Morning folks,
Welcome to another fun-packed week. Actually, I’m concerned that the start of the week isn’t going to be too much fun for my short bet in FTSE. Sure, I’m convinced that the FTSE will fall from this level, but I’m not sure that it will fall before it rises another 100 points or so. I’m not bullish, but there are a few things that make me nervous.

On Friday I opened short bets in FTSE on several occasions, making sound, if not spectacular, profits. But with the after-hours market at 5380 I decided to leave a £3 short open. Regulars will know that this is a common weakness of mine; being too keen to re-open a short bet during an equity rally. But here’s why I reckon I might be better off closing out my short, taking a bloody nose and being patient;

1) We’re fast approaching the end of the third quarter. Every quarter-end I bang on about the effect this has on markets. A large part of Institutional funds’ fees are based on the value of funds under management at quarter-ends; the higher the value of the funds under management, the more they get paid. With all the life-jackets thrown out by the US rescue service there’s a great excuse to drive prices higher in the short term. One further point; there’s usually a restriction on the percentage of cash an investment fund is allowed to hold. Often in bear markets funds might run a larger percentage of cash ‘pending re-investment’, but they have to get that level down ahead of quarter-end reports that will be scrutinised by trustees and accountants.

2) Talk in the weekend press confirmed that HBOS shareholders might not be entirely happy with their lot. There were suggestions that Lloyds was getting the bank on the cheap and that other bidders could be sniffing around. A bit of bid excitement could just push the protected bank shares higher. It looks as though the FSA acted just in time to protect Bodgit & Bingley from being slammed as their debt was downgraded to just one notch above junk.

3) Check out the chart:

It’s not technically perfect, but there’s the makings of a bullish flag pattern. Briefly, that’s when, after a sharp rise, the price looks to be tailing off. The trend of lower lows and lower highs seductively lures in the sellers then Wham! the price shoots through the top of the channel and on to new highs.

Wearing my traditional bear’s costume, I reckon the broader economics stink, equity markets squeezed hard into the weekend and are due a set-back, and bank shares aren’t suddenly wonderful ( the UK and Irish banks haven’t yet got a rich sugar-daddy to wipe their slates clean). But I might need a bit of patience and some deep pockets before the market returns to that view.

Finally, here’s a thought sent to me by a mate last night:
If you had purchased £1000 of Northern Rock shares one year ago it would now be worth £4.95, with HBOS, earlier this week your £1000 would have been worth £16.50, £1000 invested in XL Leisure would now be worth less than £5, but if you bought £1000 worth of Tennents Lager one year ago, drank it all, then took the empty cans to an aluminium re-cycling plant, you would get £214. So based on the above statistics the best current investment advice is to drink heavily and re-cycle.

Happy Trading