Should you follow the news?

One of the many trading/investing emails that I receive is from trader John C Burford, MoneyWeekTrader (you can sign up for free at Moneyweek.com).

In a recent email on the latest market volatility he said;

Now, if you read – and believe – the mainstream’s rationale behind this move, let me offer you an alternative explanation. It has little to do with the ‘news’.

The conventional story was Mario Draghi’s announcement "that the ECB stood ready to do ‘whatever it takes’ to retain the euro". There were also some positive earnings reports out of the US (a lagging data point). 

But remember on Wednesday, I noted that the market had completed a textbook five waves down to the 12,500 level on Tuesday – many hours before the above news emerged.

I stated then that I expected a rally from this level, and this is what occurred. 

Market round up for week ending 27th July - video

A week ending round up of the markets from Steve Briggs YouTube channel.

As well as a round up of the major markets, the video also covers Barclays and RSA towards the end.

http://www.youtube.com/user/sjb5555

Market indices 20/50 dma - FTSE100, 250, TechMARK, Eurostoxx - update 15

Starting a new week with the 20/50 dma still looking bullish on the main UK indices and the Eurostoxx 50. In fact, you would have to say of these the TechMARK and Eurostoxx index look the most bullish with a nice, steady upward movement developing in the longer 50 dma.  TechMARK looks really strong, perhaps getting ahead of itself, but there is certainly a good, upward trend in place. Only the FTSE100 still has a flatlining look about it, but even here there is now a hint of upward momentum. The FTSE250 looks the better of the 2 major UK indices, with price having stayed above the 50 dma even during the most recent sell off.

FTSE100

FTSE250

TechMARK

Eurostoxx 50

Market indices 20/50 dma - FTSE, TechMARK, Eurostoxx, Dow, S&P - update 14

Well, did Draghi at the ECB play his all-in bet yesterday or was it just repeating what he has more or less said before? Certainly the markets got excited by his “whatever it takes to preserve the euro...and believe me, it will be big enough” comment.  Actions will need to follow, but for the moment the markets seem to feel a little better about things.  Of course, it could be the reverse in a couple of weeks time and we will see the same pattern of Eurozone calm followed by Eurozone fear, rinse, repeat. As of now, the 20/50 dma crossovers are still holding good, there's even a hint of upward movement on the dma's on the Dow chart.

With the exception of the FTSE100, all are above the 50 dma.

The UK TechMARK still looks the best chart.

FTSE100

TechMARK

Eurostoxx 50

DOW 30

S&P 500

William Hill - Still a firm favorite - update

William Hill, which was mentioned in this post a while back produced another set of solid numbers today.  The trend for William Hill has been up for some time, a rise of about 30% in the last 6 months so there is a lot of good news in the price right now and it is today touching 300p.  That's not to say that it can't go higher, William Hill has momentum right now and is a good example of letting the trend be your friend.  

Laird - Rocketing along nicely

It's worth remembering that it is not all doom and gloom out there, a number of companies are actually doing quite well.  I like to look out for reports which despite all the general bad news about show a company in a positive light.  It suggests they are doing something right.  So, this morning Laird was spotted on my radar in part due to the positive spin of the news report around its half yearly report.

The Public Sector portfolio - Capita and Drax - Update 2

At the risk of being crude, a few years ago friends of mine that worked in the public sector had to deal with outsourcing specialists which included FTSE behemoth Capita.  Capita was not liked, the company was referred to as Crapita.  In that particular case, Crap..er Capita actually lost the local authority contract, but to look at the company now, you'd be forgiven for wondering whatever happened to austerity?  Capita has just announced some impressive results that are worth noting.

Market indices 20/50 dma - update 13

Well, after the last few days of fresh Eurozone worry of old issues, the 20/50 dma crossovers are now looking under pressure with price on most of the charts challenging the 50 dma support.  It should be remembered that as the moving averages, like all indicators are lagging, it will take a while for this to be reflected on the charts if the move to the downside is more serious.

FTSE100 may have had a double top failure at 5700 recently, a hurdle it is struggling to get over.  5700 hurdle appears to be the new 6000 for the FTSE.

Interesting, but the UK TechMARK index is now looking the most healthy with price not yet in breach of the 20 dma.

The US charts have the look of a scissors effect on the dma's and are seriously under pressure.  The S&P also showing a double top, indicating there may be more downside to come.

FTSE100

TechMARK

Eurostoxx50

Dow

S&P500

UK Dividends on the rise.

UK dividends reached a record high of £22.6 billion in the second quarter of this year beating the previous record of £22 billion for Q2, 2007.  The total payout for the first half of 2012 has been £41.4 billion, a rise of 21% over a year ago.

The amount paid in dividends has been supported by a number of special one off dividends from the likes of insurer Old Mutual and GlaxoSmithKline.  Vodafone and Severn Trent have also paid special dividends recently.

Germany on a credit rating "warning"

I commented yesterday on Germany and one of the reasons why they are reluctant to go all in on bailing out the bad debt EU countries.  Today the credit rating agency Moody's has put a negative warning on Germany's AAA credit rating, which means there is a possibility of it being downgraded in the next two years.

A negative outlook posting from Moody's, one of a handful of agencies that assess the creditworthiness of borrowers, reflects a higher risk that the actual rating will be cut at some point in the next two years. 

Moody's said there was an increased chance that Greece could leave the euro zone, which "would set off a chain of financial sector shocks". 

It added that policymakers could only contain these shocks at a very high cost. 

'Burden' 

Moody's warned that Germany and other highly-rated countries may have to increase levels of support for countries such as Spain and Italy, who have not asked for a Greek-style bailout but who are struggling with high debt levels. 

This is the risk that Germany has to weigh up when deciding on its commitment to the bad debt nations of the EU. Germany cannot afford for itself to be judged as negative by the markets.  It perhaps goes some way to explain why despite numerous summits over the last 2-3 years, the level of full commitment to resolving the crisis that the Markets would like to see Germany give has not been forthcoming.

Source http://www.bbc.co.uk/news/business-18963810

Spain back on the agenda

So, having had a few weeks off from EU worry, the market now seems to be back in fear mode with Spain being at the top of the agenda.  The pattern seems to be to go from one country to another, things seem to be quite with Greece for the moment so look at who is next on the list.  This type of fear is probably better than worrying about all of the potential black spots of debt crisis as a whole, but there is the impression that nothing ever gets resolved and how can it be?  The problem of debt that has built up over the last 20-30 years is so big that there is no overnight solution to it and markets tend to like solutions that resolve crises quickly.

Market indices 20/50 dma - FTSE100, Eurostoxx50, Dow - update 12

Start off by looking at the FTSE100 daily chart without the 20/50 dma.  

This chart has the MACD indicator, Parabolic Sar indicator and Bollinger bands on it.  As can be seen MACD and Bollinger Bands have given clear indication of the upward move on the FTSE over the last month or two.  This may now be coming to an end as the MACD is heading down, but still has a way to go before going below the zero line.  The Parabolic Sar indicator has just gone negative which may also indicate that we are in for downward move lasting several days.

FTSE 100 on the 20/50 dma crossover still looking positive at the end of last week, but this mornings move down and the negative trending indicators that can be seen on the above chart could show us a reverse soon. Price was touching the 20 dma at the end of last week, but after weakness today it may well be below tomorrow.  Will the 50 dma hold? Looks unlikely at the moment given the strength of the move down this morning.

Eurostoxx 50 still looking the most positive on the 20/50 dma crossover, although this move up almost looks a little too sharp.

FTSE 100

Eurostoxx 50

  

Dow

Is Barclays cheap? - update

Next Friday, July 27th,  Barclays is due to announce its second quarter results.

Consensus is for profit of around £1.67 billion - Sales £7.29 billion in the three months to June. Flat year on year.  The Telegraph is reporting £1.7 billion profit so if Barclays comes in above expectations it will be interesting to see if it has any effect on the current depressed share price.  Given the way the market feels about the banking sector and Barclays right now, any big move in the share price may be to the downside if the update disappoints.  Barclays shareholders will be hoping that at the very least the consensus forecasts are hit.

BarclaysSecondQuarter

Market indices 20/50 dma - FTSE100, 250, Dow, S&P - update 11

After yesterday's big move in the US, the Dow and S&P are again looking more positive to the upside.  The 50 dma has just a hint of upturn about it and price is now above the averages.  FTSE 100 is just sitting above the 20 dma .  As of writing the FTSE is having another go at breaking 5700, while the Dow might make an attempt on 13000 later today, although US jobs data might dent that.

FTSE 100

FTSE 250

Dow

S&P 500

Market 20/50 day moving average - Eurostoxx 50 - update 10

What is the Eurostoxx 50 telling us?  Of the 20/50 dma crossovers covered here, this one looks the most bullish.  The 50 dma is slowly turning upwards which is a good sign and price is nicely above both ma's.

It's a measure of some of the biggest companies in the Eurozone.

The EURO STOXX 50 Index, Europe's leading Blue-chip index for the Eurozone, provides a Blue-chip representation of supersector leaders in the Eurozone. The index covers 50 stocks from 12 Eurozone countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. The EURO STOXX 50 Index is licensed to financial institutions to serve as underlying for a wide range of investment products such as Exchange Traded Funds (ETF), Futures and Options, and structured products worldwide.

http://www.stoxx.com/indices/index_information.html?symbol=SX5E

Eurostoxx 50

The German Dax 30 also looks bullish on the 20/50 dma.

Dax

    

Monitise - An AIM company worth watching

AIM company Monitise released quite an upbeat trading statement today that this is company that may be worth investigating, putting on a watchlist, DYOR applies.

What I find impressive is the number of key words used in the statement that suggest things are going good for the company.  Robbie Burns in his book The Naked Trader suggests that looking out for key words in statements can give you a good idea of how a company is doing.  Use of the word "challenging" seems to happen a lot these days in company statements so it makes a change to see a more upbeat message.  Be interesting to see if this one can keep its growth potential going.

Monitise Group CEO Alastair Lukies said:

“The Mobile Money landscape continues to grow at an astonishing rate. As a major global force in Mobile Money, Monitise remains positioned at the centre of this huge ecosystem with its platform, skills and partnerships driving another year of phenomenal growth. Our clear and unwavering strategy is to provide our white-labeled, cloud-based Monitise Enterprise Platform to the world’s leading financial institutions and payments companies, helping them retain their rightful role as the consumer custodian in mobile financial services.”

Monitise Group Chairman Duncan McIntyre added:

“Once again the Monitise team has achieved substantial growth in the financial year 2012 and proven the global demand for a truly bank-grade Mobile Money platform. We believe we have both the leading platform and market position so as the landscape continues to evolve and accelerate we must continue to invest to optimise shareholder value.”

Highlights:

• Full-year 2012 revenues are expected to be approximately $53m (£34m)⁽¹⁾, nearly two and a half times the $22m (£14m) reported last year, making it the third successive year that revenue has more than doubled compared to the previous year.
• Gross margins for the year are expected to be in the region of 66%, compared with 62% last year, and on track to hit more than 70% by the second half of 2012/13.
• Total Monitise registered customers are approaching 16m, three and a half times the level seen at the time of Monitise’s full-year results in September 2011. The group is attracting well over half a million new registered customers per month.
• The order book of the combined Group at the end of June 2012, comprised of more than $170m committed minimum orders, plus a further $250m of additional revenues expected from existing contractual arrangements, making more than $420m (£270m) in total.
• Around $75m (£48m) of this order cover is expected to flow through to revenues in 2012/13.
• Total Group revenues in 2012/13 are expected to be in the region of $110m (£70m).
• The Group remains on track for EBITDA break-even by December 2013.
• Monitise now provides Mobile Money services to over 300 financial institutions and partners, including a third of the top 50 financial institutions and of these eight of the top 13 in North America.
• Combined business handles over a billion transactions per annum, as well as payments and transfers worth $15bn on a current weekly annualised basis.
• For 2011/12 it is expected that a move to equity accounting ⁽²⁾  will result in a $3m (£2m) increase in reported full-year revenues to approximately $56m (£36m).

Source - http://www.monitise.com/media/press_releases?id=613

The Public Sector portfolio - update 1

Increasingly since the 1980's there has been a growth of public/private sector joint ventures.  Mrs Thatcher popularised contracting out, NuLabour embraced it further and today there are a wide range of FTSE350 companies that have a significant stake in ensuring that they get their share of Government contracts. However, in this time of "austerity", there appear to be two viewpoints, one good, one bad, surrounding companies that rely on, or have a significant amount of their earnings from Government contracts, especially if you are looking to invest in them.

The bad, negative argument is based on the simple fact that Government is looking to cut back, there will be less contracts available, or increasingly less money in the pot and therefore the contracts available will not be so lucrative.

A good example of one company that was hit hard by a sudden change in Government policy and a cutback in funding available was green energy company Eaga.  Eaga ran the Warm Front contract introduced by the previous Labour Government.  It was a substantial part of their earnings and profits.  When the new Con/Lib coalition took over, the Government decided to go in a different direction, Eaga's Warm Front contract was drastically reduced, earnings and profits downgraded, the share price collapsed.  Eaga shareholders got some return when Carillion made a bid for the company and took it over.  It's just possible that they overpaid, Carillion, despite doing reasonable business from Government contracts in the last few years has seen its share price fall as well.

The good, positive argument is based on the fact that while Government will be looking to cut back, substantial contracts will still be available and companies that have built a reputation in this sector will be at the front of the queue to get the business.  Also, in some areas there might actually be more business available as Government departments look to outsource their work and save money as private sector companies in competition with each other will bid for the business.

Unfortunately, such a bidding process doesn't always work to the advantage of Government departments looking to save money.  How often do we read of headlines of projects run by private sector companies for the Government that go over budget?  And once that contract is signed, unless there is a decent penalty clause to stop it, the taxpayer will end up footing a higher bill anyway.

All of which brings us to G4S and its Olympic staffing farce, which may well have lost it friends in high places.  Questor in the Daily Telegraph argues;

The outsourcing group gets about 10pc of its revenues from UK pubic sector contracts such as welfare-to-work programmes and prison service contracts. This is a relatively small proportion of the overall group. However, globally, government contracts accounted for 27pc of G4S's revenues in 2011.

 As analysts pointed out yesterday, G4S management said that the UK public sector was one of the more active parts of its bidding pipeline at an investor day held in May. Tendering for contracts at major events may also be a problem for the group – especially in the near term.

Hardly surprising then that the G4S share price has been in a bit of a freefall that would make an Olympic diver proud.

Whether that fall is overdone or not only time will tell, but there is a lesson here for investors to keep an eye on how much business a company does with the public sector.  Market sentiment is largely negative and weary towards such companies at the moment because the downside is greater than the upside.  Some companies are still doing well out of public sector business, but it won't necessarily be reflected just yet in share price performance.  The market will probably need to be convinced that it can be maintained going forward.  Trouble is, no one can be sure of the extent of the cuts to come and which FTSE companies will get hit.

Quote; G4S Marathon Slog Daily Telegraph

Market 20/50 day moving average - update 9

With the exception of the Eurostoxx 50, the FTSE, Dow and S&P are still looking weak on the 50 dma.  We have a crossover to the upside, but it still looks undecided as to how far it wants to go despite the US ending the week on a high note. FTSE100, 250 and Eurostoxx are all trading on or above the 20 dma.  Dow and S&P still looking like they could go either way.  Ultimately, the UK will follow the US, so while the UK indices still look a little more positive they will be looking to the US for confirmation of where we are going over the next week or two.

FTSE100

FTSE250

Eurostoxx50

Dow

S&P500

Norway owns 2% of the FTSE100

Most investors and traders probably don't give too much thought as to who are the biggest investors in the FTSE100 itself.  Or to put it another way, who owns the most shares of FTSE100 companies?

A Sunday Telegraph report reveals the following:

1)  Legal & General - has around 4%.

2)  BlackRock Fund - No percentage given.

3)  Norway Sovereign Wealth Fund - 2%.

So, Norway owns around £25 billion of shares in FTSE 100 companies and apparently has been on a buying spree in the last year.  To put this into some context, China's sovereign wealth fund has around £9 billion in holdings.

Of this £25 billion, Norway owns 2% of Burberry, 2% of Marks & Spencer, 2% of Rolls Royce, 4% of Prudential and 5% of property investor British Land.

According to Wikipedia, Norway ranks as the second wealthiest country in the world in monetary value and has the largest capital reserve per capita of any nation.

They must see something they like about investing in the UK.

Link Norway buying the FTSE

Four reasons why first time traders often fail

High expectations.  When starting something new at almost anything in life we may have high expectations and high hopes of success.  Often we rate our own abilities to do something that others can't too highly.  We think we are better or at least the equal of others.  After all, when it comes to shares, how difficult can it be to trade the markets? All they do is go up and down.  Occasionally they stall and consolidate, but for the most part they go up and down, it looks like a 50/50 game, they go one way or the other.  Yet if statistics are to be believed 80-90% of traders lose and first time traders will often blow one, two or more accounts before giving up and moving on to something else.  Even worse, statistics tend to suggest that if you give your money to a professional money manager, most of them tend to underperform the market as well, but at least they get a fee to keep them solvent.

There is nothing wrong with having high expectations and a positive outlook as to what you can achieve, but it is important to remember that trading and investing is a marathon not a sprint.  Survival, continual learning, money preservation and staying in the game is what counts.  Many traders have stories of not making any money or even losing for several years before they got it right.  Excepting losses and failure is part of being a trader.  Failure can be a good thing provided you learn from the mistakes you make.  Anyone who expects trading to be easy will find that the markets will probably bite them back sooner rather than later.  Aim to survive and you just might join the 5-10% that do well.

Lack of Discipline.  Most beginner traders lack discipline, whether that is to stick to a plan, their chosen market or watchlist, lacking patience and waiting for the right opportunity.  There are many reasons why discipline breaks down, one of which is feeling the need to be doing something.  Trading, especially if your psychology is more geared towards longer term swing and position trading opportunities can be very boring.  The waiting game is something that many traders have to get use to.  Long periods of time where your strategy and trading plan may not be generating any signals.  If you have a plan, and you should have one, then discipline is required to stick with it.  You have to give it a chance to work, chopping and changing, whether it is the markets you are trading or chart patterns and indicators that you are using, will work against you if you cannot settle on your plan.

Frustration.  The markets can be a very frustrating place, most of the time it is likely that they will not be doing what you expect them to.  Expecting markets to behave in some rational or logical way is likely to get you into trouble big time and this can be very frustrating for those new to the game.  Remember that this is a game of fear and greed. One day the news will be full of events that make the market fearful, a few weeks later those fears might be priced in and the market reacts positively to exactly the same fears that it was negative to previously.  Then before you know it, they are fearful again. 

For those that say that technical analysis doesn't work, all a chart really does is reflect in a historical way those fears and greed in a series of up and down movements.  A chart is a past reflection of human, and increasingly computers programmed by humans, behavior in the markets.  Past behavior is a reasonably good guide to what people will do in the future, because we do tend to be creatures of habit.  Charts can help tell us what we need to know and if you can get past your frustration of what the markets are doing when you think they should be doing something else, learn to go with the flow and accept that the market doesn't care what you or I think, you might start to see some sense of what is really going on.

The search for the holy grail of trading.  Straight up, there isn't one.  There are good traders and bad traders.  Good investments, bad investments.  Find a way that works for you and that in a sense will be your holy grail.  Chances are it won't work for everyone else. Doesn't matter what it is, if you can make money from trading a couple of moving averages, do you need anything else?  Finding what works for you is the holy grail.

The "Public Sector" Portfolio

This is just an idea I want to run with.  A portfolio of FTSE350 companies that to some extent depend on Government contracts for their business.  It will be interesting to monitor performance over time to see what effect austerity and Government cuts have on the bottom line for these companies.

I've chosen 4 to follow;

Capita 

Capita is one of the UK's leading outsourcing specialists. Established in 1984, the company now counts both private and public sector businesses among its customers and is perhaps best known for its involvement in London’s congestion charging scheme.

Serco Group 

Global service company Serco manages research laboratories, local education authorities, leisure centres and prisons. Its business also includes the operation of London’s Docklands Light Railway and air traffic control towers in the Middle East and across America.

Carillion 

Provides expertise in commercial and industrial building, refurbishment, civil engineering, road and rail construction and maintenance, mechanical and electrical services, facilities management and PFI Solutions.

Qinetiq

QinetiQ is one of the world's leading defence technology and security companies, manufacturing and supplying products such as sensors for weapons, advanced robotic systems, port security products and advanced security for computer systems.

More to follow.


*Company description from DigitalLook. 

Market 20/50 moving average - FTSE100,250,Dow,S&P - update 8

While we have 20/50 day moving average crossovers happening on all charts they are looking weak, with the exception of the Eurostoxx50.  The 50 dma for the UK and US is still trending down.  If there is to be further strength to the upside the 50 dma needs to start turning up otherwise a reverse is on the cards.  The FTSE and Eurostoxx is still more positive as price remains above the MA's despite the recent down days.  The US is still undecided which way to go as price and MA's are touching or slightly negative, but the 50 dma still looks weak.  Futures today are indicating lower prices early on, so the next few days should tell us more, but the MACD indicator is suggesting that the market is currently overbought on daily charts and the current trend may be weakening.  If the strength towards the upside on the 20/50 dma is maintained then MACD will probably reflect this by a weaker downside move before going positive again.

FTSE100

FTSE250

Eurostoxx50

Dow

S&P500

Is Barclays now cheap?

I suspect that after the latest fall from grace for Barclays many have been tempted into buying.  There is a lot of discussion right now wondering if Barclays is now cheap, that if you are thinking long term there might not be a better opportunity to get in now.  My immediate thoughts were to have a look at the weekly and daily charts, both of which look negative and in a downward trend.  There is still the potential for more downside if you look at the long term charts.

However, one of the regular emails that I subscribe to is from UK-Analyst (it's free and offers tips and market round up. A link for those interested can be found below) and yesterday's offering was from the self proclaimed (?) legendary bear raider Evil Knieval, Simon Cawkwell.  It's dated 4th July and taken from his diary (a service that you have to pay for if you want the full, regular updates) and gives Barclays a mention.

Barclays is cheap at under 200p. Tangible Net Asset Value is 360p+ and the PE might be 7 or less and dropping. I bought.

That's it.  Make of it what you will.  We don't know time frame or anything else that prompted Evil to buy, but he does have a reputation for being able to read a balance sheet.  He's made a lot of money (and probably lost a bit at times) from doing exactly that.

The charts suggest Barclays could still go lower and it is a bank in an unloved sector that could still be subject to further bad news whether that be from Barclays itself, another bank, or the general turmoil facing the banking sector across Europe. Market sentiment is still largely negative towards the banking sector and why would it be anything else right now?  Having said that would you bet against Evil Knieval, especially if he thinks the lows are in for Barclays?

*I'll post any update to this if it is mentioned again in the free email, but as I'm not a subscriber to the main service or Evil's diary, we may never know what he does next.

http://uk-analyst.com/

Market 20/50 day moving average - update 7

Perhaps I will start by explaining a little more why I'm posting these 20/50 dma charts.  Technical analysis can be as simple or as difficult as you want to make it.  This is very simple and just gives a useful general indication of the current market trend.  It shouldn't be used by itself to make trades, but it gives a good picture to start with as to what the markets are doing.  You will also find that it is often the case that when these 20/50 crossovers happen, up or down, the move is often good for several weeks or a few months in that direction once confirmed.  Doesn't always work out that way, a quick reverse can happen, but we are looking for the direction of the trend, positive or negative.

For now, the 20/50 dma is still looking positive despite the down days towards the end of last week.  Looks to be at a critical will it, won't it, cross for the US indices, while the UK and Eurostoxx is slightly ahead of the game.  The fact that there was no big sell off in the UK towards the end of last week and that these moving averages are holding for now suggests that the market wants to go higher.  Still everything to play for, especially if the US pulls back at this time and the crossover doesn't happen we could see a reverse.  The UK and Europe would mirror any big fall in the US.

Interesting that we are also getting close to some big round numbers, 13,000 on the Dow, while 5700 seems to be offering some resistance similar to 6000 did a while back on the FTSE100.  As of writing the FTSE is within 30 of 5700, it will be interesting to see if it can break through and stay above it this time. For that to happen with any conviction the 50 dma will need to start trending up.  Right now it is still flat.

FTSE100

FTSE250

Eurostoxx 50

Dow

S&P 500

Cash is increasingly king for UK FTSE listed companies

Research released today from Company Watch found that UK non-financial listed companies are saving more cash and are reluctant to spend or go into debt as the gloom and economic uncertainty almost everywhere continues.  They have a cash hoard of around £19 billion which in the face of what the banks took from the UK taxpayer may not seem much, but it is still a fair reflection of the lack of confidence that business has to spend and expand.  In Europe the figure is £110 billion.

Nick Hood, head of external affairs at Company Watch, said firms were choosing cash for security. 

He said: “All European economies are affected to some degree by the eurozone crisis and it looks as if the headlong growth of the Bric economies is faltering, so it’s hardly surprising that the bosses of our largest businesses view debt as dangerous and cash as comforting. 

“This scenario will concern politicians across Europe, but in particular in the UK, where only investment can generate the growth needed to re-balance economies and reduce deficits.” 

Given that many of the most debt laden companies on the FTSE had the rug pulled from under them as the banks ran for cover in 2008 (and are still running), it's hardly surprising that those businesses that may be fortunate to be flushed with cash have decided to keep it as their rainy day fund.  Business is also complaining that banks are now reluctant to lend to them anyway, although the banks deny this.  What is almost certainly true is that while the banks may be willing to lend it is going to be at a price, and the interest rate that business will be repaying, like that for the more general consumer, isn't going to be anywhere near the historically low BoE base rate which is almost an irrelevance for Mr and Mrs average unless you got a tracker mortgage prior to 2007 that is.

Then there is the news from the US that the uncertainty of the "fiscal cliff" and pending Presidential election could slow down further investment from business and see the US economy go back into (official) recession.

On Jan. 1, 2013, Bush-era tax cuts are set to expire, $1.2 trillion in automatic spending cuts begin - the price of Congress' failure to seal a long-term fiscal plan last year - and the U.S. debt ceiling will need to be raised again. Those and other scheduled measures will probably need to be dealt with in the lame duck session of Congress, after the election.

 Whatever the political outcome, some believe employers will show increased nervousness as the year advances. 

"Our view is that they will slow the pace of hiring and investment in the second half of this year, causing growth to slow down," Bank of America economists wrote in a June research note. They expect U.S. gross domestic product growth to slow to 1 percent by the fourth quarter due to a "major spike in uncertainty."

One area of US spending that may get cut, but will still be almost as much as the rest of the world put together, is defense.  UK listed companies Qinetiq and BAE Systems have managed to avoid the fallout so far, but both seem to expect the likelihood of difficult days ahead.

 “Defence markets remain challenging as the long cycle of high defence spending comes to an end and governments seek to reset budgets to deliver deficit reduction goals,” said QinetiQ. 

“In the US, visibility is limited with delays continuing in the award of both Department of Defence and federal civil business. This uncertainty is expected to continue at least until the outcome of the US presidential elections in November.”  

The warning here for investors is to be weary of any listed company that relies heavily on Government contracts, especially as the true extent of austerity cuts has not hit yet.

Sources;

Cash is king_The Scotsman

Fiscal Cliff

Qinetiq - Defence markets remain challenging

Market round up for week ending 6th July - video

A week ending round up of the markets from Steve Briggs YouTube channel.  I will post these on here as and when he makes them available.

Educational videos looking at Time frames, MACD, RSI, support and resistance can also be found at the link to Steve's site below.  

http://www.youtube.com/user/sjb5555

Market moving average - FTSE100, 250 and TechMARK - update 6

The UK markets seem to be in wait and see mode again as they digest yesterdays reflationary measures by the central banks.  More important from a news flow perspective is the US change in Non-Farm Payroll and unemploment rate due in later today.  If these come in worse than expected we could see a sell off.  How big will depend on how much worse than expected and how the US responds.  If they are better than forecast then the FTSE could easily pass the 5700 mark (not that difficult as it is only 17 points or so away at time of writing) and the 20/50 day ma's could be seeing some clear daylight to the upside.  To be really positive the 50 day MA needs to start trending up now that we are seeing the crossover.

Still everything to play for, but bears need to see a pretty quick reverse of these MA's if we are going to see more downside soon.

FTSE100

TechMARK

FTSE250

Market moving average - update 5

FTSE100, 250, Dow and S&P all now touching a 20 day ma/50 day ma crossover towards the upside.  With the ECB predicted to reduce IR's further and more BoE QE on the cards today, around £50billion according to reports, markets are in a wait and see mode, but as the moves seem to be expected they are to some degree priced in.  The more relevant question therefore may be how will they respond if they don't get as much as they want?  There could be some profit taking if the ECB and BoE response is seen as disappointing.  It is interesting to see how these moving averages do seem to be moving in line with the news flow.  The market has been more positive since the Greek and Spanish deals despite the big doubts that remain.  Now they are more positive on further reflationary measures being taken by central banks and the moving averages seem to reflect this.  

Things could still reverse pretty quickly and after the market moves of the last week or so we should expect to see some profit taking sooner rather than later, but right now on the basis of probability the charts look more positive than negative, at least using the shorter term 20/50 ma.  Any profit taking and fall from here should remain positive as long as price doesn't fall below the moving averages as they trend upwards.

The Eurostoxx50 has crossed to the upside and looks the most positive so far.

FTSE100

FTSE250

Dow

S&P

Eurostoxx50

What time frame are you trading/investing in?

The time frame that you are using to trade or invest in has to be one of the most important decisions when it comes to putting together a system and trading plan for the markets.  I use a trading platform with a charting package which you can trade from ticks to minutes, hours, days, weeks and months, all offer a different view of what a share or index price is doing.  On some the price will be going up while on others it will be down.  Some will show a move is just beginning while others show it looks advanced and about to turn.  Regardless of whether you are a short term trader or long term buy and hold investor, knowing what your time frame is, or combination of time frames, is important to achieving success.

On forums, blogs and financial websites in general, I often comes across people arguing that x or y is cheap and undervalued, or z is overvalued and due a fall.  On fundamentals such analysis may well be correct, but often the information is totally irrelevant as there is no reference to time frame.  What time frame are they trading or investing in?  Without information relevant to time frame, if someone says they expect the FTSE to rise, or fall, it's pretty pointless.  

If you are a technical trader than you have to be trading a time frame, whether it is short term day trading, or longer term swing or position trading.  In fact it will be a combination of time frames as someone trading the 4 hour chart may well use the one hour and then 5 minute chart to time an entry, but long term buy and hold investors who base their decisions on fundamentals should also be looking at the charts.  After all, even if you think that x is a good company and on your buy list, why would you buy it if the trend on the monthly and weekly charts is clearly down?  Even if you are only using a few basic moving averages and an indicator like MACD, this will give you a reasonable amount of information as to whether the trend is turning.  Yet often, long term buy and hold investors will buy company x because it looks cheap.  They are then surprised when 3 months later it is cheaper still, when one look at the long term charts may well have told them that it is trending down and they could have got a better price had they waited, or at least buying at the higher price is better if the trend is with you.  The trend really is your friend.

The trouble is that fundamental buy and hold investors often see technical analysis as voodoo or that charting and market timing doesn't work.  I believe this to be false, what doesn't often work is our psychology towards the market and our ability to trade/invest to a plan, be patient, wait for signals, etc.  Get this right and you are on the way to winning.

Private investors desert the market, a good contrarian sign?

Capita Registrars reported yesterday that private investors in the UK dumped £1 billion of shares between March and May this year, the largest amount of net selling in five years and bigger than the summer of crisis hit in 2008.  Even worse for the investment industry this happened at a time when buying tends to go up as investors pile money into their annual tax free ISA allowance.

Charles Cryer, chief executive of Capita Registrars, says at the beginning of the year, investors were optimistic that the economy had turned a corner. ‘This encouraged private shareholders very cautiously to add to their holdings,’ he says. 

‘It seems their caution was justified as the market rally faded, and the economy sank back into recession. The eurozone crisis has now reached another critical phase and hopes for the global economy have been dampened. Private investors have reacted by selling shares in large volumes,’ he says.

On the plus side, dividends have been up, 22% in the first quarter of the year compared to 2011, Vodafone being one of the big payers.

So, optimism seems to be fading on the back of more doom and gloom coming out of Europe and a mix of not so good economic figures worldwide.  In the meantime markets just might have priced this in for now as the short term moving averages in my previous post show more bullish tendencies.  The market is expecting more reflationary measures to be taken in the US, UK and Europe.  It may not happen quickly, but it will probably happen and when it does the market will like it.

Sources

http://www.moneyobserver.com

http://www.ftadviser.com/2012/07/02/investments

Market moving average - update 4

After good upward moves over the last few trading sessions, the markets are now looking more positive towards the upside, the 20 and 50 day moving average looking more bullish.  The 20 day MA is now firmly heading towards a crossover on all charts shown which may well happen sometime this week.  There is a likelihood of a pullback in the markets over the next few days, profit taking, but unless it is major it isn't likely to halt the current trend towards further upside.  Another positive on the charts is that price is now above the MA's, the first hurdle to be crossed for a sustained upward move.  The final chart is the Eurostoxx50 which shows the 20 touching the 50 and about to cross.

It's possible for the current trend to reverse as no crossover on any of the markets covered has yet been achieved, but this needs to happen fairly soon and in a fairly dramatic way, i.e. a big reverse for the previous downward trend to continue.

FTSE100

FTSE250

Dow

S&P

Eurostoxx50