Trading2k.com Financial spread betting blog

When is a good time to buy BP shares?

admin — Mon, 21 Jun 2010 15:07:51 +0000

There is potential to exploit every disaster for financial gain. The catastrophic failings of BP recently have pummeled their share price and left it down 40%. The British oil giant has said that the costs have already reached $2 billion for the botched cleanup and additionally 100,000 barrels a day are reported to be leaking. Weekend reports also stated that the company could be trying to raise up to $50 billion in asset sales.

Meanwhile Tony Hayward is getting his life back together and enjoying some weekend yacht races. This hasn’t gone down well and his handling of the PR side of things has been “How Not To” guide book. This hasn’t helped BPs share price and his lack of remorse and sincerity has badly damaged the companies reputation. In a last minute attempt to salvage what’s left of their reputation SkyNews reported that Tony Hayward will lose control of the company’s operations and that Bob Dudley will now take over.

The market fear is that if the oil is accelerating then any attempts to cap or drain will fail due to the technology being overwhelmed. This may mean that any spin by the Obama government and BP could backfire on both parties. In the worst case scenario the oil could potentially move up the Eastern seaboard and whilst BPs pockets are deep they are not that deep.

So with all this in mind is now a good time to buy BP shares and how much bad news is factored into the price. It ultimately depends on their stopping the leak. Any litigation will go on for years and people forget quite quickly. The ultimate settlement costs may not be that bad. Take the tobacco industries payouts for example which went on for years but they all survived and thrived.

If the leak is fixed within the next two months you could see the share price potentially rise by 20%. On the flip side if the leak goes on and the volume of oil increases this could have drastic effects for the clean up and compensation bills. Already figures of 100 billion are being thrown around. If this is the case then another 20% could be shaved off the share price.

Personally I intend buying shares in BP but will hold out till the news gets a little better. The company seems to be taking a more proactive PR approach and is now enacting damage limitation. A more offensive tactic from BP would I feel assure shareholders that there is something to invest in. With the other companies involved clearly blaming BP it will be interesting to see how long BP allows themselves to be the sacrificial lamb?

Earnings season and market expectations

admin — Mon, 12 Apr 2010 14:21:02 +0000

I guess that it has been quite a while since my last post. March has come and gone and my December forecasts of a step down in March were well off. In fact the opposite has happened which is normal according to sod’s law.

I’m just going to note some of my observations and what I have been following for the past few months. Banks have been of a keen interest to me with Allied Irish Banks and Bank Of Ireland offering more than a roller coaster ride for those who can stay up with the upgrades, downgrades and rumours. Approximately two weeks ago AIB were down at .90 cents and I have been very disciplined in entry points with .80 cent being my target. I don’t believe for a second that we have seen the last of the bad news and this would be a short term trade. However I missed the boat as .90 was the low and we are now back at over 1.50 with a recent dip but renewed strength. Short term outlook is very positive for the stock but long term I see renewed weakness.

Other notable stocks, well lets face it everything has goon to the moon. Take the tech sector with Apple (AAPL) storming through 240.00 and set for 250.00. Google also back on track and realistically there are very few stocks off with most making new highs. It seems the lessons of yesterday have been firmly learnt and we are now rallying on stellar growth.

So I guess all good news. For the most part I think there has been staggering progress made in stabilising the worlds economy. Just take a look at the VIX the volatility indicator, its practically asleep at 10 month lows. This either signals complacency or complacency.

With all the major indices reaching new highs today its hard to see a sustained push higher. My reasons for saying this are that as the new earnings season kicks off the expectations may be priced in. So this leaves us in the precarious position of managing market expectations. What will happen if profits meet expectations but fail to beat them? In this scenario we could drop lower. On the other hand what will happen if stocks fail to meet the huge expectations now set? This is my fear and this is why I am currently neutral and staying on the sidelines.

I could be completely wrong (again) but with companies like Wal-Mart slashing costs on thousands of products has the consumer really gained back the confidence to push sales higher. A secondary factor is that most companies have shed thousands of jobs and they are now lean but how lean can they go? There is a point where you can’t cut anymore and I believe most companies have reached that point.

With the FTSE 100 now touching 5,800 my expectation is a cautious rise to 6,000 followed by a modest pull back to 5,800 and a more severe pull back to 5,500. These are only observations and I haven’t a trading plan to back this up. I have cash waiting to acquire shares with a long term view but at current levels I don’t see much value out there.

I hope you have all prospered during the rally or kept losses low. The next few weeks will be interesting as reporting season swings into play. With UK politics heating up its interesting to see the economic initiatives from the two main parties. Recent trade pressures by the US aimed at China are also worth observing along with the European handling of Greece. All in all its an interesting geopolitical scene but from a trading point of view markets are very muted. With less and less volatility it has become harder to trade short term but again these things go in cycles and another bout of volatility is sure to be around the next corner.

Happy Trading

Merry Christmas and Happy Trading in 2010

admin — Tue, 15 Dec 2009 11:06:53 +0000

I’m away for the Christmas holidays and looking forward to the break. I haven’t traded recently and have no intention of doing so until the New Year. My supposition is still that after a Christmas rally which could take the FTSE 100 to 5,500 there will be a slow down in January and cliff dive in March 2010 (4,500 FTSE100).

The fundamentals still don’t add up and once the Christmas spirit has worn off the hangover could start to kick in. Many will say this is just the perma-bear in me but I have been patiently following the markets recently and waiting for my entry. The FTSE 100 has been struggling at these heights and whilst there are good indicators my common sense approach i.e. what I see in the shops tells me that year end isn’t going to see stellar growth and usher in a new wave of spending.

I believe my initial assumptions that consumers having enough and would spend to relive stress was wrong. Consumers seem more entrenched and more cost sensitive than ever. In the New Year various schemes helping the consumer run out and this could reveal further stress in the retail space.

In saying all this I will not be trading on this until I see the signs of a reversal and don’t believe this will happen any time soon. I’m going to enjoy time off this Christmas and look forward to what will hopefully be a good year trading in 2010. Best of luck to all and Merry Christmas.

Trading Is Easy – Buy Gold, Sell Dollar, Buy Equities Easy!

admin — Mon, 16 Nov 2009 11:39:29 +0000

Fundamentals have been thrown out the window and technical analysis over the past few months have been at best a frustrating black art. With the dollar being hammered left, right and centre gold has raced past the $1,000 mark and is now steaming ahead with very little resistance.

The gold play seems to be re-enforcing the systematic devaluation of the dollar and as the dollar drops equity risk taking rises. This seems to be the stable and reliable trade till the year end. With inflationary pressures under way and China urging the US to increase rates the FED are in a tough spot. Jobless figures have eased but not to the extend that an improvement can be measured or to the extent that job creation is on the cards.

As the FED prints its way out of the crisis the risk highlighted by the Chinese of artificially creating bubbles becomes a more probable reality. With the jobless figures next year being such an unknown the FED can’t be seen to be overly hawkish but with runaway share prices and commodities the “stronger dollar” mantra has little credence as rates will have to stay low as the risk of further job losses are to high.

The probability of an 11% unemployment rate in the US is one that was regarded as outlandish a few months ago but now seems quite plausible. Once this rate is reached the realisation that a lot of these jobs in construction and financials are gone forever will hit home. Unless stimulus is re-injected we could have an unemployment rate of 11% till 1012 and beyond. In this environment it will be hard to avoid a double dip and the resurgence of the recession.

However that far away in 2010 and we are still in the fairyland utopia of 2009 where everything is attractive, bulls are sexy and bears are on the endangered spices list. Aside from a dollar rally and collapse in gold equities will stay strong into January 2009.

A lot of analysts are apprehensive about the beginning of 2010 but as we have learnt what everyone expects rarely happens. Markets will cause maximum frustration for the maximum amount of participants which could prolong the rally into February 2010. Seeing the FTSE 100 at 5,500 is not unrealistic and a correction of 20% to 4,500 is also not unrealistic. For now though the safe trade is buy gold, sell dollar and buy equities. It couldn’t be easier.

Economic Outlook And Recession Fears For 2010

admin — Mon, 09 Nov 2009 12:33:57 +0000

There has been a huge amount of speculation over the end of the recession and the V shaped recovery that may ensue. The apprehension in the market comes from the uncertainty of the fourth quarter this year and how the Christmas shopping season will pan out. From my vantage point I see what could be the basis of a good recovery but then a set of figures comes out like the US monthly consumer credit report which adds to the doubt in my mind. I can’t balance the equation of rising unemployment, consumer retrenchment with rising corporate profits and runaway equity prices.

I think the resilience of the consumer is something that can’t be underestimated. The fact that consumers have been enduring economic turmoil for over a year now may also create the need for an emotional break in for form of splurging at Christmas. For this reason I think spending will hold up into the shopping season and whilst consumers are savvier and shrewder I believe that most will let their hair down over the holiday period and ignore the perils till next year.

This leads us nicely into next year where I believe that the reality of the current situation will reveal itself. Companies have been slashing costs, staff and anything that isn’t core to the running operations but this tactic only goes so far. With funding still a problem for most small businesses I believe next year will spell the beginning of another round of large jobless numbers. With this comes the problem for the US administration who have used up their congress good will and may find it hard returning for more stimulus.

The central goal achieved by the stimulus was a shot in the arm of a cardiac patient who has stabilised and shows signs of recovery but another episode could easily occur if the underlying problem is not addressed. The Administrations states its stimulus has created close to 700,000 jobs although this is heavily challenged by the sceptics. The fear is that there is no central program for job creation. It’s past the point of no return for the Administration and their hopes rely on the consumer who is in a fragile state.

I believe once we are past the Christmas period analysts will scurry to increase estimates for corporate growth which will lead to an unattainable goal for the consumer who ultimately entrenches following a harsh January where the bills flood in. My opinion is that once March arrives dire numbers will be reported and a return to reality will dawn.

Some of this is reflected in the price of gold which has risen above $1,100 showing the level of mistrust the market has. Whilst larger companies have been using the past six months to optimise performance a lot of smaller companies have been struggling to keep the doors open. Another blow to small business could result in a sizable increase to the unemployment numbers which the Administration has no plan to address. Unemployment could rise to 12% or in real terms accounting for all those who gave up or are off the list could be as high as 17% by the second half of next year. With those types of figures any talk of a V shaped recovery will reveal that the current rally was a great run but no bull.

I have been sitting on cash for months now and whilst I have missed some amazing opportunities which I do regret I don’t think the last buying opportunity is over. At this stage another 5% to 10% upside is possible but many stocks are pushing their 52 week ranges and at these prices I don’t see much value over the long term. However if you are a short term trader 10% is still nice to have and a Christmas rally is a high probability in my opinion.

Safe trading and keep your losses small.

Why I Am Not Trading At The Moment

admin — Thu, 29 Oct 2009 09:58:44 +0000

It’s been a few months since I last traded and the reasons are many. The reason I still haven’t traded is one of time and confidence. On the time front I have a heavy workload and a fantastic newborn son to play with. Both of these are keeping me for giving a 100% to my market analysis but I’m not complaining. This time away has taught me more about relaxing, patience timing and the markets ability to surprise. It’s been time well spent.

The reasons for not trading over the past few months are mostly connected to me blowing my account, adding to losses and breaking every rule there ever was. It has been a humbling, frightening and nervous period which I will explore at length in a series of articles I want to write on the reality of trading. The series will be entitled “The psychological anatomy of a losing trade” and hopefully I will get some time to sit down over the Christmas period and document the six months that the saga went on for. With the series I want to try and get away from the typical analysis and have a more thorough look at the emotional implications of how emotion can override logical reasoning.

My account is now a shadow of its former self but instead of trying to get it back I will be concentrating of gaining 2 points per trade. Improve my trading and establish key rules and behaviours that over time will become second nature thus removing the emotional ties. This is of course very logical and seems to be the way to go but needs a lot of time. I’m just interested in becoming a good trader and gaining discipline, insight and collected logic to allow me to eventually make money from the markets but I realise this is a long term project.

To anyone else who lost out in the greatest rally in 70 years hopefully you haven’t given up and hopefully we can better ourselves and gain a greater personal insight.

Quarterly Results & The October Rally

admin — Mon, 19 Oct 2009 10:50:08 +0000

I am getting back into the daily news and trying to get my focus back on the markets. It’s another earnings season and with that we can expect some good beats and some scary misses. The interesting thing will be if we can push the markets higher or sink back lower when all is said and done. Personally I think we will escape flat to slightly higher once the earnings are over and this will leave us time for a nice Christmas rally. Yeah I’m already thinking of the Christmas rally. Every year it has taken me for a ride but maybe this year I should sit it out and save some cash.

The rally so far has taken on many new subscribers with me included. Many of the perma-bears have shed their coat and are now wearing a nice new
bull skin. I had thought that the fundamentals would have put the breaks on the markets but then lots of little things kept improving. This morning is a case in point as UK house prices rise for the first time in 16 months. All this little signs have fed the most amazing and unprecedented rally in recent history. Hindsight has clearly shown us that the March lows were very oversold but the current pricing in of growth is in my humble opinion overly exuberant. Somewhere in between these two extremes lies the perfect market price. However that’s not my concern, in the past this would have swayed my view but now I’m just watching the trend and not questioning the greed.

There are a few things that do concern me going forward which is why I am now extremely cautious. The increasing chatter on exit strategies and the awkward bond between China and the US is of cause for concern. It’s no coincidence that president Obama is the first president to deny a meeting with the Dalai Lama. China needs to keep buying US bonds and the US needs to keep printing money but this is not an indefinite exercise and eventually someone will have to play their hand. The notion of the US defaulting is preposterous and will never happen but the notion that China may tighten its terms and conditions crippling the US for generations to come is not. In such a scenario China could make the terms of payment so sever that the US will essentially be at its mercy economically and monetarily. This is something that concerns me and until we have a clear notion of how the United States is intending to pay back the trillion dollars and mounting deficit I will remain concerned.

My second fear is not a new one but an old one that has yet to materialise. A few months ago when some people were convincing me property was now a good bet I maintained that it would go lower and then spike higher would happen only to lead to a bigger drop in prices. This is the classic bull trap as prices reach a level that people are willing to pay and those waiting on the sidelines start to trickle back. The only problem with this spike is unemployment. In Ireland it is starting to show signs of stabilising but I believe growth is a long road and with the car being repossessed walking that road is going to take time. This is why I believe this is a false dawn in the property market. New legislation in the UK placing the responsibility of the mortgage on the mortgage provider. Spending on shoes, clothes and childcare could also be assessed under a new, industry-wide “affordability test”. These new measures will make it harder to get money and with the risk of unemployment it will be interesting to see how willing the banks are to dish out new loans.

With this fear is also the prospect of continuing defaults in the commercial property markets and escalating defaults in the private sector too. Evidence of consumer saving patterns showing excessive savings signals an uneasy and apprehensive customer who is uncertain and unwilling to part with their cash. Until this is corrected it will be hard to see consumers rushing back to the shops and maybe a seismic shift has occurred leading to the majority of consumers living within their means.

Lastly and back to my opening remarks we have a new earnings season afoot with high expectations. I think we will get through this as companies have continued to trim the fat but with no fat left and winter approaching how are some of these companies going to weather the long and cold nights ahead. I believe the next point to note is next March when the true picture will be revealed one where earnings are not as great as greed desires and traders seek new pastures for riper pickings. My assumptions maybe wrong and we may be fine but looking at 52 week highs on 50 companies I monitor they are all pushing that upper range and considering we are still in the woods this is optimistic.

Since bottoming at a 12-year low March 9, the S&P 500 has rallied nearly 61% and the Dow has rallied nearly 53%. According to Thomson Reuters, 79% of the companies that have reported results have beat on earnings and 61% have beat on revenue. This week I will be looking at Apple, Microsoft, Coca-Cola, Yahoo, Wells Fargo, Amazon and eBay. The tech giants will be an indicator of the consumer’s mood and with Microsoft launching Windows 7 it will be interesting to see what traders make of their results and forecasts.

Safe trading and keep your losses small.

New Financial Spread Betting Site Live

New Financial Spread Betting Site Live

admin — Thu, 08 Oct 2009 15:40:04 +0000

And finally I have the new site design live after what seems like forever. The new site is broken into a few new sections which should make it easier to get around. The Trade Diary will have my views and opinions on current market news whilst the Trade History will document my trading patterns.

A new Spread Betting section will document my trials and tribulations as I try and become a successful trader. This section is more of a cathartic look at my failing and insights on how to remedy those. It should prove beneficial to beginner traders and those looking to learn from my mistakes. Finally the Book Reviews are self explanatory. I hope you like the new design and I’m looking forward to getting back into the markets after a long break. All feedback is more than welcome.

Welcome to the new Spread Betting Category

admin — Thu, 08 Oct 2009 15:37:54 +0000

Welcome to the new Spread Betting category which seeks to explain why I have been away for an extended period. The purpose of this new section is to work through the mistakes I have made in order to learn from them in an attempt not to repeat them. Hopefully this will help me by exploring the though process of some of the catastrophic decisions I have made and hopefully it will help those reading to not make the same mistakes.

I want to try and explore the psychology of trading and the impact emotion has on fear and greed. I want to take a detailed look at how trading affects you emotionally and physically in order to understand how to control the emotional and irrational side of trading. I know these things have been explored in depth by qualified traders but considering 90% of spread bettors fail I think an ordinary punters view and experience may help others starting out. Over the next few weeks I will start a series of articles tracing my last trades and the progressively deteriorating decisions I made. I’m looking forward to the whole experience and hopefully it will help me regain my confidence and bring me closer to being a more focused and determined trader.

The Age Of Turbulence By Alan Greenspan

admin — Wed, 07 Oct 2009 19:06:09 +0000

This book doesn’t quite fit the whole spread betting theme but it does provide a fascinating insight into the mind of a gifted and inspired visionary. Now I know Alan Greenspan is getting a bit of a hard time lately being branded the scapegoat for the subprime crisis. However this man presided over the financial system of the United States through some of the most problematic periods in economic history. His legacy may now be slightly blemished but his wisdom and insight are as valuable now as they were then.

The book leads you through his life from his earlier years in a nostalgic and eloquent manner as you might expect. It is a personal memoir that makes you feel a part of it, giving you the sense that he is speaking to you over a whiskey by the fire. This tone is carried through the first half of the book as he discusses his love of numbers and music. An endearing tale of a man who had strong personal values and a firm belief in himself which is what led him through his earlier years.

He discusses global politics and his relationship with the presidents of the day. His relationship with George Bush was a trying one but he also has fond memories of better days. Personal relationships with his mother and wife, Andrea Mitchell, keep the book from becoming too impersonal and lend a human sensibility to his personality.

The later part of the book discusses his views on geopolitical matters and the rise of various regions around the world. He discusses the challenges and opportunities that will be faced by the United States and the world at large and analyses these matters in a thoughtful and compelling way.

This was a great insight into a man I respect and continue to respect for his global achievements. A better understanding of economics would have benefited me through the latter half of the book but none the less an intelligent and insightful read.