Spread Betting Opportunities: September 1, 2008





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Monday September 1, 2008


This edition of Spread Betting Opportunities gives a whirl-wind tour of the financial markets and assess the outlook for the Dow Jones Industrial Average, the FTSE 100 index and the Cable in the sessions and weeks ahead.

EQUITY MARKETS: Short Term Outlook for the Dow


spread betting dow jones financial market

In the last edition of the Market Timing Update (MTU), I noted the potential for a renewed move higher in the major equity indices. I noted that the evidence signalled a renewed effort on the part of the bulls to retest the recent price high at 11867. However, I also warned that the downside to the bullish case was that bullish volume had been very weak during the preceding week—which was indicative of potential underlying selling pressure which could bring the rally to a premature end. The decline in overall trading volume is evident from the chart above (See how the heights of the coloured bars at the bottom of the chart have fallen since early August).

For the disciplined, conservative trader, there is as yet no clear 'sell' signal from a technical perspective. However, a move below the 11520 price support area (the first highlighted in the support-resistance table of the last MTU) is likely to result in a test of 11450–11400 support. Breaches below there will see 11280–11200 quickly hit to the downside.

Bottom-line:
The rally has been undermined by the lack of a pick-up in bullish volume which was the caveat provided in the last Update. Indeed, that same evidence suggests further downside on the way for the Dow Jones and we expect the equity markets to come under selling pressure over the next few weeks.

Key short term support levels to watch for: 11520; 11450-11400; 11280–11200;
Key short term resistance levels to watch for: 11720; 11830–11867; 11960–12000.

As things unfold, more time-sensitive analysis would be presented in the Market Timing Update which is mailed out twice each week to active traders.


Short Term Outlook for the FTSE 100


spread betting spread betting ftse 100 financial market

In the last Market Timing Update, I stated that the move above the upper band of the short term price resistance area denoted by the red line in the chart above (around 5500 at the time) indicated that the Footsie should get further upside momentum that should take it to the next price target around 5570–5600.

The gain of 35.4 points on Friday ensured a close at 5636.6 for the index, thus hitting and exceeding our upside price target. Overall, the Footsie was up about 131 points for the week.

As things stand, the picture is rather mixed. This is because when viewed in isolation, the FTSE 100 index remains technically bullish. However, historical analysis of equity market returns clearly demonstrates that correlation across markets increases dramatically during market downturns. Consequently, given the bearish outlook outlined in the analysis of the Dow above, the outlook for the UK must be tarred with an equally bearish brush!

Bottom-line:
Conservative traders should consider exiting long positions ASAP. A move below 5600 could signal a drop back to 5465–5420. Below there, 5300–5280 would be next downside target.

Key short term support levels to watch for: 5465–5420; 5300–5280; 5150–5100;
Key short term resistance levels to watch for: 5650–5680; 5735–5750.

As things unfold, more time-sensitive analysis would be presented in the Market Timing Update which is mailed out twice each week to active traders.


CURRENCY MARKETS: Short Term Outlook for the Cable ($/£)


spread betting dollar cable british pounds

Subscribers will remember that in the last couple of editions of the MTU, I warned that the implication of the technical evidence in the Cable was that the recent bearish decline would continue. Following a small bounce towards $1.88, I concluded the last analysis of the Cable by stating that “we remain short and expect further declines as the Cable falls to price support. The next major price support/downside target is now $1.8250.” That target was reached at the end of last week.

Changing technical conditions and emerging market evidence mean that we must now reassess out bearish view—at least from the short term trading perspective which is of primary interest to us as spread bet traders.

Underlying technical evidence is now indicative of a price extension (or ‘technically over-bought’ condition) in the USD which should see the Dollar give up some of its recent gains across the major currency crosses including the Cable. This, however, does not detract from the fact that the Cable is in a short-medium term downtrend. Consequently, a bounce—if it occurs at all—is likely to present further short selling opportunities.

Bottom-line:
A bounce in the Cable could see it move to around $1.8460–$1.8520. But the dominant element in the Cable chart is the ongoing bear trend. Therefore, the best call is to remain short but with tighter stop losses in order to guard against any bounce.

Key short term support levels to watch for: $1.8200; $1.8090; $1.7780
Key short term resistance levels to watch for: $1.8460–$1.8520; $1.8820–$1.8990; $1.9180.

Keep an eye out for the next edition. FREE, insightful analysis to make you money.

P.S: It is very easy to make a bullish call when the market is in full upswing, or to claim to be a bear when the downtrend is crystal clear for even the novice trader to see! What is difficult (and consequently much more profitable) is to go against the grain, to defy the consensus view and make a bold call—and to be proven correct, time and time again.

This is what the market timing Update is about.
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