Poor numbers from Alliance & Leicester justified running the short bet over the results announcement, though I did use the sell-off to close out my positions. With the market still moving erratically I’m more inclined to take profits when moves look over-extended. Sure, I’m missing out on a few quid, but I want to build up my trading capital for the bigger moves.

I bought back my first bet in Alliance & Leicester at 475p and closed out the balance at 452p for an overall gain of £135.

I sold FTSE this morning, not at the best levels but it put some dosh in my back pocket. I’d been mulling over a short bet at 6220, but with the Dow future holding steady I wasn’t convinced. The 6220 level has been acting as a sort of second division support line so when it gave way that was a good enough excuse to go short. I placed a £2 bet to sell at 6206, using a wide stop at 6285, just above the recent high.

The trade worked a treat; the market broke below 6200 and headed for the next support at 6150. Now I faced a tricky dilemma; the trader in me wanted to close out at 6150. After all, the market had bounced well from that level only a week ago. But the other part of me didn’t want to close out a good bet too cheaply. I compromised by bringing my stop loss down to 6162. That way I’d leave the road to untold riches open, but if support held I’d still lock in most of my gains. Support held and I was out for £88 in between power cuts.

My third trade came from yesterday’s leftovers. My call on EURGBP had been pretty good, except for the small matter of my stop loss being hit! After stopping me out the price had rallied throughout the day and I was tempted back in. As I’d been wrong earlier I limited myself to a £2 bet with a wider stop loss. My £2 buy bet at £0.7939 was protected by a stop at £0.7890 and survived the night unmolested. This morning the higher price allowed me to sell £1 at £0.7964 and bring my stop up to break-even.

The bumper 3% CPI number put paid to the rest of my bet, closing the trade for a small, but ultimately satisfying £25.

Just at the moment I’m in the rare position of having no bets on. Blimey, that won’t last long. I’m now more inclined to sell FTSE rallies and, once again, it looks as though I might get another chance. With support from the uptrend line getting ever closer the risks of it breaking are increasing.

Ooops, my ‘lecky wants me out the way so I’m off now to do some research in the sun.

Happy Trading

I don’t know if it was the hot sun belting through my window, or the lasting effects of yesterday’s cider, but I was far too eager to deal today and, as usual in these cases, I paid the price. I placed a £10 bet to buy EURGBP at £0.7904, placing my stop at £0.7865. The trade was never more than a few pips in profit; although the price dropped after strong UK producer prices my trade remained intact, but unexciting. I moved my stop up to £0.7880, where my stop was triggered for a loss of £240. The price didn’t reach those depths again and would now be showing a small gain.

My other forex trade worked better. I bought a £10 bet in GBPUSD after the price broke through previous resistance. I paid $1.9531 for £10 and took profits at $1.9541, $1.9570 and $1.9593 before being stopped out at $1.9560. Total profit on this trade was £249, spookily close to my earlier loss.

For my sins I decided to close my remaining £1 bet in Barclays. It had returned to the previous support level so I closed out at 443p for a gain of £46. Both banks have trading updates this week, but I reckon more worries have been priced into Barclays so I’ll run the A&L bet.

Hah! You’ll love the irony of this. Regular readers will know that I’m itching to sell FTSE again, but exercising a level of restraint I didn’t know I was capable of. After failing to hold its early gains the FTSE index looked trapped in a 10-point range. I fancied selling it (again) but was conscious that Friday was option expiry day. One of many stockmarket ‘rules of thumb’ is that markets tend to go better in the days leading up to expiry. Rather than just accept the rule I thought I’d check.

So out came my old diary with expiry dates since the start of 2007 and I did my best to work back on the chart, trying to take comparable start and finish times. But all I came up with was that out of the most recent 16 expiries, 8 had shown a rise in the market over the preceding week and 8 had shown a fall. Now this was all a bit rough and ready, but to me it showed there was no reason why I shouldn’t short the market ahead of expiry. But this is the best bit; as I returned to my intra-day chart I found that the market had tired of waiting for me and had dumped 40 points. AAAGGGGHHHHH!!!!!!!!!!!!!!!!

The good news is markets have rallied to give me another chance to make my mind up.

Happy Trading

Premier, (whose brands include Hovis, Mr Kipling cakes & Branston Pickle) has been hit hard by the ‘double whammy’ of a rise in commodity prices and being deeply indebted at a time when lenders are particularly nervous.

Rising UK wheat prices alone added an extra £40m to the group’s input costs for 2007, whilst competitor Warburton’s exerted additional pressure on the group by keeping prices steady at a time when Premier sought to raise the price of a Hovis loaf to recover some of its higher input costs.

Analysts are hoping that Premier may have been able to recover some of its market share as Warburton’s now has to contend with strong price rises in Canadian wheat since the beginning of the year.

An additional loan and working capital arrangement with its banks on the £1.6bn of debt (the JP Getty quote “if you owe the bank a $100 thats your problem, but if you owe the bank $100m that’s the bank’s problem” seems appropriate here!) it has amassed in a number of acquisition deals gives the group some additional breathing space.

However, the group has recently put its French bakery business Sofrapain up for sale in a move designed to reduce the debt burden and other parts of the group are also rumoured to be on the block.

On Wednesday supermarket group J Sainsbury’s is expected to post a decent set of results as the transformation under CEO Justin King continues. Analysts are looking for profits of around £480m on sales of a little over £17bn and for reassurance that Sainsbury continues to show good like-for-like sales growth whilst also pinching market share.

Of more interest may be what key shareholder intentions might be. Qatari based Delta 2, which holds 25%, walked away from a bid 6 months ago and is now free to bid again, should it wish to. Activist shareholder and property tycoon Robert Tchenguiz is reported to hold just under 5% and is nursing a significant loss. He has called for the board to restructure its balance sheet, leveraging its substantial property portfolio, perhaps by splitting the group into a property firm and a supermarket business.

Sainsbury has gone part way to addressing the balance sheet issue, announcing a £1.2bn deal with British Land in March, seeking to ‘add value’ by extensions and developments to 38 of its stores.

Whether Mr. Tchenguiz and Delta 2 believes that is sufficient remains to be seen-despite Mr. King having delivered 13 successive quarters of like-for-like growth, an extra £2.7bn of sales and a doubling in profits over the 3 year turnaround strategy he has successfully implemented.

From here, however Sainsbury will have to run hard to stand still; the launch last month of its new homeware and furniture range under the Tu brand is one attempt to increase non-food sales by £1bn by March 2010.

Oil is certainly looking pretty bubbly at the moment. As if the rise over the past twelve months wasn’t enough, the black stuff has put on a further 13% in May, and it’s only the 9th today! What’s more, this latest rise can’t be blamed on the Dollar, which has shaken the shackles and had its own little rally (we’ve just put out a piece on this today called Another Failed Relationship ).

I made a few bob selling EURUSD this afternoon, but it was a scrappy trade in an indifferent market. The Euro had strengthened against the Dollar this morning but ground to a halt just shy of the $1.55 level. The smart move would have been to sell it then, but I was in the final throes of knocking out the article mentioned above. I left my trading till after the US trade figures. These were much better than expected and I reckoned that would give an extra boost to the Dollar.

I placed a sell bet at $1.5453, but after taking some profits at $1.5443 and ‘33 my remaining bet was stopped out at breakeven. Total profit to take into the weekend was £70.

For a while today the FTSE was starting to look interesting as it digested some of the bad news around. House repossession orders in England & Wales hit the highest levels since the early nineties. There seem to be a lot of headlines about firms laying off workers, and these are real workers, not investment bankers. American Insurance Group reported a $7.8 billion loss last night and said that the downside in the credit crunch wasn’t over yet.

FTSE fell ahead of the US open, but bounced off the trend support and is back above the 6200 level. I came mighty close to selling a scrap, but luckily the ghost of weekends past warned me that it was plain stupid to open a position this close to the weekend.

Still, this is the first day for a while that’s showing a lower high and lower low, which is worthy of an amber alert.

Right now my biggest decision is how to play the weekend. Do I bet on Gloucester, to ease the pain if they beat Bath, or do I place my faith in the Bath boys to do the business?

Have a good weekend

Last week investors escaped relatively unscathed, but will they be so lucky again this week? Banking crisis-what crisis?

HSBC kick off the week with their ‘Interim Management Statement’ mid morning on Monday. HSBC is one of the banks with a big US presence, through its Household Finance consumer finance arm. Conditions are expected to have deteriorated quite markedly, with some analysts suggesting that Household will post a Q1 loss of over $1bn, having taken writedowns of over $3.3bn.

A couple of analysts have jumped the gun, downgrading their recommendations on the bank today (Friday) citing the potential for greater than expected losses in the US subsidiary.

However HSBC is well capitalised, has access to funding and also has the ‘emerging market growth story’ to fall back on. Competitor (and Asian/emerging market centric) Standard Chartered yesterday suggested that it had seen a ‘very good’ start to the year in its wholesale division, despite writing off another few million.

And if you thought it was safer back across the pond in the UK, think again!

Alliance & Leicester are due to issue a trading update at their AGM due to be held on Tuesday. A&L is perhaps one of the financially weaker UK banks, so investors are bracing themselves for a cut in the dividend (or the crafty trick of paying it out in shares instead!) or a rights issue to shore up the balance sheet. How about both?

As one of the banks with greatest exposure to the mortgage market A&L are especially vulnerable. Vulnerable to falling house prices and perhaps vulnerable to a bid, (perhaps from LloydsTSB) given that sadly, its chairman Sir Derek Higgs died suddenly recently. Its CEO is also only just back in post having recovered from illness.

A&L have annoyed many (including Gordon Brown & Alastair Darling), by upping their mortgage rates at a time when the Bank of England has been cutting base rates. Today’s latest offer from A&L saw it RAISE rates by 0.75% on a 2 year fixed rate deal for those with a 10% deposit, penalising all those who don’t have a tidy 25% of their house price stashed away to use as a deposit.

Whether it remains a standalone bank is a moot point-either way the trading update is unlikely to cheer investors.

I’m taking a look at one of the steadiest relationships over the past year or so, the Dollar and the oil price. The link was so damned good it was almost mechanical, the Dollar fell, the oil price rose; simple.

But over the past couple of weeks the relationship has been as rock solid as Mr and Mrs Ashley Cole’s; the Dollar’s started to feel good about itself and has been going out on its own. The third party in this ménage a trois, gold, has been happy to play its part (If the Dollar was going to be the dominant party then gold would play the weaker role). By contrast, oil has got used to all the attention and doesn’t fancy giving it up for anyone.

After three wonderful years, when the break came it was explosive; the Dollar rose 3%, but oil surged ahead, rising 11% in this month alone.

So what caused the breakdown? Have they split for good or will they be reunited sometime soon?

Go The Greenback
On April 22nd the Dollar hit an all time low of $1.60 (and a little bit) against the Euro. Since then the Greenback has gained over 4% against the Euro and 3% against a collection of other currencies (this is called the Trade-weighted Index and is an official measure of how the Dollar is doing in more general terms).

But the Dollar’s supposed to be going to Hell in a handcart, so what’s changed?

1) Firstly, and this might seem a touch premature, there’s a growing feeling that the US is over the worst of the crisis (I know, I know. I’m only giving you the word on the street). Much of the recent data has been better than the dire predictions of the soothsayers. The recent corporate reporting season passed without many howlers. OK, the banks were the financial equivalent of Derby County, but out in the real world companies were making profits. Even Beardy Ben Bernanke and his Fed wannabees hinted that the risks of a slowdown and rising inflation were more becoming more balanced. In a big nutshell, traders reckon the interest rate cycle is turning and that US rates might just have bottomed out.

2) With impeccable timing doubts about the resilience of the Eurozone economy have been creeping in. In a mirror image of the US, a lot of the economic numbers have been coming in much weaker than forecast and quite a few companies have held their hand up to finding the going tough.

3) At long, long last there has been talk of a united desire for a stronger Dollar. Thursday’s Financial Times quoted ‘senior officials’ who were pleased at the recent strength of the Dollar. The words might not be that different to previous occasions, but the timing was bang-on with traders already calling a turn in the market.

Why Isn’t Oil Playing Ball?
Over the past week oil has shown a blatant disregard for the changing fortunes of the Dollar. Granted, early Dollar strength led to a drop of $8 in the price of crude; it briefly tickling the $110 level. But this level only served as a base camp to re-group, shake out a few loose holders and steam further ahead. Each day this week has seen oil hitting a new high, reaching $124.50 late on Thursday.

I was only banging on about oil a few weeks ago (luckily I reckoned it still had further to go then). Most of the reasons for the spike in the price mentioned there (Big, Black And Everyone Wants Some) still hold true, except the link with the falling Dollar! The geopolitical worries are all still there; Nigeria, Iraq, Iran, Russia, Grangemouth. OPEC is still refusing to budge, insisting that there’s plenty of oil out there. And after all, the higher the oil price, the more cash available for the Middle-Eastern sovereign wealth funds. Expect more cash injections into the West’s favourite companies.

One new factor is the same one helping to drive the Dollar. The very confidence in the US that’s pushing the Dollar higher is also giving the oil price a hefty push (if the US economy isn’t really weakening then it’ll be needing more oil than previously thought).

Hubble Bubble Oil And Trouble
The persistent rise in the black stuff has been begging the question, “Is it all a big oily bubble?”

First, let’s nip back to the classroom to check what we’re dealing with. There’s a whole washing machine of bubbles out there; speculative bubbles, economic bubbles, market bubbles, they’re all pretty much the same thing, which is “trade in high volumes at prices that are considerably at variance from intrinsic values.”

OK, as far as volumes go, check out the chart below. See how the volume has almost doubled over the past year.

As for value, who am I, JR Ewing? I don’t know, but I read a report today estimating the marginal cost of production as around $70 a barrel, about as close to the current price as Gordon Brown is to getting re-elected. I can’t argue with recent forecasts that oil could reach $200 a barrel over the next 6-24 months. After the rise from $40 in 2004 who really knows? But to me those sort of crazy figures flash an amber warning on the bubble-ometer.

Trends Reunited?
So what’s the likelihood of these two trends getting back together?

The possibility of an oily bubble is discussed above. At the very least the distance of the current price from its 21-day moving average suggests the need for a correction. So there’s a chance of a trial reconciliation.

The biggest risk to the Dollar is the high-octane level of confidence in the markets at the moment. It might be too strong to suggest that some of the recent economic numbers were manipulated. However, some fanciful assumptions were used in calculating both the GDP and employment numbers. These could return to haunt the market in the near future.

The relatives might get involved:
Looking at the relatives might restore the relationship. There’s a feeling that if the US does slide back into something nasty then Europe, and perhaps the UK, could end up in an equally messy situation. The level of the Dollar has been allowing for more of a slowdown than most other currencies. With US rates already scraping the floor at 2%, the Dollar could strengthen as other currencies allow for the possibility of lower rates. The case for a fall in the oil price should be more clear-cut if a recession spreads across the developed world.

My Call?
I’ll tell you one thing; I’m not going to mess around with oil. It might well be in bubble territory, but it’s also on growth hormones. I don’t trade the commodity markets, but if I did I wouldn’t try fighting a trend like the oil price. But neither would I be buying it on the basis of a few crazy predictions.

I much prefer trading the Dollar. Trading intraday leaves room to pick out moves in either direction. It’s too early to tell yet if this is the start of a major bull run in the Dollar. Checkout the EURUSD chart below:

After the rise since last August the current Dollar move might be no more than a healthy correction. The 12-day and 21-day moving averages have turned down, lending credibility to a change in trend. But the 100-day moving average has provided good support on the way up. The Dollar will have to break below that, at around $1.5150, and further support at $1.50 before traders take it too seriously.

At the moment I’m looking to sell rallies in EURUSD and GBPUSD, and keep my foot off the gas when I’m driving.

The New Zealand currency (the Kiwi) has had a torrid time over the past couple of months. Record interest rates of 8.25% have made the Kiwi a popular carry-trade for traders selling the Japanese Yen. But with high rates having a predictable slowdown effect on the economy attention’s now turning to when the central bank will start to cut rates. Last night a report showed that employment had dropped by the most in 19 years, bringing forward calls for a rate cut in the third quarter of the year.

Yesterday the NZDUSD rate ended a 3-day rally, which had fizzled out short of the downtrend line. As the price subsided it broke below the 21 and 100-day moving averages. “Why not?” I thought, “The currency looks decidedly last week’s fashion and it was a different way of backing the Dollar.” I was due to be working overnight on an article so would be able to keep an eye on my trade over the employment report.

As this bet was definitely in the novelty category, I decided to cut my size to a £2 bet, but with a wider stop loss. I sold at $0.7817 with a stop at $0.7860, just above the afternoon’s high. The overnight release of employment numbers saw the Kiwi plunge, allowing me to close off £1 at $0.7782. I must say that my writing came a distant second to watching the £ signs click up on my remaining bet.

I trailed my stop down with admirable restraint until it was eventually hit at 1.30 in the morning. The trade closed at $0.7735 for a total profit of £117 on a £2 bet. Lovely jubley, now about that article….

**********************************************************************************

After yesterday’s disaster in GBPUSD I needed to get straight back on the horse to get my confidence back. I was nervous of buying Sterling against the recent trend, preferring to wait for an opportunity to sell it. My chance came when it broke above support, but failed to hold it. I placed a £10 sell bet at $1.9585, with a stop order at $1.9605 and a limit order to buy back £5 at $1.9575.

The move down allowed me to lock in £50, bringing my stop down to breakeven. I set a further limit order to buy back £2 at $1.9565, but it wasn’t to be. There was little enthusiasm ahead of the two interest rate announcements and I was stopped out for a gain of £50.

Ah, now the ‘peeking down under’ theme has a sting in the tail. Not Britney, Paris or Jordan, but the Austrian national rugby team. After being hammered 48-0 by Lithuania they decided that, like Britney, Paris and Jordan, you don’t need to be talented to get noticed.

Happy Trading

Some people believe that sales of spirits is a good barometer of the global economy itself, so investors will be keen to hear whether the slowdown in the US economy is starting to adversely impact on Diageo’s turnover.

Last time the company reported in February, it suggested that particularly in the US people were drinking ‘less but better’. In that sales of ‘ordinary’ brands were slipping, but that ‘premium brands’ like Captain Morgan, Smirnoff and Johnnie Walker continued to experience decent growth, despite putting through price rises.

Geographic diversity is often championed by global brand companies, and Diageo is no different. Should sales slow in the developed world, then the group has exposure to many emerging markets where double digit sales growth should counter any modest slowdown in the major markets of the US and Europe. Latin America in particular has seen runaway growth in scotch sales, whilst in Africa, sales of Guinness have been strong aided by its reputation as ‘liquid Viagra’.

Not sure that I personally agree with this, but Mr. FT likes a drop of the black stuff and has 4 kids, so maybe there is something to it!

Market research data indicates that trading has remained relatively resilient in the US, whilst competitor Pernod-Ricard’s recent trading statement suggests that emerging markets continue to deliver strong growth. As a result, analysts expect Diageo to reiterate its 9% organic operating profit growth target for the full year on sales ahead by around 6%.

On Friday, in stark contrast to many of the other retailers HMV is expected to issue an upbeat pre-close trading statement. A particularly buoyant computer games market (Game Group’s recent full year figures showed like-for-like sales up 41.2%) is expected to offset the long term decline in CD music sales.

Analysts are looking for +8% like-for-like sales growth at HMV UK, a more modest +2% at bookstore Waterstone’s, whilst the international division is expected to show a small decline. There is a view that suggests that in the longer term, competition on the High St. (from the likes of Zavvi, formerly the Virgin retail chain) is likely to diminish, possibly leaving the field to just HMV.

The shares have put in a good run ahead of these numbers, partly as a result of a ’short squeeze’. For a while investors have thought that HMV’s days might be numbered in the long-term as competition from downloads and other internet offerings ate into its profitability. As a result they ’shorted’ the stock hoping to buy it back cheaper on ‘the inevitable’ profit warning. Except that there may not be a profit warning!!

If you are not sure about what ’shorting’ is all about have a look at the handy paddypowertrader.com tutorial here

Gossip suggests that ’short’ positions in HMV were among the largest in the retail sector with up to a third of the shares being sold short. However results from Game Group and the likelihood of a decent statement out of HMV has seen people scrambling to buy back the stock in recent days, just in case they surprise on the upside.

All of which could lead to an exaggerated price move on a decent trading statement.

Volatility-don’t you just love it!

This morning my screens greeted me with a chart of Sterling tanking off; by 7.15 it was already 80 pips from where I left it last night and by half-past nine the rate had dropped to $1.9550.

All this was because 1000 people were feeling a bit p*ssed off with life. Yes, the UK’s Nationwide Consumer Confidence index (where they survey 1000 people who’ve nothing better to do) produced a reading of 70, the lowest since it began in 2004.

And guess what? If the girl from Nationwide had popped round and asked me how I felt this morning she could have put another tick in the ‘p*ssed off’ box. Worse still, it was my own stupid fault for trying to catch falling pound notes.

I can’t argue my way out of this one; it was a classic case of ‘I’ve just made money, therefore I’m in tune with the market.’ Having already made £60 selling £2 of EURUSD I checked out the GBPUSD chart. It was looking massively oversold on the 10 and 30-minute charts, and besides, it had been trading in a range for yonks, with $1.96-1.9620 acting as good support.

As the price seemed to be steadying I jumped in with a £10 bet, buying at $1.9633. I placed my stop below the $1.96 support at $1.9595 to make doubly sure. But all I did was increase the loss, this market was going lower whether I liked it or not. I was stopped out at $1.9594 for a loss of £390. OUCH!

Hey, but on the plus side, I’m mighty glad I had a stop in place. Look at where the GBPUSD rate fell to!

Later on I sold EURUSD again, this time in a tenner. My limit order to buy back half my short worked fine, but I didn’t have anything in place for the next downward move. This move coincided with my downward move to grab a coffee, and by the time I’d had my caffeine fix the market had recovered and stopped me out for a gain of £169. Sum total of my day’s work is a loss of £180.

Still, at least the sun’s shining.

Note: Yep, I was being sensationalist about the effect of the Nationwide Survey. Much of the damage was done by overnight comments from a Fed speaker suggesting that rates in the US might have to rise to combat inflation. On top of that, both the UK manufacturing and industrial numbers were well below market expectations. Things aren’t getting better, but don’t tell the equity market.

Looks like there won’t be a housing crisis in Ireland for much longer. There’s going to be plenty of demand from workers migrating from the UK. Latest possibles in the queue to borrow the ferry timetable are Aberdeen Asset Management, BRIT Insurance and Smith & Nephew. I wonder if they’ve got any decent rugby players for Declan.

Happy Trading

“What!” I hear you cry, “you keep banging on about selling FTSE and it’s higher. And you said you’d turned bearish on the Euro, and that’s rallied to give you a selling opportunity as well. Get a grip man.”

Both valid points so here’s the case for the defence m’lord:

True, I don’t like equities at this level, but part of trading is listening to the market; on Friday I suggested that the FTSE chart had several bullish points. Today’s move (at the time of writing) hasn’t broken that picture. In fact, the retracement back to support/ resistance at 6150 might be a further buying opportunity. The trouble is, my hand starts shaking the nearer it gets to that ‘Buy’ button. Ideally, I’m looking for some help from tonight’s closing level; if 6150 holds, then I might try a small buy bet, but with a damned tight stop below 6145. If it closes below 6150, well it still needs to break the uptrend, which is roundabout 6110-15 (depending on how thick your nib is).

My defence for not trading the Euro also follows the ‘wait and see’ plea, but with a slightly different slant to it. Since April 22nd the EURUSD rate has dumped by 650 pips, though it’s now nearly 200 pips off the bottom. In last week’s Reasons To Be Cheerful, One Two, Three-NOT I said that I’d really like a move higher to test $1.5730, but that I might be tempted if it failed to break $1.55. After breaking the $1.55 level I’m watching the rise towards $1.5610. Fibonacci’s bonking bunnies reckon that’s close to a significant 38% retracement of the recent top to bottom. At the moment the rate is $1.5590, and looking a bit overbought on the 30-minute chart. But if the 38% retracement level breaks there could be a push up towards $1.5690, so I’d rather wait for a while.

Yep, the chart shows I could have bought the Euro for a nice little rally, but it looks a bit against the trend so I’m going to be patient.

And yes, I was stopped out of my Alliance & Leicester short, all the way back at the 530p breakeven level. This happened during Friday’s rally, just a day after the shares were languishing at 506p!
The only position I’m running at the moment is a £1 short in Barclays, which is showing an £18 profit.

How stupid does the boss of Yahoo look now? After weeks of refusing to talk to Microsoft (a move which led Microsoft to raise a couple of fingers and walk into the sunset) he said he’s happy to talk really and was only playing hard to get. What a wally!

Happy Trading