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Tuesday, September 30, 2008

BetOnMarkets - Unprecedented Stock Market Volatility, Unpredictable Future

Apart from Monday’s opening salvo, it was quieter week for global equities. After Monday’s dramatic reversal, daily movements between high and low, were mostly restricted to sub 2% range days. Between Monday the 15th and Monday the 22nd of September, the level of volatility was unprecedented. The US S&P moved 3.5% between the high and low of the day, something not seen since 1982, according to Jason Goepfert’s Sentimentrader.

With US financial stocks falling nearly 12% on Monday despite the short selling ban, it is clear that last the week before last’s euphoria was mostly a bailout rally, not a simply a short squeeze as many would like to believe. Much of last week’s movements were dependent on the relative progress of the US Government bailout package. A large part of the ‘freaky’ Friday’s optimism subsided, as investors sat back and examined the proposals and the impact of last week’s frenzy with a clearer head. As expected, Bernanke, Paulson, and Bush are not having an easy ride in their bid for congress to approve the $700 billion bailout plan. Despite Bush’s dramatic claims of an impending financial collapse if the bill isn’t ratified, politicians will not find it an easy sell it to their voters, especially in an election year with 55% of the US public opposed to the plan. It is not hard to see why, with extraordinary clauses such as a request for no judicial or administrative reviews of the spending in this bailout. In the end the key issue may not be whether the US government can afford it, but whether it can afford not to do it.

It wasn’t all bad news for financials, with traders buoyed by the news of Warren Buffet’s investment in Goldman Sachs. However, traders were cautious as to what this deal signified. Some believe it to be a vote of confidence in Goldman’s by Buffet, while other see it as a Buffet picking up a great return at bargain basement prices. In the UK financial stocks underperformed as Libor spiked to the highest levels since January. Despite the dramatic interventions over the past two weeks, traders have remained firmly sceptical about general exposure to toxic subprime debt.

Many are expecting a ‘bailout rally’ when the Bush/ Paulson plan is finally passed similar to day when the idea was first mooted. While this may happen, the effect may be short lived. Once the subprime problem has been largely addressed, there is still the issue of banks being underfunded, and the even greater problem of a weakening global economy. The latter in particular seems to have been playing second fiddle to the problems specific to the credit markets.

More US regional banks are in trouble despite the planned bailout package. Regions Financial (Alabama’s biggest bank) and Marshall & Ilsley Corp (Wisconsin’s largest bank) all were well down on the week. Although at present not on the cards, a collapse of small US or international bank wouldn’t spark the collapse of the financial system as we know it, but it does lead to two gloomy thoughts. Firstly, the blanket ban on short selling financial stocks is not a panacea. In fact the last time short selling was banned in 1932, the Dow Jones made a small rally then rolled over by over 40%. Secondly, despite the bailouts and liquidity injections, we may not have seen the last financial institution across the world to fail. While it may not be another major firm, the result is still not going to be positive for market sentiment.

Next week’s flow of economic news is dominated by Wednesday’s ADP Non Farm employment change and Fridays Non Farm payroll figures. Other top tier announcements include Wednesday’s US ISM manufacturing PMI and UK Manufacturing PMI. Thursday brings UK Nationwide house price figures while the ECB press conference on Thursday could also move markets.

It is hard to predict what could happen next with so much dependent on the progress of the bail out package through parliament. If or when it is passed the resulting spurt could be short lived, perhaps leading to a more sustained bear market as the economy takes centre stage again. A Double Touch trade predicting the Dow Jones will touch 11500 and 10799 (in either order) at any time during the next 20 days could return 159% at

BetOnMarkets Morning Report

The bloodbath that started yesterday in the United States is set to continue, as the FTSE futures indicate an opening down 5% from yesterdays closing. The SP500 suffered the worst one day loss since October 26th 1987, wiping out almost 800 billion dollars in market cap. While no stock was spared from the sell off as the Advance/Decline ratio on the NASDAQ was at -80. The financials led the way with most companies recording losses in the double digits. The sell off has continued in Asia with the major indices currently down more then 5%. Unless there is a miracle we expect for the FTSE to spend the whole day in the red.

As traders were selling their equity holdings, gold was a huge winner, climbing above the 900 dollars per ounce level. Historically whenever traders felt uncertain in the equities market they would invest in precious metals. We can see that trend to continue as uncertainty and chaos should rule the day. The possibility of a different version of a bailout is not dead and it could possibly slow down the sale off today.


Monday, September 29, 2008

BetOnMarkets - Bradford and Bingley

The FTSE is currently indicating a higher opening, as traders are signaling their approval over the nationalization of Bradford and Bingley. Over the weekend the government and the biggest landlord tried to arrange a sale, however when no bidder came up, the government was forced to step in to protect the deposit holders. This should give the FTSE the boost it needs to start the week of on the positive foot.

Commodities are in for a volatile day, as details of the bailout package get finalized in congress and are due to be passed at any moment. Since the bill will have a negative effect on the US dollar, oil and gold will be the biggest beneficiaries from the bailout.


Thursday, September 25, 2008

BetOnMarkets Morning Report

FTSE is currently indicating a lower opening as traders prepare themselves for the unveiling of the bailout package. There is still way to many questions left unanswered in the fine print, which is why traders are divesting of stocks that might be affected negatively by this historic event. We expect the FTSE to spend the morning in negative territory.

Commodities, which are affected by the US dollar, have been range bound, while awaiting news about the bailout. Investors believe that this bailout will have a negative effect on the US dollar, which in turn may make commodities more expensive. If the bailout is finalized tomorrow, look for oil and gold to have a very volatile day.


Wednesday, September 24, 2008

BetOnMarkets Morning Report

The FTSE is currently indicates a flat opening as traders wait for the release of the European IFO numbers. While this is not UK data, it will affect the FTSE depending on how strong the number will be. After further research we believe the number will be stronger then expected. This should result in a higher opening for the FTSE.

Oil traders were at the mercy of the US dollar yesterday as the bailout bill was debated in congress. We expect the same today, with the added volatility of the inventory numbers to be released around 10.30 AM EST. It seems like the November contract is poised to break above the 110 dollars per barrel level.


Monday, September 22, 2008

BetOnMarkets Weekly Briefing

Traders, investors, and financial journalists must have been glad to reach the end of a week that will surely go down in the history of financial markets. The FTSE closed the week just 66 points down which the S&P 500 actually managed a small profit. Homeowner, the closing figures do not even begin to tell the whole story with the FTSE trading in a 521 point range and posting its best one day rally in history on Friday.

The turmoil began last week with the bail out of Fannie Mae and Freddie Mac. This raised hopes of a similar bail out of the Lehman Brothers. To say that investors were shocked when Lehmans was not only denied a bailout, but filed for insolvency would be an understatement. Lehmans collapse sent shockwaves throughout equity markets sparking a domino effect that knocked over Merrill Lynch, AIG and HBOS .

Even the most seasoned investors had a hard time steadying themselves last week as the newswires continue pump out dark news, and once in a generation headlines. Fear was understandably widespread with the Russian stock market suspended indefinitely after dropping 10% in an hour, and a large money market fund breaking the buck, meaning they lost their unit holders money. When the supposed safe havens of money market funds start to break down, investors see little choice but to fly to quality. There is a flood of assets transferring to safety of short term US Government Treasuries, forcing the yield on three month Treasury Bonds down to their lowest level since the great depression. Gold endured a remarkable week trading in a $140 range before closing the week up around $90.

On the economic data front, US CPI was in line with expectations, and oil prices have continued to stay below $100. Both of these factors indicate that the inflation monster may be coming back under control. However, the FOMC voted to keep rates on hold last week, initially markets had a mixed reaction. Many believe the Fed has now left itself some ammunition to deal with a weakening economy further down the line. It also sent out the signal that it would not be influenced by market makers into cutting rates as they did back in July.

It was the two emergency announcements on Wednesday and Thursday that had the greatest impact last week. After central banks dropped a coordinated liquidity bomb overnight on Wednesday, global equity and credit markets initially seemed to show a very cautious reaction. The greatest reaction seemed to come from the Feds plan to create a giant bad bank that would absorb many of the toxic subprime assets held by banks. This measure accompanied with a crack down on short sellers, seemed to have hit the nail on the head for the financial institutions, with the root cause of the credit crunch (sub prime assets) being attacked.

Next weeks headlines will be dominated by Ben Bernankes testimony before congress starting on Wednesday. We also have US existing home sales on Wednesday and new home sales on Thursday. However, the planned economic announcements could be secondary to any surprise headlines or further emergency measures. When stock markets move percentage points in the matter of minutes, anything can happen.

Although equity markets bounced last week, the panic at one stage reached such an extreme that the yield on 3 month US Treasuries reached 0.02% on Thursday, returning just $2 on a $10,000 investment. Investors werent just running to safety, they were blindly staggering to anywhere with no exposure to the credit markets. When investors press the panic button as they undoubtedly have done, there is potential for a counter rally to set in the short term as we saw on Friday. However, looking at large crashes from 1987, 1997, 1998, 2000 and 2001, the follow on reaction is typically a range bound market. A barrier range trade returns a profit if neither of two predetermined levels are hit within a specified time. A barrier range trade predicting the Dow Jones not to touch 12200 or 10500 over the next 16 days could return 39%.

Thursday, September 18, 2008

BetOnMarkets Morning Report

The FTSE is currently indicating a higher opening after the FSA announced that they will be restricting short selling on selected stocks as of September 19th. This restriction should bring some pause to the selling pressure on the financial stocks. The FSA is hoping it will be as successful as the SEC was in August when they restricted short selling in the United States.

Oil spiked above 100 dollars per barrel before settling down around the 98 dollars per barrel level. Lost in all of this, is the fact that oil will post its third declining week. As the dollar gains against the euro, its limiting the appeal of commodities to investors amid forecasts of slowing global demand.


BetOnMarkets - Central banks dropped a coordinated liquidity bomb

After central banks dropped a coordinated liquidity bomb overnight, global equity and credit markets have reacted well. Although the bounce off the lows is at least a step in the right direction, the impact still has to be seen as cautious at best. Today, investors and financial institutions have shut the door on the financial apocalypse, but the storm is still there. It will be some time before investors will step out side confidently from the safety of the sidelines. Although equity markets are bouncing the panic has reached such an extreme that the yield on 3 month US Treasuries reached 0.02% yesterday, returning just $2 on a $10,000 investment. Investors aren’t just running to safety, they were blindly staggering to anywhere with no exposure to the credit markets. When investors press the panic button as they undoubtedly have done, there is the potential for a counter rally to set in the short term. These exhaustion lows are almost impossible to time perfectly, and require a better response than we are seeing today to set them in motion, but there at least the potential for a short term bottom to be formed in and around the next few days.


BetOnMarkets - Commodities benefited from the turmoil

The FTSE is currently indicating a higher opening as a buyout of HBOS by Lloyds TSB, has the blessing of the UK government. Sources indicate that the government will seek to waive antitrust restrictions to permit the takeover. Look for other vulnerable companies to get a boost in share price, as traders are counting on cashing in on another takeover.

Commodities benefited from the turmoil in the US equities market yesterday with gold adding more then 70 dollars to its value and oil adding 6 dollars to its per barrel price. We can see gold reaching 900 dollars per ounce before the end of the week, as investors are running for the safe haven that precious metals provided during turbulent times like this week


Wednesday, September 17, 2008

BetOnMarkets - US government bailed out AIG

The FTSE is currently indicating a high opening. Investors around the world are breathing a sigh of relief after it was announced that the US government bailed out AIG. The announcement has bumped up the FTSE to more then 1% in the pre-open markets.

Oil tried its hardest to breach the 90 dollars per barrel mark, however support finally came back into the market, allowing the price to rebound and is currently trading at more then 94 dollars per barrel. Look for the price of oil to be volatile today as the inventory numbers will be very unpredictable


Tuesday, September 16, 2008

BetOnMarkets - The horrible week ( Day 2)

The horrible week has entered day two, as the FTSE is indicating yet another really weak opening. While inflation will be front and center today, the financial meltdown will sadly be the theme of the day yet again. The bankruptcy of Lehman brothers, while almost expected, sent all financial companies down by double digit percent and we expect the same losses on the FTSE. Currently the FTSE is set to open more then 1.75% down.

Oil had a busy Monday, finally breaking below the 100 dollars per barrel mark. Unfortunately it defiantly did not stop there, as it also broke below the 95 dollar level. Look for oil to be very volatile today especially around 2 pm EST, as this is when the latest rate decision from the FOMC is announced. There is potential for oil to break below the 90 dollars per barrel mark which will help out consumers and airline companies.


Monday, September 15, 2008

BetOnMarkets - They call it the Freddie and Fannie Frenzy

A week that showed so much promise ended up being a huge let down. A lot of ink was spent on the take over of Freddie Mac and Fannie Mae by the US government, and it allowed equity markets around the world to open the first trading day up 3%. This sadly didn’t last, as traders realized quickly that this take over was akin to putting a band-aid over a third degree burn; it was not a long term solution.

The theme for next week is inflation, as UK, EU and USA are all releasing some sort of inflation numbers. This is important for traders of Equities, Futures and Forex as these numbers will have a strong effect on each of those categories. We expect inflation to be high in every country, as rising commodity prices are filtering into the consumer prices at this time of the year. Also on a side note, this Wednesday, the Bank of England will be releasing minutes from their last meeting, while most of the information is stale; there are a few useful titbits which can give you a glimpse into the future about the BOE’s concerns when it votes on a rate decision.

There is uncertainty in the equities market; smart traders use every move up to short the overall market. The most obvious sign that the market is jittery came on Monday, when in the middle of a huge run-up, a stale story of a bankruptcy filling by American Airlines caused a huge dip in the major indexes.

As a result, traders at BetOnMarkets believe a one touch to the down-side of the Wall Street index is the best value play out there. A one touch at 11200 on the Wall Street Index (Dow Jones) with a 14 day term returns more than 22% ROI.


BetOnMarkets - Hurricane Ike missed

The FTSE currently indicates a very weak opening. The take over of Merrill Lynch is probably a contributing factor. Over the weekend yet another takeover has been orchestrated by the US government, where a top four investment bank, is now the property of Bank of America. Look for a small recovery when trading starts this morning, however we are probably going to spend the rest of day in the red.

Oil traders did not get the boost they were hoping for. As Hurricane Ike missed taking out the important oil fields and oil futures are now trading below 100 dollars per barrel. We are anticipating that the price of crude will keep falling, even as OPEC cuts productions by half a million barrels per day.


Friday, September 12, 2008

BetOnMarkets Morning Report

The strong US dollar continues to cause havoc for the commodity sector. With gold now trading almost 300 dollars below its 52 week high, set in the spring. The main culprit for this sudden reversal is the strong US dollar, which has gained more then 15 cents versus the Euro. Look for the precious metals sector to continue to lose value as traders sell gold and invest in the all of a sudden strong US dollar.


Wednesday, September 10, 2008

BetOnMarkets Morning Report

The FTSE is currently indicates a weaker opening as traders await the release of the UK trade balance numbers. While the weekend nationalization of Freddie Mac and Fannie Mae in the US gave the FTSE and every other equities index a boost on Monday, it was very short lived, as the FTSE finds itself exactly where it was last Friday. It seems like traders are not satisfied with the take over and are worried that nothing changed in the mortgage debt market.

Oil keeps taking in on the chin as it seems like every hurricane starts to weaken before hitting the important oil producing fields. Not helping is the stronger US dollar which keeps making the oil contracts cheaper.
It is possible that we can see prices below 100 dollars per barrel this month.


Tuesday, September 9, 2008

BetOnMarkets Morning Report

The FTSE currently indicates a flat opening, as traders await the release of the UK Industrial and Manufacturing production numbers. While analysts expect flat growth for the month of July, we feel that the number is a little optimistic resulting in the market possibly opening lower this morning.

Oil prices are trading lower, as another hurricane is slated to miss the key oil producing fields. Adding to the lower oil price is the resurgence in the strength of the US dollar, which traded at an 11 month high versus the Euro. We might see the Euro trade as low as 1.35 per US dollar this month.


Friday, September 5, 2008

BetOnMarkets Morning Report

The FTSE is currently indicating a lower opening although there is no UK economic data today, the FTSE will be influenced by the release of the US employment numbers. Analysts are expecting a loss of 75 thousand jobs, after studying the economic reports we believe, that number is too optimistic. If the employment data comes out soft, watch for the FTSE and all the other major stock exchanges to finish the day deep in the red.

Oil has continued its free fall and a lot of it can be credited to the latest wave of strong US dollar sentiment. With the GBP/USD now trading below 1.80 dollar mark, the US dollar has appreciated by more then 10% in the last 4 weeks. Traders will be analyzing today's employment data very carefully, to see if the recovery was warranted.


Thursday, September 4, 2008

BetOnMarkets Morning Report

The FTSE currently indicates a flat opening as traders wait to see what the Bank of England decides before putting money into the equities market. The BOE finds it self again at a cross roads, trying to decide which fire is more dangerous, inflation or an economy on the brink of a recession. I would not want to have that job today.

Oil finally broke below the 200 day moving average and is technically in a free fall until the 100 dollar per barrel mark. Due to the shortened week in US, the inventory numbers will be released today instead of Wednesday, this release should have a significant effect on the price of oil today. Gold keeps trading lower as renewed optimism regarding the US economy has traders selling gold and buying the US dollar. Look for the very important employment figures today around lunch, which will give you a hint regarding tomorrows all important employment rate for US. Strong numbers could possibly send gold below 800 dollars per ounce.


Tuesday, September 2, 2008

BetOnMarkets Morning Report

The FTSE is indicating a lower opening, as traders are worried that the Bank of England will not help out the sluggish economy, when they meet to decide if an interest rate change is warranted. The BOE is caught between a rock and a hard place having to find the right balance between controlling the spiraling inflation and an economy tittering on the brink of a recession.

Oil bulls really took it on the chin yesterday, as oil prices fell below the previous support level of 109. Earlier reports from the previously evacuated employees of the oil rigs in New Orleans, report that there is very minimal damage if any from Hurricane Gustav. Also helping the oil bears is that Hurricane Hanna is poised to turn north possibly avoiding the oil producing Gulf of Mexico. Gold has been a loser this week as another wave of strength from the US dollar is making the greenback more attractive then the precious metals.


Pound made record lows as Fear of recession increased

It was a good week for European equity markets with the FTSE100 finishing the week at 5636, its highest level for nearly two months. US markets didn’t have such a good time of it, with the Dow Jones and S&P500 finishing largely flat on the week and the Nasdaq closing well down after a sell off on Friday. There was better news for the Greenback though, as the Pound fell to its lowest level for two years against the US Dollar. Although the Dollar has undoubtedly been strong over the last month, last week’s move on Cable (USD/ GBP) was largely a factor of the weakening pound. It made a record weekly low against the Euro and fell to its lowest levels since spring against the Japanese Yen.

With stream of bad news coming last week, you didn’t need to look too hard for reasons why the Pound was taking such a beating. Fears of recession increased after a CBI report showed the weakest high street activity in 25 years. In addition, Nationwide housing figures showed that the current UK housing slump was the worst for nearly two decades. There was however, some relatively good news from house builder Taylor Wimpey. Despite the dramatic headlines about its write down in land value, Taylor Wimpey closed up on the week. The huge write down on the value of its land bank was largely expected for once.

The FTSE enjoyed a good week in spite of this data thanks to higher oil prices and improved sentiment in financials. This two sectors alone account for a large proportion of the UK’s benchmark index. Oil traders were on hurricane watch as tropical storm Gustav headed for Louisiana. WTI crude finished the week up around $3.00 as a consequence. US Monoline insurer MBIA indicated that it is continuing to win new business despite a reduced credit rating. MBIA’s strong numbers have helped push the financial sectors higher on both sides of the Atlantic, with Barclays and RBS both enjoying gains approaching 10% on the week.

Better than expected US GDP numbers also sparked a mini rally in the middle of last week. US GDP numbers came in well above estimates with a 3.3% annual rate of increase. In addition to this, jobless claims came in lower than expected. Although the GDP numbers implied a growing US economy, they also revealed a deeply divided one. On the one hand, exports are shooting up thanks to the weak Dollar, on the other hand consumer spending; the lifeblood of the US economy is still looking dire, once you strip out the effects of the stimulus package. Bush’s rescue plan and the Fed’s demolition of the Dollar may have stopped the overall economy going into recession, but it is still a close run thing. Next quarter there will be no tax breaks for US consumers and if oil continues to pull back, the Dollar is likely to rise further, thus hurting exports.

The S&P Case-Schiller house price index fell less than expected for the second quarter, but US house prices are still down 15.9% year on year. On a more positive note, housing futures based on the Case-Schiller index bottomed at the end of June, and have been rising since. Expectations are for lower levels still, but these levels are now thought to be better than those predicted a few months ago. However, it is too early to say for sure that this heralds the start of the start of the much vaunted turnaround in US house prices. Interest-rate futures are currently implying that banks are again becoming hesitant to lend to each other, on fears that credit losses will increase as the feared global recession kicks in. Increased lending rates will hardly be manna from heaven for home owners on either side of the Atlantic.

This week brings a whole raft of top tier economic announcements. Topping the bill on Thursday are the MPC and ECB interest rate announcements and accompanying statements. Both are widely expected to produce ‘no change’ verdicts, but as ever, it is the forward looking statements that will cause the most excitement. Sterling traders are speculating on a rate cut from the MPC before the year is out. On Friday, the week’s biggest announcement is the US Non Farm Payroll figures which will ensure the week doesn’t end quietly. Aside from this, this week brings UK manufacturing data on Monday and US Manufacturing data on Tuesday. On Wednesday we get UK PMI data. US markets are closed on Monday for Labor Day.

Next week’s data has the potential to make or break the tentative rally off the July lows. Analysis from Jason Goepfert of SentimenTrader, showed that the ISE sentiment index reached extreme levels of bullishness on a short term basis. traders agrees that this index has been a reasonable contrarian indicator over the last few years and with lots of potentially damaging data out next week, the risk is arguably to the downside. A No Touch Trade on the S&P 500 not to revisit the August highs of 1315 could return 62% over the next 16 days.
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Monday, September 1, 2008

BetOnMarkets Morning Report

The FTSE is currently indicating a higher opening as traders await the release of the UK purchasing managers' survey. While this is not a major economic report, the purchasing managers survey will allow us to get an in-depth look into how the major corporations are viewing the economy and if they plan to make major investments. Should this number come out better then expected, look for the FTSE to get a healthy boost.

The hopes of oil traders, who were holding long contracts into the weekend, were shattered when Hurricane Gustav was downgraded to a category level 2 causing oil prices to fall 4 dollars per barrel. However, not all is lost as we will be getting reports of the actual damage when the evacuated employees return. Not to mention that Hurricane Hanna is around the corner.