Spread betting shares and equity indices
Guide to spread betting shares and equity indices in the weeks ahead
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The Rally that Beggars Belief
In spread betting equities, 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 spread bet 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. That is what effective spread betting analysis is all about.
A few weeks ago, I presented an analysis showing profitable opportunities for those interested in spread betting equities.
At the time, the S&P 500 index was at 951.13 and I concluded the analysis by stating that “an upside breakout on strong volume should see the Standard and Poor’s S&P 500 index hit 1000–1060 in the medium term, and potentially 1200–1250 in the longer term.”
That was on the 20th of July 2009. Fast-forward a few weeks and the index is now trading at 1030.98—8.4% higher. For those who trade the other equity markets, here are the gains since my long equities trade:
Spread betting shares: Dow Jones
Entry price: 8848.15
Latest close: 9580.63
Spread betting profit: over 732 spread betting points in 5 weeks!
Spread betting shares: FTSE 100 index
Entry price: 4443.62
Latest close: 4869.35
Spread betting profit: over 425 spread betting points in 5 weeks!
Spread betting shares: German DAX index
Entry price: 5030.15
Latest close: 5470.33
Spread betting profit: over 440 spread betting points in 5 weeks!
Spread betting shares: the path ahead
As the chart below shows, the rally in equities continues…
Even if your interest is solely spread betting shares, you would have noticed that at the same time that the stock markets have been flying higher, the major commodity markets have been equally buoyant. The chart below shows the strong uptrend in crude oil.
The joint rally in individual shares (and broad market indices) and commodities makes sense and is consistent with fundamental expectations. Indeed, one could argue that the gains in the stock market and commodities have been driven by the same underlying rationale: the belief that the global economy is on the path to recovery.
Spread betting shares: downside risks looming
The final chart in this piece shows the trend in yields on US 10-year Treasuries (US government bonds).
As bond yields rise, bond rises fall.
Typically, as equity markets rise, bond prices fall (bond yields rise). Indeed, this would be typical reaction as the economy pulls out of a recession and embarks on the path to recovery. Everything seemed fine until a about a couple of weeks ago…
Having reached 3.89 per cent in early August, bond yields have fallen to about 3.46 per cent over the past two weeks. The decline raises a number of questions and potentially sounds a warning bell to equity market investors.
Explaining the Bond Market Rally
What are we to make of these recent developments?
One possible explanation is that the recent decline in bond yields (rally in bond prices) reflects the view point that the rally in equities has been overdone and the current levels represent a sugar high that will soon turn sour. The economic argument for this line of reasoning would be that the much-lauded green shoots of economic recovery are simply driven by the need for corporations to balance short term inventory levels following the massive inventory drawdown of recent months.
In contrast to the arguments above which are inspired by macroeconomic assessment, a technically driven explanation can be made for the recent rally in bond prices. Equity market history provides strong evidence of seasonality in returns. In particular, the period between September and October has tended to be pretty miserable for the major stock markets. As August draws to an end, it makes sense that adherents to stock market seasonality should start to fret about short term over-bought stock market conditions.
Spread betting shares: the bottom-line
For those who are into short term spread betting, your focus should be solely on trading in line with the prevailing, primary trend. A fundamental premise of technical analysis is that a trend, once established is presumed to remain in place until sufficient technical evidence emerges to indicate otherwise.
Nevertheless, given the run-up that we have seen in equity prices, it makes a lot of sense for those in medium-term long positions to have appropriate exit strategies in place now. Keep an eye on key price support levels and keep the discipline of using adequately-placed stop losses at all times.
Best way to start spread betting shares? Come along to our spread betting training course.
Whether your interests lie in Spread betting shares, spread betting foerx or any other financial market instrument, this course is designed for developing the required skills to actually make money from spread betting.
The trading workshop is specifically for spread betters interested in identifying the precise moment to enter and exit trading positions in any financial market. The course involves a lot of practical examples and case study exercises designed to take you from a complete novice to highly skilled spread bet trader in easy steps.
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