Harry Hindsight

Xmas Spending

The markets are dead thus far and I don't really see that changing a great deal until Monday. The S&P closed strongly last night and this will have heartened the bulls who will now have their eyes on taking out the recent highs. The recent strength of the SOXX and the apparent strength of recent data certainly indicates that this will be the way of things though I still cant get rid of this nagging feeling that there is something wrong. Yesterdays data showed no rise in consumption and weak employment in the manufacturing sector. Granted people could be holding off purchasing for a Xmas blitz and manufacturing in the US has been in decline for years with the mass movement of manufacturing jobs to China.

Right so how do we play this market? I believe we have two possible scenarios. Equities will either keep trending higher or we will have an explosive squeeze higher followed by a rapid fall. At the start of the year we predicted a move down in the FTSE to 3451 followed by a rise up to 4530. Though I think we have seen the bulk of the rise we need to see an explosive event to enable the trend to turn. It is very rare for trends to just falter and slowly turn. What generally happens, often within the same day, is that the trend extends massively and then retraces on large volume. This price action is needed to suck in the stop losses of the bears as well as buying from the retail market; as the old saying goes: " the market is manipulated up and then sold to the public on the way down." Potter and I will accordingly come up with strategies for both scenarios.

So which way will the market go Harry? I hear you say. Up or down? Well for the moment this fence is digging in my butt though I have just come up with a method of finding out, and no for once we are not going to find out what Commerzbank think and do the opposite. The next trend will be determined by the consumer and how confident they are over the coming months. The way to find this out is easy and together we can establish the likelihood of the next trend. We have accordingly published a new poll on the website to ascertain spending habits over Xmas. I would urge everybody to take the time to do this and to be honest; yes I know that is hard for you brokers out there but give it a go. The more data we have the more accurate it will be and it could enable us all to make some money.

A flick through today's newspapers has enabled me to find a Xmas present for the Handbrake. It's a touch pricey at £8000 but methinks it's worth the price. Developed in the US the Orgasmotron is a pacemaker attached to a woman's spine which when activated helps the lady achieve almost immediate multiple orgasms. On second thoughts though it is alot of money just to save an hour every night and morning, oh and during the afternoon at weekends (yes my nose is growing). I think I will go back to my original idea but which ones do I choose, Silicone or Saline?

Pinocchio

Traders? More Like Losers!

As some of you may know I occasionally write in Traders magazine.The latest issue which I received yesterday was, or so I thought, supposed to include an article I wrote for them 3 months ago (this is their time lag not mine) but the editors decided to leave it out.

In the article I explain how one uses fundamental analysis, as well as technical analysis and sentiment inorder to execute trades. I think the piece adequately shows how this can be done and how one can learn from legendary investors such as Warren Buffett in order to execute profitable trades.

Apparently the article was not enetered as fundamental analysis plays no part in short term trading. I gather that trying to ascertain fair value estimates are irrelevant and I would therefore like to apologise to all my members, as well as to all the investment banks for whom I worked and to the investors in my hedge fund. I obviously know nothing and all the money I have made has been done out of the mistaken view that value, sentiment and market positioning are important factors for all types of traders to guage, whether one is a market maker or a long term investor.

I have been informed that technical analysis is the key to short term trading so will all you guys on the spot FX desk at Deutsche and UBS who receive this please take note. I know the closest you get to charts is when you go to the clinic for your medical but according to a certain weighty tome you don't know what you are doing. Forget spread, edge and following the hot money flow and bring up a chart.

I now apologise to the chief dealers at the banks mentioned who now have about 25 market makers asking them: " Oi mate, what's this charting stuff all about?"

Anyway I enclose the article so you can see the error of my ways.

Harry

We Won

What a game. What a team. What a party!

My head is just starting to clear from Saturday which saw the mother of all celebrations and Sunday which inevitably resulted in the mother of all hangovers. The equity markets seem to have joined the party as well though, with the US on thanksgiving holidays from Thursday, we would not be surprised to see selling ahead of this as traders focus on holiday event risk. The Euro, as predicted, saw a massive spoof this morning. Rumours had abounded since last week that there was a large buy order out of China at 1.1850 and accordingly most of the spot market sold dollars ahead of this. We were very sceptical of this and all the spot tarders fell for it as the Euro crashed through this level, reaching 1.1780 within seconds.

There is so much I want to write about, what with Chirac visiting today and yet another wonderful offer from ADVFN; sorrt but do you really think I am going to fall for investing in a gold mine in Malawi?, but I really don't have the time; I have far to many calls to make to Australia!

Harry

The Shrub Has Landed

The Shrub has landed and London is awash with police and secret service agents in an unprecedented security operation. A US request to fly a Black Hawk helicopter above Buck House has been turned down by the Queen as this was deemed to itself be more dangerous than a gaggle of crazed suicide bombers, due to the American Armed Services strange inability to keep their helicopters where they should be, in the sky.

The markets remain nervous and traders have used concerns over US trade tensions with China and Europe to sell dollars, buy bonds and thereby sending equities lower. In the S&P 1018 remains the key support level and a close below this point will see some bulls squealing like pigs; excuse the somewhat dysfunctional mixed metaphor. The Bulls have pointed out that the selling volume has been low but in mitigation I would also point out that the buying volume last week was equally pathetic. the problem we have is one of valuation. If one takes on the S&P a P/E of 17 on next years earnings expectations, historically an above average multiple, one arrives at a target for 2004 of roughly 1100. This has buyers wary of adding to existing long positions and could itself lead to a period of sideways trading. Though many traders are now focusing on the Dollar I will be looking more to the Semi Conductors and Fixed Income to show me the way on equities.

In the Forex markets the Dollar Yen has been trading like it did in the good old days; a 100 point range was seems within a couple of minutes with stop losses being hit on both sides. I doubt however that we are returning to those halcyon days where a 400 point range was the norm rather than a flight of fancy. There is another way though that Forex traders in the US seem to be returning to their old habits. Overnight the FBI have arrested 47 FX dealers and brokers on a number of charges including money laundering and wire fraud. The type of scam that is seems has been committed is pretty generic and has been an unfortunate part of the FX market for decades, especially in the US where up until the 1980's a majority of the Forex brokers were "allegedly" owned by crime syndicates. The scam is quite simple: a trader at a bank agrees to lose some money from his trading book through a broker who then washes it through another bank dealer, who is in on the scam, and turns it into cash. Fortunately it seems that a load of them have been caught out and can look forward to spending Xmas being the "bitch" of a 6 foot 7 inch cellmate called Bubba.

Harry

Friday Feeling

The markets are extremely nervous and volatile this afternoon after the good non-farm payroll figures. A bad tick in the bond market just seconds before the release of the data has conspiracy theorists out in force, and when one adds this to rumours in the FX market of an imminent hike in the US terror status (now denied) the market makers will be pulling what little hair they have left out. I'm glad I don't have to do that job anymore, especially on a Friday such as this when it is not a question of how much money you can make but rather how little you can lose!

Regardless of the nervousness, equities are holding in well and we will continue to take the lead from semi-conductors. Any weekly close above 1046/50 will be good though ideally I would like to see one above 1055, whilst anything over 1062 will see the celestial banjos well and truly playing. A point to note for over the weekend; we have the Japanese election results. A comfortable win for Koizumi should lead to a push higher in the Nikkei, which should then push the US futures higher from Sunday Evening so short players should watch out for the weekend news and plan accordingly.

Some of you have been concerned about the lack of abuse directed towards the likes of Darren Winters over the last few days, but you need not worry I am still on the case. The working arrangements at Hindsight Towers have changed somewhat as I have been forced to send Potter to the Essex equivalent of the Priory. It has worked quite well as he has his computers and charting systems there and I no longer have to hear him chant " Hari Winters." The "Cult that is Winters" has been in full flow this week and it has been interesting to note that he has joined forces with The Red Hot Penny Share guide, thus forming a financial Axis of Evil. It was good of ADVFN to offer us this Partner Deal though they might be interested to know that the owners of the Penny Share Guide, Fleet Street Publications, in another of their tip-sheets have ADVFN shares as a big sell. This might be one of the few they get right especially as I gather that ADVFN and one of their advertisers, Selecta 7, are rumoured to be getting a good old kicking in Saturdays Guardian!

Harry

Spiderman

The S&P is cheaper now than it was at the start of the year. I must be mad you say, but no, using one valuation method that is indeed the case. In January, with the S&P at 900, it traded on a 12 month trailing earnings basis of 29 times. Since then profits have increased at a higher rate than the market and the figure is now at 28 times earnings. For european investors the figure is even better as the dollar has depreciated by 10% against the Euro so the figure then comes down to 25 times earnings when valued in european "funny money."
Such figues will provide ammo to the bulls and could provide the impetus for what I would take to be the final move higher. However I believe that to see good gains we will need to see foreign investors join the party so the dollar will be an important indicator for us.

The Dollar Yen screamed through the level we gave members on friday and we accordingly have a very nice position in the Greenback. The forex market is without doubt the best market for short term trading, especially when you know where the big orders are. On friday a number of the NY branches of japanese banks took out some big stop loss levels for the BOJ leading to a very quick move higher. Traders are still short and selling more on blips. They might be right and we will accordingly trail our stop but if traders are wrong then the squeeze higher could be very nasty.

Hindsight Towers was roped off by the police this morning. My initial thoughts that I must really have p****d someone off this time proved unfounded as the police presence is due to a man in a Spiderman costume hanging off Tower Bridge. Considering that it is a good par 5 from the bridge to our base I can only assume that he really does have "Spider" powers and that he can "spin a web 8 feet size and capture thieves just like flies." A shame then that he didn't go to the Investors Expo on Friday and do a bit of superhero work there.

Harry