Harry Hindsight

If in doubt make it up

My one abiding thought this week has been what the hell am I doing back in this country. I could still be in sunny Mallorca rather than in a cold Britain which seems to get colder every time our "beloved" chancellor Gordon the Grinch advocates throwing even more of our wonga down the bottomless pit of our public services.

Today the financial press are all trying to explain yesterday's somewhat manic movements in the Forex markets where the dollar received a good old fashion kicking. The consensus seems to be that the dollar fell due to a rumour of a report which was to advocate both a weaker dollar, and then either in the same report or perhaps another one that Europe could quite happily live with a strong currency. As usual this is all a load of rubbish and is an classic example of how commentators and traders make up story to explain a move. Much of the Forex market turnover is derivatives based and unlike the futures market Forex has an options expiry every day at 3.00 pm UK time. Accordingly many large movements occur around 3.00 o'clock as FX options market makers will often get left with large positions. Yesterday afternoon some large options trades to sell dollars went through and the banks that "sold" or "wrote" the options had to go in the market and sell dollars. They started at around 1.1450 on the Euro/USD. 1.1525/35 was a major resistance level and there was another resistance just behind at 1.1550. Accordingly there were large stop loss orders in the market just above these levels which when triggered sent the dollar even lower. This shows how important it is to know where the stops in the market are and not to pay much attention to the media.

Another thing traders shouldn't pay too much attention to is the Dow Jones Industrial Average. It is always surprising to me how many people do not realise that this is not an index and it has some peculiarities that mean fund managers do not touch it with a barge pole. An imminent stock split in one of its 30 constituents is about to highlight just how peculiar it is. Currently the "biggest" company in the DJIA is 3M. 3M I hear you say? Harry must be mad, it is only a third of the size in terms of capitalisation of fellow member Intel. There lies the rub. The Dow is a dollar average if 3M goes up a dollar and Intel goes down a dollar then the Dow does not move. 3M is currently at $140 so it is actually quite easy for it to move a buck whereas a similar move from Intel ($28) is far greater in terms of capitalisation. Shortly 3M will be splitting its shares so rather than being priced at $140 they will be priced at $70 and whereas a 1% move would account for a 10 point move in the Dow it will soon only account for a 5 pip move. This my friends is why all the hedge funds and myself stick to the S&P 500 and sometimes the Nasdaq, trust me it's a lot less confusing and much easier to read on the charts.

I have wittered on enough so I will hold my rants over to tomorrow so if you want to hear my latest musings on MoneyAM, who seem to have removed me from their subscription list but have failed to remove Potter, Teehee, and about the fun and games I had on my return with Easyjet then I shall see you tomorrow.

Harry

Harry on Hols

Greetings from Casa del Harry where the sun is scorching and high across the yard-arm. Even when on holiday your intrepid market commentator is on the case; and no not a case of beer, well not just yet. As ever the markets have decided to take my absence as a signal to go ballistic and the bulls have been well and truly squeezed. We have been playing the long side of the S&P since 809 and the moves of this week could quite conceivably signal that the bull trend has ended. I will however not be rushing into any exposed positions either way and setting our euro sterling position aside we will now look to go to a balanced book structure over the next week. For the members there is a detailed description of this in the FAQ area of the members website.

It is a shame I do not have a copy of my favourite market book out here, Reminiscences Of a Stock Operator, as there are a couple of quotes from there I would like to use. I will therefore have to paraphrase them as I think they are pertinent.The first one is that it is the first and last eighths of a position that are the most costly and the second is that no trader find a good enough reason to trade every day. As many members have said to me, apart from cutting losses quickly, the most important lesson they have learned from us is learning when not to trade. It is hard to pick tops and bottoms in trends. Though I feel we are a few months early for the resumption of the long term bear market it will be the market and not us that decides that. The S&P is below 1000 as I write this and though Potter is the expert on this I would surmise that we are not far from significant downside breakout levels. As ever though keep an eye on that SOX, it has over the last two years been the most reliable indicator for equity markets.

I am now off to balance my book: long san Miguel and Tapas, short stress and I might even buy an option for a siesta for 3.00pm

Holiday Harry

Contra-Indicators

As predicted last week the weekends G7, G8, G9.5 or whatever else they now call it has led to all sorts of fun and games overnight and this morning. Our decision to take some profit in the S&P on Friday proved prescient as the overnight dollar sell off caused uncertainty amongst bond and equity traders.Certain UK Spreadbet Houses managed to outdo themselves this morning when calling for the FTSE 100 to rise this morning. Quite how they could expect this when the Nikkei was down 5% and the US futures were lower I don't know but then they are glorified telephonists regardless of the titles they give themselves.

So what now then? No doubt we will have a bunch of commentators now re-iterating their view for a substantially lower dollar, especially against the Yen however it should be noted that neither japan nor the US wants a rapid dollar devaluation. To the Japanese more than 2 Yen a week is rapid and as we have seen a move of over 4 yen since Friday further BOJ intervention should be expected. This will ensure that Forex markets remain nervous and therefore volatile; just how we like them!

The equity markets should be interesting this week. Last weeks S&P weekly close above 1033 was important. Though we are currently below that in the futures market and may well close below that level tonight I have a feeling that US mutual and hedge funds will use a dip as an opportunity to buy equities. An orderly dollar weakness will not only improve the US current account deficit but improve the profit figures at a number of US companies who have significant foreign earnings. As for the FTSE 100 the Sunday Times Money Effect still leads the market. Ever since they printed that "experts" call for the market higher it has only "gone up by the down route." If you are going to call analysts at companies such as Brewin Dolphin "experts" then my girlfriends goldfish, Squishy, is a bloody rocket scientist.

Many people think I am joking when I talk about contra-indicators, I.E. analysts or dealers who regularly get it wrong but there is a long tradition of this in the city. Regular readers will remember our "Hinge and Bracket" newsletter, Harry's Thoughts 14/10/02 Page 10, and using such indicators remains an important and profitable part of our trading strategy. Unfortunately ever since we gave Frederik Altman, Telecoms analyst at Hornblower Fischer, a Muppet of the Month award for constantly calling the market wrong he has no longer been allowed on television. Fortunately other companies are not so discriminating, deciding that certain analysts and traders can cause less damage in a TV studio than they can on the dealing floor. For those looking for more accessible contra indicators, as well as a good laugh, I can recommend certain "trader" bulletin boards. I was recently made aware of one, on which I will comment in the coming days, but I found more Muppets there than in the Henson family attic!

Have a great week.

Harry

Thank you MoneyAM

We have the expiry of futures contracts today in the US, Germany and the UK which is called "triple witching." This day last year saw massive volatility; I remember it well because Potter told me all about it on the mobile whilst I was on my boat in the South of France! the Forex markets are already nervous, especially with regards to Euro/Stg where a number of players out of Amsterdam and London have been selling this morning.The S&P had a good close above the 1033 level (1039.58) and we will need to see a second daily and weekly close above this for us to continue with our full size position. Even though we have no major economic figures out today the triple witching should ensure that we won't get bored.

Many thanks to the guys at MoneyAM.com for providing me with a constant stream of ranting material. Their latest partner advertisement says that I will get a free report of "5 stocks set to Rocket." If I sign up I am allowed to get in on a "winning strategy that has made a small group of investors 5-figure profits-during a 3rd straight bear market year!" This truly wonderful opportunity is being brought to us from our old friends at the Red Hot Penny Share Guide (RHPSG). Readers might remember them as our Muppet of the Month winners for November last year, Harry's Thoughts 02-12-02 page 9. As with all such offers it is important to read the small print. The portfolio of all their shares, according to their figures, is up a not so amazing 9.54% over the last 3 years. I say according to their figures because unlike most of us who buy and sell shares the RHPSG get to trade off the mid prices and don't have to pay the spread. This is awfully convenient as in penny shares the spread can be up to 25% of the share price so it is quite likely that if you had traded every single tip you would have lost money, so no doubt the "small group of investors" who made the 5-figure profits was very small indeed!

Harry

As predicted they are squealing

"And when they were long they were wrong,
And when they were short they were caught,
And when they had no positions,
It was because they had lost all their dosh."

Apologies to the Grand Old Duke of York but as predicted to members on Friday afternoon, weak US economic data saw traders cut out of their long equity positions and turning to short exposures. Long term funds then came in to buy on the dip and by the close the day traders were "squealing like pigs." As I have said many times the economic figures are not of primary importance but rather how the market reacts to that data. If weak economic figures are shrugged off by hedge and mutual funds this indicates a bull trend. This trend is then extended when those with short positions get squeezed out of their bad positions and have to buy them back.

Today and tomorrow will be important fot the continuation of this scenario. We have a veritable cornucopia of figures and the ones I will be looking at with most interest are highlighted on the week ahead portlet in the members website.

In the currency markets most traders are trying to work out what Swedens No vote means for the market. I ought to take that back as most Spot FX marketmakers are currently trying to work out where Sweden is! Personally I think people are starting to realise that membership of the euro for those countries not in it is not inevitable, which is probably a relief as many have known for a while that it is not desirable.Selling Euros against sterling is something I will now be researching.

You never know someone might come up with the revolutionary idea of setting up a free trade area of soverign states dedicated to improving trade and democracy. We can start with Sweden, Denmark, Norway and the UK, then adding the Eastern European Countries and why not add in Turkey as that will really annoy the Greeks thus repaying them for jailing our plane spotters.

Harry

Too much material

I don't really know where to start; there is just too much material.

First of all the markets. Yesterdays dollar and equity sell off can, I believe, be explaines as nervousness ahead of tomorrow, September 11. A lack of a terrorist event should see a corresponding rally. Yesterdays decision by a NY Federal Judge to allow litigation to proceed against: Boeing, AMR, United Airlines, Iraq, Saudi Arabia, Iran, Osama Bin Laden, Elvis, Flipper etc etc etc is a potential bear flag for the dollar. Last years dollar sell off was propelled to a great extent by middle east selling and though I think much of that has been done i will keep my ear to the ground for any continuation.

Other matters. How much must MoneyAM.com making? I get sent details of a new partner offer every day. Yesterday it was ShareSpread.com who can apparently offer unbeatable spreads. To be right they can't really be beaten: 30 points dollar swiss ( I trade on between 3 and 4), 5 pips on HSBC ( I trade on between 0.25 and 0.5). These two companies are definitely well suited as partners.I think we need to start a competition and I need your help. Who has the worst prices in the market?

A number of members have asked me if I know about a chap called Darren Winters who gives free seminars and then charges £3100 for a two day seminar. Looking at his website I am glad I don't. Apparently it is easy to make over 20% a year by doing no work. As members know my first rule of trading is DON'T BE A SUCKER. A kind member is alerted to a link at the guardian about the gentleman. If anyone knows him or if Mr Winters ends up getting this how about a friendly competition, especially as you are so good and so rich? How about we both set up accounts at a spreadbetting or CFD firm. We trade it for 1 month, 2 months, a year whatever you like and the winner keeps all. Oh and 2 caveats, the results are made public and if you lose all your money you have to match the money in my account.
http://money.guardian.co.uk/print/0,3858,4500417-110138,00.html

h

No Part 2

I'm afraid time limitations prevent me from releasing part two of my corporate rant but it will come next week. The equity markets remain solid and traders are waiting for payroll figures. There is an important thing about figures to note when trying to establish what sort of market we are in. If we are in an uptrend bad figures are not necessarily a bad thing, in fact they are actually better. Yesterday we had slightly worse than expected unemployement figures. The market fell slightly and then rallied. If we continue to see this price action happen with bad figures then that is a VERY bullish sign. The effect on the market dynamics is as follows: bad figures result in short term traders selling. If the longer term guys then use this as an opportunity to buy and then take the market higher the short term sheep then get caught in a short squeeze thus send the market even higher when they take their losses. Yesterday was a lacklustre example. A move down to 1014/15 and then a quick rebound all the way and then higher would be far more interesting. Of course it could just keep falling and that is why we have stop losses.

Hurricane Fabian is heading towards Bermuda and possibly the US and just the naming of this illustrates how politically correct we are nowadays, OK I do not include myself in that. In the old days hurricanes and tropical storms were all named after women which makes sense as both when coming are wet and wild and when leaving take the house and car with them.

Harry

Harry Fights Back

We love causing mischief but its not cheap. The Financial Services Authority seem to get more complaints about us than Brewin Dolphin and we almost have as many lawyers on the payroll as Cantor Fitzgerald. It is clear to us that we are at a watershed and we have to decide to either carry on being obnoxious and irreverent, which makes little commercial sense, or to "play the game" and tone down our thoughts on the financial services industry. So who do we think is trying to put Harry out of business? Alas they don't have the balls to complain to us directly and have to hide behind the regulators, who I have to say seem to be jolly nice people (smarm, smarm). We know that none of the complaints are from customers but come from institutions, so which ones could it be? I suppose to think about this is unhealthy and that the sensible thing would be to assimilate ourselves into this cesspool of an industry. The trouble is I don't do sensible!

Charles Stanley Stockbrokers you are a bunch of Muppets. You still owe us for the bet we had on Cable and Wireless (Harrys Thoughts May 8). Remember the one where when CW was at 55p and you asked us for some research and we said it would go to 100p and you said 27p. Well you were wrong, as usual, but we can accept being wrong but we do not accept not paying up on bets.

MoneyAM.com you are a bunch of Muppets! You have more deals with financial services firms than I thought was possible and that offer you sent out yesterday for dealing with FXCM in the Forex market really took the biscuit, 10 pips in Swissy Yen, 15 in Sterling Swiss? Those are not tight spreads its a bloody chasm! Also why is you have so much commentary from "dealers" at spreadbet firms rather than from say me when I offered to do a column for free? Could it be that those firms pay for the privilege? Oh and while I'm at it you guys at spreadbet firms who go on TV and call yourself dealers. Picking up a telephone does not make you a dealer, you need to take a position to be one of those so change your business card title to telephonist.

Commerzbank. Oh where to start with Commerzbank? When are you going to realise that the the smart money use your analysts as a contra indicator. When your analyst put Vodafone as a sell at 92p it never went lower. when he turned around to a buy at 133p it never went higher even though the market has risen substantially. I admit you guys are not dodgy but in the Kingdom of the Clueless you reign supreme.

Barclays you are crap. I am a Premier Account Holder, I have a mortgage with you, I even have a critical illness policy with you but god forbid that I should ever be able to contact my so called personal banker. I am not allowed to have a number for her but have to go through a call desk in the indian sub continent. This is the sort of service you get in a Parisian restaurant. And when I ask to set up a business account and I want no overdraft balance but merely want to deposit a pile of cash in it, how dare your spotty snivelling 21 year old "business manager" ask for 3 year cash flow projections when you don't even know how to run your own business.

Brewin Dolphin how can you have the balls to stay in business when your head of corporate finance admitted on TV that he didn't realise that increasing borrowing money against shares to buy more shares was increasing the risk and that if the stock market then went down your customers would lose money? Strewth you have the collective wisdom of an amoeba! (I apologise to amoebe evrywhere.

I'm all ranted out but for all the companies I've missed out I will be back oh and in case you're interested the equity markets look set to continue upwards now that we have had a second daily close above 1020 though a close below 997/1004 would indicate a false break. And all you pension companies who sold all your shares below 3600 in the FTSE 100, I have to say thankyou because we bought some of them from you. And when it gets back to 4450 and you are almost finished you can have them back!

Harry

Personality Disorders

As far as the markets are concerned summer is over and it is now time to get back to business. Unfortunately for many participants this means either losing money or talking b******s. One particular commentator who I won't name as he is a nice chap and fairly harmless, is today informing his members that the spread betting houses customers are all long of euros and short of dollars. This piece of news could be taken in one of two ways: firstly the customers of the spread betting firms he mentions, City Index and Fin Spreads, have a clue about FX and we should all follow them. Alternatively we could look at it as the Muppets are long are wrong and it is still valid to sell euros to wear diamonds. This sort of reporting is fairly generic. Just regurgitate some information from sources that are painted as being credible but are quite franky irrelevant unless you understand the markets and how to use the info. This commentator is suggesting to his customers that buying euros against the dollar might be the thing to do whereas I say YOURS AND I SELL.

The equity markets is starting off with a bid tone and the first important figures of the month are out at 3.00 pm with August ISM out of the US. We remain long of the S&P and along with almost every trader out there are looking for a break of 1015/20. Be wary of false breaks and as we are long full size we will not be buying any more too early through the top of the range.

BAY continues to break higher and I do urge full members who have not yet checked out the new website to look at our article entitled Buffet and BA.This remains on our radar for a short play but the time is not right to go back in.

It seems that its not just the main hedge fund traders who have returned from holiday, the Muppets are back too. An article in todays FT reports on the findings of a UK based consultancy who have been researching Investment Banks. The firm, Cognosis, have found that banks and financial services firms have distinct personalities. Apparently Merrill Lynch are "pragmatist expeditor"; Goldman Sachs are "harmoniser-partner"; and Citigroup are "action-orientated". I feel that these definitions are not quite descriptive enough so I have come up with the HarryHindsight personality index:

Merrill Lynch; Compulsive Kleptomaniac
Goldman sachs: Compulsive Kleptomaniac
Citigroup: Compulsive Kleptomaniac
Commerzbank: Compulsively Useless.

Harry

The Fun's about to Begin

Pinch punch first of the month and let's hope its a bit more punchy than the last one. With the US on holiday today the fun and games will not start until tomorrow though indications are currently good for a breakout of the top of the range in the S&P as we closed above 1005 on Friday.. As older hands know my preference all year has been, after the intitial fall, for a nice US led move higher for much of the year which would then set up an opportunity to re-establish our short positions form last year in equities and the dollar that made us so much money. 1015/18 remains the target for much of the market so accordingly we will use a close above 1022 and regardless of levels be wary of false breaks. I believe there is some considerable money on the sidelines ready to enter this market and a secure break should lead to a 100 point move towards 1100 in the S&P and dragging the Swissy to 1.45/1.50. remember though predicting moves is difficult. We will remain flexible and look at what the market is telling us but for the moment it is saying if you are short you will be caught.

Has anyone noticed what BSKYB has done since their figures came out to much fanfare a few weeks ago. Though we like the company we remarked that investors should note that there were significant director sales after the results at 723p. The shares are now 667p some 10% lower. Though we didn't short the shares it shows how important it is to look at director sales. We do look at all director dealings but only comment on the ones we consider significant as we believe too much info is not necessarily a good thing.

On the info side we now have a new website and over the coming weeks more and more new services will be coming on stream. We already have a new long term trading strategy newsletter on the site for members which includes charts. Shortly "Harry Watch" will appear which will list the shares we are looking to buy and sell and why and then in a couple of weeks will come our online chat room where members will also be able to see our charts and research in real time. So check it out and if you have any questions then please ask.

Harry