Spread Betting Opportunities

Monday 21 April, 2008

This edition of Spread Betting Opportunities assesses the outlook for a number of equity market indices in the light of recent moves.

Short term outlook for the Dow Jones Industrial Average

The Dow’s gain of 228.87 points in Friday’s session took the total gains for last week to 523.94 (4.25%). Importantly, Friday’s move took the index beyond the 12800 immediate price target area highlighted in the latest edition of the Market Timing Update, yielding a substantial profit as we highlighted the upside target a few days ago when the index was retesting price support just below the 12300 depicted by that trailing red line in the chart below.

The chart of the Dow Jones as at the end of trading on Monday 21 April is presented below:

spread betting ftse 100 stocks

That move was crucial, as that area had presented strong price resistance on several occasions in the past, in early January, early February, in late March and once again in early April (as you can see by simply looking at the turning points in the chart above over the past few months).

Taken at face value, last week’s successful test of support and the eventual break of key resistance following the bounce into the end of the week would mean that the longer term outlook has now improved remarkably and we should eventually see a few hundred points more of price gains in the Dow over the coming weeks.

Indeed, that remains the more likely scenario—but there is an important caveat...a question of underlying market breadth...

The chart of the S&P500 index as at the end of trading on Monday 21 April is presented below:

spread betting S&P500 INDEX

Since we are trying to identify the strength of the underlying bullish momentum in equity market indices, it helps to look at the bellwether Standard and Poor’s Composite. Hence, the role of the S&P analysis in this context is as an indicator of broader market breadth and depth of the ongoing bullish momentum.

It is evident from this chart that the crucial piece of chart pattern is the presence of a long-running price resistance around the 1400 price level.

The key conclusion that can be drawn from the price action in the S&P 500 index is that a continuation of the recent rally depends crucially on the ability of bulls to take the index beyond 1400. Indeed, price failure at this level would see the index trade back to at least 1325—if not much lower. A move below 1354 would be a strong signal of such price failure. Further confirmation of a breakdown would come at a breach of the price support area just above 1340.

So where does this leave the ongoing relative strength in the technical picture of the Dow Jones Industrial Average?......(continues below)

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Bottom-line: Dow Jones

So long as the index can hold support at 12800, the immediate upside spread betting target now appears to be 12970–13100. While price momentum among the large cap Dow stocks is clearly bullish and the technical evidence, on balance, (for now) continues to favour long positions, the wider market is still lagging behind as indicated by the ongoing inability of the S&P500 to get past the 1400 price resistance area to date. The move above 12800 may well be a false break!

Dow price support levels to watch: 12800–12750; 12695–12680
Dow price resistance levels to watch: 12970–13100; 13380–13400

BONUS ANALYSIS: Short term outlook for the FTSE 100

The chart of the Footsie as at the end of trading on Monday 21 April is presented below:

spread betting ftse 100 index

Adding the 70.9 point-gain on Friday, the FTSE 100 gained a total of 155.8 points over the last week.

As a point of comparison, it is worth highlighting that while the Dow has now crossed its long-running price resistance line at 12800, the FTSE100 has not quite achieved the technically equivalent feat yet. Instead, once again, on Monday 22 April, we saw the Footsie stutter on approaching that crucial price resistance area around 6100.

As things stand, only a successful break of that price resistance area would justify new long spread betting positions in the FTSE100. In that scenario, a successful breach of resistance would herald a move to around 6200–6220 in the immediate instance.

However, the omen is not good. Consequently, spreadbet traders would do well to watch for any break of immediate price support currently at 5970.

Bottom-line: FTSE100

Upside momentum in the Footsie appears to be dissipating fast! Watch out for a price breakdown. A move below 5970 is likely to result in a decline to 5840 as downside target. Below there, the index could drop to retest recent swing lows.

FTSE 100 price support levels to watch: 5970; 5820–5840
FTSE 100 price resistance levels to watch: 6100; 6220.

Overall, the major equity indices stand poised at crucial price pivot areas. A decisive move either way is imminent. Conservative trader should beware the warning signs.


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