Harry Hindsight

Damn treehuggers

Many thanks to the Francophile "treehuggers" who shut down the centre of London last night with their anti war demonstration, causing Harry to be stuck in a Taxi for an hour on the way back to Hindsight Towers. May I suggest they go and live in Belgium where they will be most happy, especially considering yesterdays events at the European Commission. Germany, France and Belgium have agreed to set up a joint military structure, separate to Nato. Indeed, they must have been smoking a joint when they came up with this idea. Germany won't fight, France can't fight and Belgium? I really don't know what to say about Belgium apart from the fact that their military significance has,historically, been limited to providing the venue.

The eyes of the market remain on Iraq and traders seem to like what they are seeing. Today we have "Quadruple Witching options Expiry." This is when all the futures and options contracts expire on the same day and it means that the market can move very quickly and very violently. I will note bore you with the deatils or the reasons but trust me, be VERY CAREFUL.

Shares and the dollar remain strong and we are keeping our positions. We own Astra Zeneca, BA, Tesco, BSKYB the S&P, and Dollars. A number of you have commented that the US economy remains weak so why are we so bullish. Remember the markets are not rational. After September 11,2001 the US markets staged a huge rebound even though the economy was weak and about to get weaker. Market moves are not always rational. Trends however are self sustaining and we go with them.

Harry

Our M.P.'s are Safe

The Ricin attack on the US Senate mailroom stopped an S&P upward breakout in its tracks. The move higher squeezed the short term shorts out whilst the move lower on the Ricin news should not overly concern the bulls. The US equity markets have a history of shrugging off such minor shocks and they can actually help to accelerate the move upwards as fund managers buy on the dips, further squeezing out speculative shorts. I would expect the stops on the S&P to be ranged between 1042 and 1045.

The Dollar had an impulsive move higher overnight, triggered initially buy Euro buying out of the middle east. Due to the inherent US budget deficit, Dollar moves lower will generally be quicker and more violent than the moves higher, against the tide. This does not mean though that dollar is a one way trade and we will be looking closely at tomorrows Federal Reserve data on central bank bond purchases. Over the last few weeks this has been increasing and is now on a par with the Budget Deficit. Sterling remains strong against the Euro despite today's Euro/$ move higher. We are just above major support from 0.6810 to 0.6820 and many traders are establishing sterling longs ahead of tomorrows expected rate rise.

Re the rate rise here is something for traders new to Forex to be wary of. Alot of traders are buying sterling and I would not be surprised to see further buying ahead of tomorrow rate announcement at Midday. However if this position gets "crowded" I.E. everyone has the same position then it could well be that the best risk-reward play will be to go into the announcement short of sterling. If everyone is long sterling and they do increase rates then the pound might not rise much as traders would take profits. If the BOE surprised the market and did not raise rates then there could be an impulsive sell-off. We will decide whether to trade this strategy in the morning after we establish which way most of the traders are positioned.

One has to feel sorry for those US politicians after being subject to a WMD attack. It's actually quite ironic that they are more susceptible to such attacks in Washington than they ever were in Iraq. Our MP's can rest easy though as there is no chance of it ever happening here in London. I do not mean to suggest that our security services would be up to the challenge but rather that our mail carrier isn't.

Harry

Breakout Time?

This week could be very important in deciding the direction of a number of markets over the coming months. With a number of central bank rate decisions, important data and significant markets approaching important technical break-out zones we should have some fun.

Currencies. All eyes are on the ECB and accordingly the Euro/$. Will they or won't they cut? I have no idea and frankly I don't care. We are in a range of roughly 1.2350 to 1.2600. There are very large stop losses below and a break through here, regardless of what the ECB do, will be significant. In fact it would be more significant if it broke with no rate cut as short term traders would be positioned the wrong way. Remember that data or rate cuts are not of the prime importance but rather how the market reacts to it. A trend will either emerge or extend when the market shrugs off news that ought to go counter to that trend.

Equities. As we have said all year we prefer the Nikkei. It has broken the important 11200 resistance zone and whilst above 10900/11000 is set to test 12000. The S&P needs to break 1159 and then 1177 which is quite possible if the SOXX stays above it's trendline support of 487/490.

Gold. This looks soft and price action would suggest that whilst the Euro/$ stays below 1.26/1.27 this will remain weak. I believe that a break higher for the dollar, through 1.2330, will see another shake-out, possibly to $470.

No doubt all the traders at Deutsche Bank will be busy working on their CV's after rumours that the mighty HSBC are thinking of taking them over; well the ones without the guaranteed 3 year packages will.HSBC don't quite have the same attitude to investment banking as Deutsche, or perhaps I should say investment banker salaries when they account for over 50% of expenses.

Harry