any veiws on when would be best time to short dow as losed heavy this morning with a short at 5270 and also long on fresnillo thanks

    2. Mixed up the sell pattern with long pattern, waited for long and …. basically -4 today. Was ahead, but what made me take long at 6633.5 before it started crashing, I have no idea. Nearly recovered (-11) if you can call it a recovery. Could have been worse.

  4. Well I shorted the dow at 15376 only 2 a pip down on paper and no stop .. I have only doing the indices for a short time and realised have enough in my IG to cover margins .

    To me this rise over the last few weeks is all a fudge up . The bubble will burst again and will drop IMVHO . That’s how these make firms the dosh hunting and spiking stops.

    Good Luck Marky

    1. Yes, overdone, but it does not mean they won’t keep overdoing it. They don’t care how they take your money, as long as they do!
      GLA

      1. Well I have enough too cover a lot higher than this. This lot will not break me down . I only do small stakes and am up on real shares .. This is just a bit of fun . I just dread to think how people must feel doing a tenner a point .. Ouch and being stopped out all over Syria and Larry . We will see!!

        1. The thing is, you need a system with rules which you stick too. No point thinking the market is high and holding for massive points because the market CAN take higher than you can hold.
          I trade DAX mainly and one of my rules is take the points when a 100 point movement has happened. Now, that is not a 100 point movement on my points, because I would not of got in at the bottom or top.
          Make some rules, stick by them and in time you will be happier. Nothing to say you can not change the rules to improve your system but follow them.

  5. Must admit very poor sentences .. O level English as well .. Anyway folks what are your bets on the DOW today?

  6. a hard call marky.
    By rights, it should be fairly muted as they will want to wait on Wednesdays announcements. But you just don’t know. They could drop it in anticipation of rising it on wednesday or vice versa. Looking at the weekly chart, as well as the daily, there is room to go higher. 76% atm are short on the DJ, so they may decide to take it higher to clear a few more accounts out.

    Very very hard call. Atm im short on DAX from 8638 but with a stop that will make sure I have made a small profit.

    GL

  16. Just went long the Dow at 15550 at £20 point paper trading. Well why not? All sensible investors go long after dow has jumped 800 points in a week and before Fed meeting Wed…no conspiracy
    .just a sensible rational trading strategy based on fundamentals…

  19. I am not using any ‘real money’ Marky..it’s just a paper trade.. a joke…just being cynical as usual.. 😉 You can probably tell that I threw my toys out of the pram last week after I lost £2k shorting the Dow. Throwing tantrums big time now…even bigger than Ben Bernanke’s ‘taper tantrums’ 🙂
    GL trading!

  20. Mixed up the sell pattern with long pattern, waited for long and …. basically -4 today. Was ahead, but what made me take long at 6633.5 before it started crashing, I have no idea. Nearly recovered (-11) if you can call it a recovery (closed 6622). Could have been worse. (sorry had to double post it)
    And what is funny. I have been making a video and was telling: “well, now it is a time to close by my strategy. Why on earth didn’t I close? You see how it is important to close? You are paying for being greedy.” (and I was feeling greedy at that point, had a too high target 6670, where as initially planned for 6650. If I closed then at 6647 I would be even in profit today +16 points. Oh well.
    But that last trade from 6633.5 long (at 2.50) was just a desperate stupid move (I was annoyed that I got b/e at 6631) without stop loss, obviously. Only later I thought about it and it was not near at least a 10 point loss (it went max to -23). What a madness!

  21. Yes well said ray charts aside, the DOW will go up regardless towards the FED, its what markets do in anticipation of data.

  22. Ray .. I am very Cynical .. Probably the most cynical traders out but I wan’t a bigger Sunseeker . If you know what I mean !

    Marky

  23. On any normal day the ‘shooting news’ in the U.S. right now would plummet the dow by some 150-200…obviously not today…

  24. … i’m getting a little confused on this fed QE issue, if the fed does nothing the market soars right? …. if the fed cuts by £10million/month the market soars right?… if the fed increases QE the market soars right? is it not win win, place everything on buy you cant lose or am i missing something?

  25. Seems you may be right Hubris, hence the 800 point dow rally 😉 You are correct on all 3 counts in rational economic markets that analogy makes perfect sense…but you forget we are playing blackjack at Las Vegas..the HOUSE ALWAYS WINS!! 😉

  26. As I replied to Javed above, the dow move from 14800 to near 15600 is a textbook case of Mohammad Ali’s rope-a-dope strategy! 😉

  27. Ray .. If it was Saddam Hussain as as ghost it probably would have . Hope that was not in bad taste.

    GL Marky

  28. Off to see my counsellor..appointment at 6pm paying him £150 an hour to help me stop my trading habit!! By strange coincidence he has the same surname as Ben Bernanke. How uncanny! :=)

    Chow all!

  30. Its really funny, light crude is down today and all the oil and gas sector companies are Up…the market completely lost the plot…lol… its just buy buy buy

  33. Sorry I was away last week and been tied up today so not posting much. Yes it has been a terrible month for us who have been short. Have to take the rough with the smooth though and remain in the market. Coming into the last quarter I am starting to review my year and identify the mistakes I have made so to improve next year. I already can see a few – increased my trade size, traded new markets (albeit successfully) and of course the usual…….didn’t always follow my strategy…….due to psycological damage. I would advise maybe you can think about what you would have done differently apart ftom trade direction of course……..trade size would have thought.

    Anyway try to stay sane and without sounding patronising don’t take the market personally……..it’s a real biatch to everyone at some time……….

  36. Shorted the ftse yesterday at 6649 looking for 6500 this week so far looking ok. Another thing made 380 points last week and yesterday on the Nasdaq. All I did just shorted every day right after opening with a tight stop. Like in the book every day it tanked after opening 3 days well over 100 pips

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