SPREADBET MAGAZINE V10 GENERIC
The e-magazine created especially for active spreadbetters and CFD traders.
the e-magazine created especially for active spreadbetters and CFd traders issue 10 - november 2012 v o n n io it Ed Spread betting v Share trading doMiniC piCaRda on tHE banking SECtoR TOP PICKS FROM OUR RESIDENT TECHNICIAN aiM oiLiES Zak MiR SIFTING THROUGH THE CARNAGE FOR BARGAINS INTERVIEWS ALESSIO RASTANI ONE YEAR ON uS ELECtion HOW TO PROFIT FROM THE OUTCOME aLL youR FavouRitE CoLuMnS inCLuding tHE CHanCE to win £1000 in ouR guESS tHE FtSE MontH End CoMpEtition Feature Contributors Robbie burns aka the naked trader Robbie Burns - The Naked Trader has been a full-time trader since 2001 and has made in excess of a million pounds trading the markets. He’s also written three editions of his book “Naked Trader” and the “Naked Trader Guide to Spreadbetting” and runs day seminars using live markets to explain how he makes money. Robbie hates jargon and loves simplicity. dominic picarda Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science. Zak Mir Zak Mir is one of the UK’s pioneers in modern charting methods since the early 1990s, joining Shares Magazine as its first Technical Analysis Editor in 2000. Zak founded www.Zaks-TA.com, the first pure TA website in 2001 and which flourishes to this day. In addition, he has written for the Investor’s Chronicle, appeared on Bloomberg and CNBC as well as being the author of 101 Charts For Trading Success. 2 | www.spreadbetmagazine.com | September 2012 Editorial List Editor Richard Jennings Sub editor Simon Carter Design www.coyotecreative.co.uk Copywriter Sebastian Greenfield Editorial contributors Tony Loton Phil Seaton Thierry Laduguie Filipe R Costa Chris Chiilngworth Foreword Greetings once more to all our readers. We are proud to say that we reached something of a milestone during this last month, tagging over 1m individual magazine page impressions - not bad from a standing start just 10 short months ago! I certainly hope that we are adding value to your trading and also enhancing your understanding of spread betting and CFD trading. In what is a largely commoditised industry with glib regurgitation of news by multitude websites, regular readers will be aware that we are not afraid of being controversial and saying things as they are — an issue that many other publications are constrained by with regards to journalistic freedom. I encourage readers to email me personally at firstname.lastname@example.org with suggestions and criticisms — both welcome! The last issue of our magazine threw something of a banana skin our way with our Dream Mining Sector portfolio piece. No sooner had we gone to publication and one of our picks — Bumi — came out with a shock RNS in which impropriety was hinted at and the stock halved over two days. Mmmm... At the very least, this was a salutary reminder that no matter how thorough your research, “googlies” can always be thrown your way in the markets, and so the most important mantra of mine, that I have learnt the hard way, is to ensure that one does not over expose oneself on any one position. By following these rules, Bumi was not the disaster it could have been and we were able to add to our position at much lower levels. I hope our readers were not burnt on that idea. Onto this edition. As ever, we have a diverse mix of features with a cracking interview by Zak Mir with Alessio Rastani, a Forex piece by Phil Seaton of LS Trader and a thorough explanation of the difference between share trading and spread betting shares — for anyone who has been confused with the difference then this is a must (and enlightening) read. We also have a new contributor — new to the spread betting game and who will write each month cataloguing his experiences in the world of spread betting — think of him as a novice Robbie Burns! Well, as the clocks are just about to turn back, we are closing in on the end of 2012 and we are all another year older and hopefully a little wiser and wealthier! Until next month, when we are into the countdown to Christmas — profitable trading to all readers. Disclaimer Material contained within the Spreadbet Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decision. Spreadbet Magazine Ltd does not accept any liability for any loss suffered by any user as a result of any such decision. Please note that the prices of shares, spreadbets and CFDs can rise and fall sharply and you may not get back the money you originally invested, particularly where these investments are leveraged. In comparing the investments described in this publication and website, you should bear in mind that the nature of such investments and of the returns, risks and charges, differ from one investment to another. Smaller companies with a short track record tend to be more risky than larger, well established companies. The investments and services mentioned in this publication will not be suitable for all readers. You should assess the suitability of the recommendations (implicit or otherwise), investments and services mentioned in this magazine, and the related website, to your own circumstances. If you have any doubts about the suitability of any investment or service, you should take appropriate professional advice. The views and recommendations in this publication are based on information from a variety of sources. Although these are believed to be reliable, we cannot guarantee the accuracy or completeness of the information herein. As a matter of policy, Spreadbet Magazine openly discloses that our contributors may have interests in investments and/or providers of services referred to in this publication. Richard November 2012 | www.spreadbetmagazine.com | 3 Contents Share Trading v Spread Betting What are the pro’s and cons? 6 14 21 24 30 44 47 AIM Oilies - Sifting through the carnage We take a look at the beaten down AIM Oil & Gas sector for some possible gems amongst the rubble. Stop Start! Tony Loton of Betterspreadbetting explains the importance of stops in trading. Forex spread betting and Black Wednesday FX trading explained and one of the biggest hauls in trading history. Why I started spread betting Our new columnist Chris Chillingworth takes us on his journey into the world of spread betting. Robbie Burn’s Trading Diary Robbie regales us with his latest trading exploits during the last month. Zak Mir’s Top Pick for November Zak alights upon Tate & Lyle this month. 4 | www.spreadbetmagazine.com | November 2012 US Election How to profit from the outcome. A Brief History Of Oil An insightful piece on oil price volatility over the last 60 years. 38 50 32 Get fit gadgets for the Autumn Technology to help you shed the pounds! 58 64 68 72 76 79 Dominic Picarda’s Technical Take Dom takes a look at the banking sector this month & asks can the rally continue? Zak Mir Interviews Alessio Rastani One year on from the infamous BBC interview, Zak catches up with Alessio. School Corner - Gann Theory explained Thierry Laduguie explains how Gann theory works. Ski Special Luxury chalets in the Alps in focus. Directors Dealing We take a look at debt laden print group Johnston Press. Currency Corner Is the sun finally about to set on Yen strength? November 2012 | www.spreadbetmagazine.com | 5 Special Feature Share trading v spread betting What’s the difference? 6 | www.spreadbetmagazine.com | November 2012 Share Trading V Spread Betting When I talk to many people about spread betting, the common response I get is their perception that it is complicated. My standard retort is as follows — you understand how a bank loan or overdraft works, right? And have you ever bought shares through a conventional broker? A nod of the head generally confirms yes in both cases. Well, spread betting in shares is quite simply the same as doing both — you are basically using monies borrowed from the spread bet firm as opposed to the bank in order to purchase shares. Of course, if you did leverage yourself to the hilt, you’d be pretty mad and the analogy of share trading v spread betting would no longer apply — you would truly be gambling in such an instance. But, if you took the view that Xstrata were unlikely to go below £5 a share, you might proceed ahead and so take a £20 per point bet (the equivalent of 2000 shares). In effect, you are borrowing £9,500 and taking twice the position size that you would be able to with a stockbroker. The concept of the borrowing cost comes into play now. With a £20 per point trade you have a position size equivalent to £19,020 (£20 x 951p). On a daily rolling bet with a 2.5% borrowing rate, your account would be debited with £1.30 per day (being £19,020 x 2.5% / 365 days). Given that the immediate saving was £85 relative to buying the shares outright, with the same equivalent position size of £10 per point then it would take 131 days before you were worse off in creating the spread bet relative to buying the shares. This actually under flatters the cost benefits as the typical broker commission of 0.5% on the selling side is materially more than the spread on the sell side. You can hopefully see now that spread betting shares relative to purchasing them outright, from a cost perspective, can actually be more advantageous. “But the real beauty is that this is done in a completely tax free manner - and it’s legal!” Here’s how it works — let’s say you want to buy Xstrata shares and have £10,000 of available capital to do this with. With the shares currently trading around 950p you could buy 1000 shares with a conventional broker, and with stamp duty (0.5%) and broker’s commission of typically 0.5% then the net cost to you would be £9595. Taking the spread bet example, the cost of what is called the “daily rolling bet” is 951p (with a stock price of 950p) and so buying £10 per point (the equivalent to 1000 shares) is a gross notional value of £9510 — an immediate saving of £85 relative to the stock purchase. Where’s the catch, I hear you say? Well, there isn’t one. In fact, going back to the borrowing from the bank analogy - whereas the bank will charge you anywhere between 8% & 15% to borrow money on an effective unsecured basis from them (if you can prise it from their hands that is!), with the spread bet provider, current borrowing rates that they incorporate in their spread are generally around 2.5% (typically Libor + 2%). So, in effect, you are being offered borrowing rates that are way cheaper than any individual can generally find anywhere else! Now, back to the Xstrata example, you can actually decide how much you want to borrow subject the maximum margin allowance. Let’s say that you believe Xstrata shares really undervalued and would like to buy, in fact, 2000 shares equivalent. With a margin rate (the deposit requirement) of 10%, for example, you could in fact purchase £100,000 worth of Xstrata underlying shares equivalent (£10,000 — your trading capital — being 10% of £100,000). Whereas with your stockbroker, you are restricted to your available capital. Where it generally hurts the punter is when they see just how much “unsecured” borrowing is available to them through low margin rates and they leverage themselves to the hilt. A small move against you if you are over leveraged is what causes accounts to blow up and turn people off spread betting. “Control your leverage and, as the pros and cons ON THE NEXT PAGE will show, spread betting should in fact be a serious consideration relative to standard share trading in our opinion.” November 2012 | www.spreadbetmagazine.com | 7 Special Feature pros 1. Cheap borrowing As we touched upon at the outset of this piece, one of the main benefits of spread betting in shares whilst interest rates are currently at almost zero is that the borrowing cost is exceptionally low and so financing the position relative to purchasing the stock is almost negligible. The additional bonus is that the financing rate is much lower than almost all private individuals would be able to borrow at in their own capacity. 3. The Ability to go “short” Take a look at the Trading Manuals page on our website in order to receive a FREE e-guide which details the basics of shorting and that was written by ourselves and our old “friend” Mr Cawkwell, aka Evil Knievil. Very few stockbrokers will allow retail investors to go “short” stocks as the mechanics of actually borrowing stock from an institutional holder is not straightforward and so this facility is generally the preserve of hedge funds and larger institutions. A spread bet account provides this facility. 4. Leverage capacity This links with point 1 above in that the borrowing facility is the reciprocal of the margin rate. For example, if you have a “blended” margin rate of say 20% and you deposit £5,000, then your borrowing capability is £25,000 (£5000 being 20% of £25,000). The margin rates offered by many spread bet firms are very generous. In our opinion, however, you should dial back your leverage from that offered — a bit like the pudding at a dinner — just because it’s offered doesn’t mean you have to eat it — it can make you sick! 2. Guaranteed stops We explore this aspect of spread betting further in our feature entitled “Stop Start” on page 21. But simply, there is not a stockbroker in the land (certainly not that I am aware of) that will take on the risk of a position falling through a stop level. That in itself is a very powerful incentive to spread bet a stock, particularly risky ones, even though the stops have to be a minimum 10% away. When things go wrong in stocks, 10% can be gone in but a blink of an eye! The other issue with guaranteed stops is that most spread bet providers will allow you to move them around (subject to the minimum 10% distance from the prevailing market price) and so you can lock a guaranteed profit — again I know of no stockbroker that offers such a facility. 5. Completely Capital Gains tax free This aspect alone is the real clincher for me. To be able to trade without the requirement to submit a cumbersome CGT return at the end of the year is fantastic. Of course, should you make a loss then it’s a bit of a bummer. Similarly, if your Capital Gains are less than the annual allowance of £10,600, then it is a moot point but, for the larger traders in particular, spread betting is a real attraction on this tax aspect alone, quite aside from the other attributes. It also pips CFD’s, in this respect, which are still CGT assessable. 6. Dividend receipt the same as with shares and higher for higher rate tax payers Another of — perhaps the worst prime minister ever — Mr Gordon Brown’s legacies, was his abolition of the dividend tax credit for pension funds and non tax payers. 8 | www.spreadbetmagazine.com | November 2012 Share Trading V Spread Betting Both basic rate and non tax payers can no longer reclaim the 10% tax paid at source and higher rate tax payers pay an additional 22.5% of the gross dividend resulting in a dividend haircut of 32.5% to them. With most spread bet firms you receive 80-90% of the dividend and so it actually makes more sense to hold a share in the spread bet capacity than it does to buy the underlying physical! cons 1. Non ownership of the asset This is the singular most important hurdle that can be levelled at spread betting v outright share purchasing — that being that although the underlying movements in terms of profit and loss are the same (pre tax), that you never actually own the asset. But then again, this also applies to CFD trading too — as with spread betting, it is a “synthetic” of the underlying share that you are trading. 7. The actual “spread” is cheaper in many cases than conventional broking commissions As we touched upon in the opening paragraph, with many stockbrokers’ commissions typically being subject to minimum charges and compliance charges on top, for both the smaller and larger trader alike, the savings through spread betting can be considerable. If you are a small trader who plays say £1 per point on a stock price at 100p, then the minimum commission with a stock broker could account for an effective spread of 30% (assuming a £30 minimum, for example). In effect, spreadbetting democratises the share purchasing playing field for the much smaller trader and also allows a diverse portfolio stocks at a very cheap cost. 2. Enticement to overtrade This links back to the margin and borrowing issue. Certain personality types, if they are given the “rope” so to speak, will hang themselves. In fact, this is the single most reason why the typical life of a spread bet account is much shorter than a conventional share account — if you leverage yourself 10 times, then a 10% move will wipe out your capital! With a conventional share trading account with no leverage, of course this occupational hazard doesn’t exist. At the end of the day it comes down to your own personal discipline. 8. No stamp duty The list of tax benefits in spread betting v share trading just goes on... Trade in shares in the conventional fashion and you have to pay the stamp duty of 0.5% on UK stocks. On a £10,000 trade this is equivalent to £50 — not large, sure, in relation to the trade size, but still an unwelcome cost. With spread betting — no stamp duty. 3. Capital losses not allowable The mirror image of point (5) in the Pros column — if you lose money spread betting, then you cannot offset the losses against other capital gains, i.e. on property. Of course, nobody starts spread betting expecting to lose, but losses are part of the game unfortunately, and in certain years even the best traders make losses — if you have taxable gains elsewhere, then this can be a “ball ache” when filling out your tax return — I know from personal experience! November 2012 | www.spreadbetmagazine.com | 9 10 | www.spreadbetmagazine.com | November 2012 November 2012 | www.spreadbetmagazine.com | 11 Special Feature conclusion For those traders with portfolios of less than £50,000 then there is also no difference whatsoever with regards to the regulatory protection that you receive, i.e. in the event of a firm going into default then you are covered by the FSCS up to £50,000 (as all spread bet firms are required to be FSA regulated). There is an argument for those individuals with portfolios in excess of £50,000 that they are more exposed than with a stockbroker, as you can still insist with many stockbrokers that your shares be held in certificated form — if the broker goes bust then you have physical possession of share ownership proof and registration and so you would therefore be unaffected. Coming on the heels of Worldspreads, Man Financial and Refco in recent years, this is an issue to be aware of, make no mistake. The counterargument with spread betting, however, is simply to diversify accounts above £50,000 with different spread bet providers and therefore address the FSCS limit which applies per account/firm. I hope, at the very least, this article has given you food for thought as to the merits of spread betting vs share trading and hopefully cleared up some misconceptions surrounding the industry. To go back to the beginning, think of it as using borrowed money from the bank at ultra low borrowing rates to buy shares in a completely tax free capacity — the amount you borrow is down to your own personal risk constraints. 12 | www.spreadbetmagazine.com | November 2012 Are you paying for financial books and guides? Check out our new Trading Guides page with a selection of FREE and exclusive e-guides only available at www.spreadbetmagazine.com Disclaimer These guides are intended for educational and informational purposes only. They should not be construed as giving investment advice and you should not rely on any content within these guides in making or refraining from making any investment decisions. Spreadbet Magazine Ltd and its sponsor partners accepts no liability whatsoever for any losses incurred by users November 2012 | www.spreadbetmagazine.com | 13 Special Feature A BRIEF HISTORY OF OIL By RICHARD JENNINGS & Filipe R. Costa 14 | www.spreadbetmagazine.com | November 2012 A Brief History Of Oil “ After the gold rush of the 19th century, humanity discovered another commodity to explore during the 20th century and into the 21st the fossil fuel that is Oil.” Oil, crude, brent, light sweet, black gold — whatever you want to call it, one thing’s for certain, it is perhaps the most important of all commodities, one we cannot currently live without, being the source of power for our industry, for our vehicles, in fact for our life in general. Oil is so important to us that sometimes it’s not the economy that influences its price, but its price that influences the economy. In fact, on many occasions oil has actually been the catalyst to a recession — a story truly of the tail wagging the dog. Following World War II, the price of oil was relatively stable, especially when adjusted for inflation, but in the last 10-15 years, volatility has been immense and the price has risen inexorably. While oil traded around $2.50 and $3.00 between 1948 and 1960, it has been trading between $16.50 and $146.00 in the period between 2000 and 2012. November 2012 | www.spreadbetmagazine.com | 15 Special Feature A Brief History Of Oil Prices After the end of World War II, the price of oil was heavily regulated through both production and price controls in order to keep the commodity relatively stable as its importance in the economy was rising. First, the Texas Railroad Commission was responsible for controlling the output and effectively imposing production quotas to control prices. After OPEC was established in 1960, power changed hands and it soon became clear that the US was no longer in control of the oil market. Let’s take a brief look at what happened through various time subsets: The calm after the war - post World War II period between 1948 and the end of 1960’s Stability is the proper word to define this period as oil prices were effectively controlled, simply gyrating between $2.50 to $3.00 — just a 20% rise over almost 20 years. Adjusted for inflation, real prices didn’t change much. In 1960, OPEC was created with five founding members: Iran, Saudi Arab, Iraq, Kuwait and Venezuela. Fortunately, OPEC members didn’t know at that time how they could influence oil price otherwise we would have had even more geo-political woes during the Cold War period. Even though demand for oil products increased in the post war period, prices didn’t, however, change much. The transfer of control from Texas to OPEC in March 1971 - In 1971 Qatar, Libya, Indonesia, UAE, Nigeria and Algeria joined OPEC giving some extra power to the organisation. When, in March 1971, the US ran out of spare production, and so no longer being able to put a cap on oil prices, the power to influence the market definitely shifted to OPEC. The Yom Kippur War and the Oil Embargo - After an attack on Israel led by Syria and Egypt, several western countries condemned the aggression and the stage was set for serious potential conflict during this worrying period. Middle East producers reacted by embargoing oil production and prices shot up from $3.50 in 1972 to $12 in 1974. That was the first real sign of the power OPEC could wield. The eye of the storm between 1974 - 1978 - This was a range-bound period for oil prices, during which they oscillated between $12.50 - $14.50. Adjusted for inflation, however, there was even a small decline in prices. The Iranian revolution and Iraqi attack - Iran not only went through a tough revolutionary period but it was also invaded by Saddam Hussein’s Iraq. Between 1978 and 1981 oil prices rose from $14 to $35 as output was substantially reduced with these two OPEC members at war. Increase in non-OPEC production and fast decline in prices — With prices rising, many non-OPEC countries took the opportunity to raise their production significantly. Saudi Arabia also broke ranks, tiring of ineffective production quotas restrictions by other OPEC members, and so increased their own oil production (to increase revenues from the quantity side instead of price). At the same time, the first signs of serious investment and momentum away from oil dependence by Western economies were emerging. The net result was disastrous for the oil price which dipped below $10 in 1986. Kuwait Invasion and the Gulf War - In 1990, Iraq invaded Kuwait. The oil price spiked, but soon after the US joined forces with Kuwait against Iraq, prices again gradually decreased. Economic prosperity through to 1997/98 — Western economies and Asia did particularly well during this period. Demand for oil products increased substantially, and China emerged as a major consumer with its own economy growing more than 10% per year. Oil dependency was at its highest for many years and with Russia experiencing a decline in production, oil prices increased again. Subsequent asian crisis - The quick downfall of Asia in 1997/98 as a consequence of a major borrowing binge and currency crises led oil prices into a renewed ownward spiral, but OPEC was able to successfully cut production in order to sustain prices. At the end of 1999, oil price was back near $25 after dipping as low as $10 in early 1999. The slowdown in the global economy continued until 2003, but OPEC was able to keep prices in a tight range, centred around the $30 a barrel level. Speculation age - During the last ten years, commodity markets have been opened to new investors with institutions and hedge funds embracing the ability to speculate on the oil price. This has led to a huge increase in volatility. The oil price has probably changed much more during the last ten years than over the last fifty. At the end of 2001, the oil price was around $16.50 a barrel, but with the growth in investment in the sector and the phenomenal leverage available to these investors it embarked on a remarkable rally, hitting a historical high of $146.27 on July 3, 2008 (as measured by the Brent Composite). Oil then had one of its sharpest reversals on record as the leverage v unwound, closing the year quoted at $45.59, an amazing 69% drop in just six months as the chart below pays testimony to. 16 | www.spreadbetmagazine.com | November 2012 A Brief History Of Oil Why Has The Oil Price Been Rising So Fast And Been So Volatile? Explanations for the fast and for the volatility elements are based on different factors. Firstly, simple physical demand for oil has risen dramatically in recent years while supply simply hasn’t been able to keep up, being punctuated by the adventures of the US & NATO in the Middle East during the last 10 years. With regards volatility, speculative involvement in the market has also risen exponentially as big institutions have looked to diversify themselves away from paper assets given the money printing experiments being undertaken by most of the world’s major central banks. In fact, there are now much more exchange contracts for future oil delivery than actual real deliveries. The oil market is, quite simply, now much more open to speculation and so susceptible to more violent moves. Over the last decade, China has been growing at more than 10% per year. The development model for the country relies on public infrastructure investment and on export industries. To develop and grow at a 10% rate, demand for oil products has naturally skyrocketed in tandem. China has, in fact, been the marginal consumer that has contributed the most to the rise in oil demand. Adding to China we have Brazil, India and other populous countries that 10-15 years ago were described as emerging and now have, by any measure, well and truly emerged. With the conflicts in the MENA region and spare production at very low levels, not even OPEC has been able to exert a meaningful dampening influence over prices. “there are now much more exchange contracts for future oil delivery than actual real deliveries.” November 2012 | www.spreadbetmagazine.com | 17 Special Feature Speculation, arguably, just accelerates price adjustment and also amplifies reactions to events. A main driver for the speculation in oil has been the Federal Reserve and its debasement policy through quantitative easing programs. As a reaction to the sub-prime crisis, the FED quickly started lowering its key interest rate down to the zero bound. As this proved ineffective in restarting the economy from the debt overhang they then embarked upon spending trillions of Dollars buying treasury bonds and mortgage-backed securities in a desperate monetary easing episode. The debasement of the dollar further decreased the attractiveness of Dollar-based low-risk assets, creating difficulties for several institutional investors that were traditional holders of such assets. Consequently, they went in search of better returns elsewhere, not least to satisfy the pensions actuaries not used to sub 8% returns. Gold and oil now form a core component of many institutional portfolios. What Has Happened In 2012? This year has been a tough year for oil. After hitting a year high in March, it has dropped significantly more than the broader global indices. “Super” Mario Draghi’s pre-announcement of a bond-buying program in July and QE3 prospects have put a light under oil prices recently, but it is still underperforming other asset classes. Intriguingly, Brent Crude is up 5.45% YTD, and yet the other sister benchmark contract WTI Light Sweet is down 6.59% on the year. The S&P 500 at time of writing is up 15.69% YTD. One indicator of this under performance is the fall from YTD high. While the index S&P is less than 1% below its high, Brent and WTI are 10% and 15% below respectively. Meanwhile, although Europe avoided engaging in currency debasement policies, much to the chagrin of the Southern European members, the decrease in interest rates in the Eurozone and the strong Euro depressed bond yields dramatically here. 18 | www.spreadbetmagazine.com | November 2012 A Brief History Of Oil Where Should You Put Your Money Now? With such a high volatility, it is not easy to trade the oil markets, especially if you are looking for short-term return. In the near-term, the fundamentals point to a resumption in demand from China, and so far OPEC has not indicated any meaningful supply increases are around imminently. Similarly, signs of the US economy finding its ‘mojo’ again are likely to be supportive of prices, at the very least. In September, housing starts and permits rose substantially the latest non-farm payrolls report has shown a decrease in the unemployment rate back below the key 8% level, and, most importantly, consumer sentiment is now back to pre-crisis levels. All these improvements, allied with the current QE3 program, will likely put upside pressure on the oil price. We have also to account for the institutional interest in oil. As long as interest rates are expected to stay low and bond yields remain artificially depressed, institutional investors will no doubt continue to seek incremental returns from commodities, including oil. Brent crude - WTI spread trade opportunity The most interesting situation for us, however, is in relation to the current spread between US Oil — WTI Crude & Brent Crude. Production in the US has been quite buoyant in recent years, especially from the controversial shale oil, but the pipeline infrastructure has not been able to distribute it effectively. Consequently, oil is stockpiling at Cushing. This logistics issue is in the process of being rectified, however, and we think that the excessive discount of Nymex WTI relative to Brent is likely to diminish over the coming months. A less risky trade on the oil price is therefore potentially to Buy the WTI contract and Sell the Brent contract — the so called WTI — Brent differential. Historically this spread has traded with a $1 - $2 price differential, but now WTI trades at a $20 discount — see chart. A pairs trade in equal proportions could be in order. November 2012 | www.spreadbetmagazine.com | 19 20 | www.spreadbetmagazine.com | November 2012 Editorial Contributor Stop start! By Tony Loton About the Author Tony Loton has authored the books “Stop Orders” published by Harriman House and “Position Trading” published by LOTONtech, and he runs the spread betting web site at www.betterspreadbetting.com Ever since I was commissioned by Harriman House (publishers) to write a book about “Stop Orders” a few years ago, stop orders have become something of a pet subject for me, so what better subject could there be for my first article for Spreadbet Magazine? In this article I’d like to tell you about some of the not-so-obvious things I learned about stop orders before, during, and since writing the book. But first, a little light relief: I have been known to describe stop orders as “the most important weapon in the armoury of the trader or investor”, which I thought was innocent enough, until I discovered that certain publishing and advertising platforms don’t like you using words like “weapon” in your text. So now I’m more inclined to use the phrase “the most important tool in the trader’s toolbox”, which — besides being more alliterative — gets an easier ride past the e-publishing censors! Anyway, now let’s start our adventure with stops. If you take a longer-term view as an investor or spread betting position trader, you should arguably not open a position at all unless you have sized your position prudently enough to accept a fall to zero. In which case, you don’t need a stop order to stop your loss. For this kind of trader, it’s a different story when the position has moved into profit. When you’re sitting on a 50% profit, you might use a stop order (for example) to “lock in” 25% of that profit as an alternative to crystallising the profit by selling out of the position too soon. On Freeing Up Trading Funds When you apply a stop order to a position, either to stop a loss or to secure a profit, you are effectively de-risking the position. A £1000 traditional investment (or the equivalent £10-per-point spread bet on a 100p-per-share stock) places £1000 at risk; unless you deploy a stop order at 20% below your buy-in price, in which case you have (theoretically) reduced your risk by £800 to just £200. While you won’t see any benefit from this risk-reduction in a traditional stockbroker account, on many spread betting platforms you will see a benefit in the form of increased available trading funds. As an experiment, try opening a position on your favourite spread betting platform with no stop order; then try attaching a stop order to the position to see what effect it has on your trading funds. You can use the freed-up trading funds to establish bigger positions or (my own favourite) more diverse positions. On Stopping Losses and Securing Profits Many traders and trading writers use the term “stop losses”, which I think does stop orders a massive disservice because it implies that the only possible use of a stop order is to stop a loss. “I would argue that stop orders are just as useful, if not more so, for securing profits.” November 2012 | www.spreadbetmagazine.com | 21 Editorial Contributor On Guaranteed Stops Although stop orders help you theoretically to stop losses, lock-in profits, reduce risk, and possibly free up trading funds, they do none of those things for sure unless they are guaranteed. I’ve had a love / hate relationship with guaranteed stop orders. I’ve loved the fact that they reduce your risk absolutely with no gap-down surprises, and I’ve hated the fact that you have to pay for the guarantees in the form of a wider minimum stop distance plus an account charge or wider spread. While I’ve considered guarantees on stop orders to be non-essential in a well diversified spread bet “portfolio”, in these volatile times I’ve once again grown to love the certainty of the guarantee. Here’s an interesting story: There was once a spread betting platform, now defunct, that boasted “free guaranteed stop orders”. It took me some time to realise that these were not free at all when this particular platform charged overnight financing charges of some 10 times (yes, really) what the other platforms charged for rolling spread bets. The irony is that I actually made more money in this account over a particular six month period than I did in another account that levied much more reasonable rolling charges but which didn’t provide guaranteed stop orders at all. And it was all down to the “whipsaw losses” that I’ll describe shortly. On Retrospective Guarantees Some spread betting companies oblige you to decide if you need a guaranteed stop order at the time you place your opening trade. Personally, I don’t always know whether I will hold what starts off as a “day trade” during the most dangerous times for adverse stop-outs — overnight or over the weekend — so I don’t always know if I will need (and want to pay for) a guaranteed stop order at all. Did you know that some spread betting platforms allow you to guarantee an existing non-guaranteed stop order retrospectively? I prefer to guarantee my stop orders towards the end of the trading day when I know I’ll be holding the respective positions overnight, at a time when those positions have moved sufficiently into profit during the day... so as to make the minimum stop distance a sensible stop distance. On Whipsaw Profits I told you earlier how I made money in a spread betting account that mandated guaranteed stop orders on all trades and which made me pay through the nose for the privilege; and it was all thanks to a series of “whipsaw profits”. As the opposite of a whipsaw loss, a whipsaw profit occurs when a volatile price gaps down through your guaranteed stop order — at the spread betting company’s expense, pity them — and you find yourself immediately able to re-purchase at an even lower price (than the stop-out price) before the price bounces right back up. It requires vigilance and quick reactions, but it can be done, and I’ve done it. On Minimum Stop Distances Deciding on the optimal stop distance can be tricky, and accepting the wider-than-usual minimum stop distance of a guaranteed stop can be off-putting. But maybe the spread betting company is doing you a favour with those minimum guaranteed stop distances. When you apply a guaranteed stop order to your position, you are transferring the risk of an unfavourable stop-out (due to slippage or price gaps) to the platform provider. Since the platform provider really doesn’t wish to fall foul of an adverse price move (see next topic), you might conclude that their supercomputer has calculated the minimum stop distance to be the distance at which they do not expect to be stopped-out by the market on a whim. Start with Stops I began this article by explaining how stop orders may be just as useful (if not more so) for securing profits as they are for stopping losses. But for most traders, the primary use for stop orders is to exit positions automatically and unemotionally for small losses before those small losses become catastrophic big losses. Setting a stop-out price at the time you open a trade allows you ultimately to exit your position at the level you want to rather than when you absolutely have to (or not at all). Most good traders won’t ever enter a position unless they know the price at which 22 | www.spreadbetmagazine.com | November 2012 UK100 | WALL ST | DAX | NASDAQ | S&P | CAC | GOLD | BRENT CRUDE | COPPER | EUR:USD | GBP:USD | USD:JPY | EUR:GBP | APPLE | RBS | VODAFONE | GOOGLE “Oh Dorothy, hold me as tight as a Capital Spread.” capitalspreads.com Spread Betting | CFDs The tightness of our spreads is legendary. Spread betting carries a high level of risk to your capital and can result in losses that exceed your initial deposit. Capital Spreads is a trading name of London Capital Group Ltd (LCG), which is authorised and regulated by the November 2012 Financial Services Authority and a member of the London Stock Exchange. | www.spreadbetmagazine.com | 23 Take a better position Editorial Contributor An intro to Forex spread betting & Black Wednesday One of the biggest hauls in forex trading history By Phil Seaton - ls trader For those that have spent any time involved in trading the markets or spread betting, it is almost inevitable that they will have come across the world of forex trading at some stage along their journey. Why is this and why has trading forex become so popular? There are many reasons and we will touch on them in this month’s article. Firstly, before we get into the mechanics and advantages of forex trading we can first take a look at some of the major events that have attracted traders. One of the most well known examples of forex trading comes from an event dubbed as “Black Wednesday”, where a few savvy traders actually took on the Bank of England... and won! 24 | www.spreadbetmagazine.com | November 2012 Forex Spread Betting & Black Wednesday November 2012 | www.spreadbetmagazine.com | 25 Editorial Contributor Black Wednesday & George Soros These group of traders included the venerable George Soros and Joe Lewis and the date was September 1992. Soros, along with Stanley Druckenmiller at the fabled Quantum Fund had identified a weakness in the Bank of England’s position and its commitment to keeping Sterling above an agreed lower limit. So convinced were they of the flawed basis of the so called ERM (Exchange Rate Mechanism) that had effectively pegged the pound at too high a rate against the German deutschemark (sound familiar anyone?!) that they bet heavily against the pound. Thus ultimately resulted in forcing the removal of the pound from the ERM as well as the then Chancellor Mr Norman Lamont’s infamous “I did it my way” singing in the bath story. True! The idea for the trade allegedly came from Druckenmiller, with Soros’ contribution to the trade being to encourage Druckenmiller to take such a gigantic position. The outcome of this successful bet made these traders a fortune and it is estimated that Soros alone made in excess of $1 billion dollars as a result of his short selling the pound. It takes a considerable amount of guts to place very large trades such as Soros did on Black Wednesday in order to move the markets and that’s all well and good when you’re right. Others have not fared so well, such as Victor Niederhoffer who Soros replaced with Stanley Druckenmiller at the Quantum Fund and who was covered in the September edition of this magazine under the article “Hedge Fund Managers Who Blew Up”. Victor Neiderhoffer Joe Lewis - currency trading king Returning to the Pounds ignominious ejection from the ERM, another well know billionaire trader - Joe Lewis - was also at the epicentre of this. Lewis was famously born above a public house in East London and he has a reputation as a bit of a “bruiser”. This reputation was likely cemented in September 1992 as it is said that he was aligned with Soros and actually made more money than him on Black Wednesday. Still, in a reminder that the market is no respecter of pocket depth when you are on the wrong side of a trade, he went on to blow spectacularly over $1bn in the early stages of the Great Financial Crisis through purchasing over 100m shares in the ill fated Bear Stearns. His average price was $107 per share and when JP Morgan acquired them for $10 I’m guessing it was not a nice evening in the Lewis household (or yacht) that day! It is events such as “Breaking the Bank of England” that get traders’ juices flowing and interested in forex trading, and many fancy themselves as the next George Soros. However, I’d wager that few have his deep understanding of economics or the capital required to place such a large bet. Limited capital though is not always a restraint in forex trading due to the large levels of leverage offered and so enabling the trader to get far greater exposure than he has capital on account. This is one of the reasons that forex trading has become so popular, as traders with smaller accounts can trade the forex markets very well. Japan in particular has embraced this emphatically with the infamous “Mrs Watanabe” held up as an example of retail investor speculation — the Japanese housewife playing the currency markets whilst carrying out her domestic chores! Niederhoffer placed huge bets on the dollar/yen many years ago and was found to be wrong, one of numerous errors made with large bets. One has to be able to draw the line between speculating intelligently when the odds are in your favour, and out and out gambling. “Certain short periods of time and even individual days, can bring in the money time and time again!” 26 | www.spreadbetmagazine.com | November 2012 Forex Spread Betting & Black Wednesday FoREx advantagES Aside from leverage available with forex trading, there are many other advantages including the fact that they trade 24 hours per day, five days per week and are extremely liquid. there is approximately $4 trillion traded daily around the world in the forex markets. Because of this liquidity, transaction costs, known as the ‘spread’ in spread betting, are very tight, especially on the major fx pairs. Sometimes spreads on the majors can come down to as little as a pip, and only a little bit more for some other markets. Forex markets, due to the aforementioned liquidity, tend to trend very well. There is also no insider trading in forex and due to their size they are not easily manipulated, except perhaps by central banks that often do their best to weaken their own respective currencies to reduce their debts and make them more competitive — a practice “Helicopter” Ben Bernanke is well versed in! tRading oppoRtunitiES Recent examples of central bank interventions have come from the Bank of Japan, the ECB, the Bank of England, the U.S. Federal Reserve and more. These central banks intervene in the currency markets by reducing interest rates and through asset purchases such as Sovereign bonds, and which have the effect of increasing the money supply. By increasing the money supply, making more of a specific currency available, the value of the currency must, per economic theory, weaken. This process is known as debasing. Perhaps the most sustained example of this in the past decade has been the U.S. dollar and the almost continuous intervention by the U.S. Federal Reserve to weaken their currency. The official policy of the U.S. government is a strong dollar policy, yeah right! Consider the weekly chart below of the dollar index which goes back just over a decade. The dollar index is the U.S. dollar against a basket of major currencies and is a very good indicator of the strength of the dollar. US Dollar 10 year weekly chart November 2012 | www.spreadbetmagazine.com | 27 Editorial Contributor When looking at the chart, consider that the official policy of the U.S. government throughout this period has been, and supposedly currently is, a strong dollar policy and then look at the chart! The only conclusion can be that they are either incompetent or lying. That’s something to keep in mind the next time you are considering placing a trade based on Central Bank policies or on what politicians may say! The index over that period has seen a decline from almost $135 down to its present value around $80, and it has been lower than its current level in the past couple of years. On the opposite end of the scale, the Bank of Japan have intervened several times with heavy selling of the yen to devalue what they consider to be an overvalued yen. The yen has actually hit all time highs in the past 12 months against the dollar and many now expect the yen to weaken considerably over the coming years. Consider that dollar/yen is currently trading around 80 and it has previously been 365 and that gives you some idea of how far the yen has come in recent years and how far it potentially has to collapse! What is clear, though, from the above examples is that there are, and can be, huge moves in the forex markets and potentially very large profit opportunities for traders to take advantage of. The downtrend for the dollar, for example, has been in place for much of the past decade — sitting on the right side of this trade would have reaped big profits, especially considering the leveraged nature of forex trading. When trading forex one can either trade based on fundamentals, news or technicals. For the retail trader, trading on fundamentals is hard as there is so much information to absorb that affects currencies, especially since you have to consider that each currency trade is, in effect, buying one currency and selling the other. Trading on the news is also tough as there is so much information overload today with live news feeds, as well as misinformation even from central banks. The retail trader will therefore almost certainly fare better by trading on technicals and using a system based on technical analysis. As is usually the case, the systematic trader who has a mechanical approach for trading the markets fares best in the end, as by having a complete set of rules to follow when placing his trades makes him far less susceptible to trading errors or emotional weaknesses. Such a system is the LS Forex System. This is a system that we have created to systematically trade the forex markets and it can be followed in as little as 30 minutes per week, negating the need to sit in front of a screen all day. You can find out more about the LS Forex System and a special offer for SpreadBet Magazine readers by clicking the following link: www.LSForexSystem.co.uk/spreadbetmag Good trading Phil Seaton “FOR THE RETAIL TRADER, TRADING on fundamentals is hard as there is so much information to absorb.” For example, if you trade GBP/USD long, you are buying the pound and selling the dollar. If you went short AUD/ USD, you would be selling the Australian dollar and buying the U.S. dollar. Many have problems with short selling stocks for various reasons, including the misguided logic that it is unethical or wrong. This is easily overcome in the forex markets as one is automatically buying one currency and selling the other, thus removing any stigma attached to short selling. 28 | www.spreadbetmagazine.com | November 2012 FULL 12 MONTHS FOR THE PRICE OF 9 MONTHS FOR READERS How would YOU like to make consistent profits in the Forex markets? full months subscription for the price of 9 months Benefits of the LS Forex system Average profits made in excess of 93%*per year. Easy to follow powerful and robust forex system. The LS Forex System can be followed in only 30 minutes per week. Unlimited support with our interactive LS Helpdesk. We provide a comprehensive LS Forex Manual which explains all you need to know about trading Forex and the LS Forex System. 30 day no quibble money back guarantee. Click here for your FREE ebook & receive 12 * Disclaimer - Results are the outcome of backtesting. Since not all trades were necessarily taken the results should be seen as hypothetical. Hypothetical performance results have inherent limitations including the fact that they are generally prepared with the benefit of hindsight. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading system. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Future results may be higher or lower than past results. 30-day money November 2012 | www.spreadbetmagazine.com | 29 back guarantee applies against subscription fees only. Editorial Contributor wHy i StaRtEd SpREad bEtting by CHRiS CHiLLingwoRtH There are probably thousands of reasons why people get into spread betting the financial markets. Mine was due to disillusionment with the insurance industry. Weird, right? Well, it’s true. I began spread betting in 2011 after getting so fed up with my job that I quit. I had been an operations manager of a fraud investigations unit within insurance. My job was to oversee a department of more than 50 staff and oversee fraud initiatives. Initially I loved the job, but, after a few years, my role became more and more “corporate”. I spent more hours than I wanted having to kiss the a*se of big names within the industry. When my department started making millions of pounds worth of savings they started giving me unachievable targets to reach as the greed set in and t quickly became less about accuracy in fraud detection and more about how much money we could save. This obviously drove the wrong behaviour and I didn’t like it. I spent a year at home, living off savings and trying to work out what I wanted to do with my life. For the first time in many years I felt like my eyes were opened. I decided I wanted a job where I was at home with my new children to see them grow up. I wanted a job where I could be my own boss and make my own decisions. I wanted a job where I could decide how much I earned, where my input dictated how much I got out. I wanted a job where my earnings weren’t capped by a salary; i wanted the potential of no limits. In short, I wanted the world! I happened across spread betting after a good friend of mine introduced me to a book about it. He was working within the I.T. department of a major spread betting firm and he himself had been given the book to better understand what the company was selling. I opened a demo account and began making some paper trades, but, although I was fascinated, I was somewhat perturbed by my own lack of knowledge surrounding the financial markets. So, seeing this as an opportunity to get into something potentially ticking all the boxes above, I went out and got some training. I purchased a course on spread betting by a well known industry expert and began learning a system. It was an end of day trend trigger trading system. “i wantEd a Job wHERE i CouLd bE My own boSS and MakE My own dECiSionS. i wantEd a Job wHERE i CouLd dECidE How MuCH i EaRnEd, wHERE My input diCtatEd How MuCH i got out.” 30 | www.spreadbetmagazine.com | November 2012 Why I started spreadbetting I would open positions when there were signs of a potential trend forming and I would ride that trend until exit signals started showing up. It was such a simple method that in back-testing, it seemed rather profitable. It also complemented my personality. I had just come out of a stressful job. I didn’t like the seemingly stressful rollercoaster ride of day-trading. It seemed full of false signals and, whilst I understood that the markets were a naturally unpredictable place, I was hoping to find something with a little more consistency. Long term trend following was a lot closer to that ideal, so it fitted nicely with what I was looking for. The ultimate goal I now have a goal. A goal to spread bet full time. I’m a long way away yet as I started with just a relatively small account in 2011. However, with only one year’s experience behind me I am confident that I have now turned a corner. I am not making the mistakes I made in the past. I am following my trainer’s rules accurately for the first time. And what’s more, I am currently sitting on a 33% return in the last 4 months having risked only a small percentage of my capital per trade as per my new strict money management rules. My risk amount per trade is small and I am pinning my hat on the law of compounding profits, achieving a consistent 40% return per year would see me in a financial position to go full time. Is 40% likely? I doubt it’s that simple. I could hit 100% one year. I know a trader who achieved 300% return in his first few years using the same system I use. Other years I could perhaps make a small loss. So it’s difficult, but I have a financial goal that, once reached, should allow me to finish the day job and stay at home whilst spread betting my end of day system and still having enough left to re-invest each year therefore growing my available capital. This will hopefully allow me the freedom to spend the days of my life doing what I want to do with my time. I could reach that in 10 years. I could get there sooner. I’ll leave you with something that has probably changed my life quite dramatically since reading it originally. In 2011 an Australian nurse named Bronnie Ware interviewed dying patients at a care home during the last 12 weeks of their lives and recorded their top 5 regrets. The top answers was “I wish I had the courage to live a life true to myself, not the life others expected of me.” The second? “I wish I hadn’t worked so hard.” I struggle with the thought of lying on my death bed thinking “What a waste of a life spent doing something I didn’t really want to do.” Of course, we all have to make sacrifices. We go to work to pay the bills so our kids can have a good education, so we can afford the things we need/want in life, but if there is a way to do the things we enjoy, and still have those other important responsibilities covered, then I’m certainly going to try, and spread betting and trading are currently my platform to achieving this. Until next month, when I’ll update you with my spread betting journey. Chris Learning the lessons the hard way So, I put some money into an account with Capital Spreads and I was off and trading! I followed the rules and started to see some profits come in. However, what I didn’t realise was just how hard it would be to stick to the rules. My training had taught me the dos and don’ts, but putting these into practice took a lot of failed trades. You see, I discovered that the chink in my armour was meddling with the positions. A price would rise and I’d panic for fear of losing the profit again, so I’d take my profit. Equally, I’d let losing trades run in the hope they would come back to me. Yet my training told me to do the opposite. I’d open positions based on expert opinions, emails and newsletters. Man, sometimes I even bought off the back of a tweet I read about a stock! I was trigger-happy, wanting to open positions all over the place and looking for any reason to trade. Of course, I was also taught not to do this. But I still did it. Sometimes you have to learn the hard way. It’s the way I learnt. I am of the school of thought that mistakes are fine as long as you learn from them. I hate making the same mistake twice in anything I do, be that work, parenting, social interactions or trading. I analysed every failed trade and made sure I worked out what I should have done. Each and every time I came back to the rules. If I had followed the rules, I wouldn’t have made these losses. It’s been costly from a financial perspective making these mistakes, however I often wonder whether everyone needs to make mistakes to learn the benefits of rules? You can follow my journey on my blog where I post all my trades, warts and all, winners and losers at www.spreadbetbeginner.co.uk and you can follow me on Twitter @traderchilli November 2012 | www.spreadbetmagazine.com | 31 Special Feature Get Fit Gadgets for the Autumn By Simon Carter It’s a gorgeous sunny morning in mid-July. You leap out of bed at dawn, stretch a little and then head out for a run. There’s almost no feeling like it. But even getting out of bed can be a struggle when mid-July turns into mid-November and the thought of going for a run, or jumping on your bike, or even getting in the car and pointing it towards the gym is enough to make anyone bury their head into the duvet! So maybe you need a little help to get out there. Maybe you need a little motivation. Maybe you need a few gadgets to give autumn exercise that little extra incentive. 32 | www.spreadbetmagazine.com | November 2012 Get fit for the Autumn “Maybe you need a little motivation. Maybe you need a few gadgets to give autumn exercise that little extra incentive.” November 2012 | www.spreadbetmagazine.com | 33 Special Feature Garmin Forerunner 410 GPS Watch Price: £159.99 If you’re going to spend the freezing mornings out on the tarmac, you might as well get technology on your side. And this GPS sportswatch is the most technologically advanced watch since Roger Moore’s in Live and Let Die. With all the usual features of a GPS watch — records of time, pace, distance, elevation etc — you also get a host of extras including a free subscription to Garmin Connect, an online database that will automatically collect your results. In the competitive mood? Then race your Virtual Partner who will keep to your goal pace while you try and beat them. It can even re-enact one of your previous runs. Garmin, of course, are more famous for their navigation systems and, brilliantly, this watch includes a basic navigator to help you find your way home when you get carried away. The one place it lets itself down is with its looks (the Nike+ SportWatch is a gorgeous alternative), but let the poseurs have their airs while you have the performance. 34 | www.spreadbetmagazine.com | November 2012 Get fit for the Autumn XSories MP3 Waterproof Headphones Price: £54.99 Should swimming be more of your thing, and let’s face it, a warm pool sure beats a glacial road, then make sure you pack this smart underwater mp3 player along with your trunks and your towel. Forgoing the usual system of music players connected to ‘phones using wires — that’s strictly for landlubbers — the XSories Aqua Note packs 4GB of storage into just the earbuds and headband. No external player required. Admittedly, the sound quality isn’t great unless you’re underwater — the makers insist that the output is specifically mixed to sound better when submerged — and there is no shuffle facility, but these are minor quibbles. Wear these at your local pool and you’ll draw as many admiring glances for your headphones as you do for your breaststroke. If you don’t fancy a swim, dip your head into the bath and with up to 10 hours of battery life, you’ll be shrivelled to a prune before you’re out of tunes. November 2012 | www.spreadbetmagazine.com | 35 Special Feature Branx Fitness Treadmill Price: £999.50 OK, if you reside in a city centre apartment, you should probably skip this bit as reading about the awesome Branx Treadmill will have you marching (or jogging?) to the estate agents in a desperate search for a bigger place. In fact, who needs a couch? Make room wherever you can for this gym standard home treadmill. For the days that the weather is just too biting to entice you past your front door, this treadmill gives you everything the outdoors does except for the scenery. Packing the kind of tech that, five years ago, you would have only seen in high-end gyms, the Branx Fitness Treadmill delivers incredible performance for a reasonable price. With 99 pre-set programs, incline and speed settings, a 3.5mm jack with a terrific speaker system, heart rate reader, cooling fan, body fat reader, colour display with calories, distance, time, pulse, speed and incline plus a generous shock absorbent running area, you’ll spend just as long admiring it as you do using it. Highly recommended. 36 | www.spreadbetmagazine.com | November 2012 Get fit for the Autumn Fitbit Ultra Activity Tracker Price: £79.99 With an activity tracker, the whole world is your gym. Bounding up stairs, running for the bus, standing in a queue at the coffee house and chopping onions will all become competitive sports as you try and raise your heart rate and burn those calories. A built-in 3D motion sensor tracks all of your movement, it’s even tracking you when you’re asleep, and uploads the collected data onto Fitbit’s website for your analysis. And the website is really the perfect partner to the activity tracker with its excellent goal centre and food log, and auto-generated graphs. Sleek, small and unobtrusive, the Fitbit activity tracker can be used in daily life and as a complement to any exercise (except underwater activities). The on board pedometer keeps track of those all important steps and, while the claims of the manufacturer that users complete 43% more steps and lose on average 13 pounds may seem a little inflated, there’s no doubting the fitness, and tech, credentials of this little wonder. November 2012 | www.spreadbetmagazine.com | 37 Special Feature US Election - potential impacts on the equity markets On November 6th, US voters will go to the polls in what is the 57th quadrennial Presidential election. On one side is the incumbent Democratic President, Barack Obama, the 44th U.S. President since 1732. On the other side is the Republican candidate and current Massachusetts’ Governor Mitt Romney. 38 | www.spreadbetmagazine.com | November 2012 US Election November 2012 | www.spreadbetmagazine.com | 39 Special Feature Barack Obama is running for a second term while Mitt Romney is looking to defeat him and gain his own unique place in history as the 45th U.S. President and its first Mormon. It’s fair to say that the respective policies of each of the candidates are probably the most polar extremes in recent memory with Romney perceived as the champion of the wealthy and advocating tax cutting (be damned the deficit!) while Obama is cementing himself further as the middle class champion. What’s for sure is that whoever succeeds in this race is likely to plot very different respective economic courses. Equity markets are affected by all the important issues that make up economic policy of course — of budget spending, social security policy, tax policy, and a myriad of other possible issues. In this feature, we do not look in detail at the politics behind each candidate, but rather investigate how well the stock market does after an election and whether there is a way for us to potentially profit from this. Ben Bernanke Throughout this period there were 21 elections with the results split 11-10 between Democrats and Republicans. Performance for the S&P 500 index (including dividends) has been positive, averaging 8.24% in the year after an election. However, in looking at the data, we can see that the average return per annum over this period is in fact 11.46%. At face value it seems that the year after an election is an underperformer. What’s also interesting from the data is that the average returns have been skewed by the big outliers of the Bush & Clinton eras, when exceptional returns were produced as part of the long bull market in stocks that began in the early 80’s. On the downside, we can see that the major underperformers, not unsurprisingly, coincided with the depression era under Roosevelt’s watch. Perhaps there are parallels with now? US stocks are still very highly valued, in complete contrast with parts of Europe and Japan & China — again, powerful testimony to the impact that Quantitative Easing is having on the US markets in particular. Typically in the 12 months leading up to an election, the incumbent President will try hard to pave the way to be re-elected — in the most capitalist society on earth this means one thing — priming the economy. It’s probably fair to say that Obama has Mr Bernanke at the top of his Christmas card list through his money printing actions. This year the US stock market has stuck to the script and, at the time of writing, has in fact led major global markets in rising by almost 12%. But what happens after the election? Will the market continue its ascent towards its all time highs? Is there any difference between a Republican and a Democratic candidate in terms of market performance? Digging into the data In order to evaluate the effects of a Presidential election on market performance, we have collected extensive S&P data from 1928. 40 | www.spreadbetmagazine.com | November 2012 US Election The actual win:lose ratio in the year after an election is quite surprising — being almost equal at 11:10 and so a near 50-50 split. Consequently, there doesn’t seem to be much to be gleaned from this element of the stats in giving us an indication as to how to place our bets next year. The only interesting element, given that the average performance was 8.24%, is that this illustrates that when the market rose historically, it actually rose substantially more than when it dropped. In fact, the average rise amounted to 26.1% whilst the average drop averaged 11.4%. The Difference Between Democrats and Republicans Let’s try to add another perspective to the data. The following table shows performance for the S&P 500 in the year after an election, but this time splitting the data to account for the winning party. I don’t know about you, but I found the data somewhat surprising! The Republicans are supposedly the party of business and deemed to be equity friendly and, indeed, Romney’s current election stance is premised upon him being able to steer the US economy to rather calmer waters than Obama, but looking at both this data and the returns since Obama was elected (the S&P is up almost 50%), this is a spurious assertion not founded on fact if history is any guide. The data shows there is a huge difference in what happened after an election depending on the winning party. While the S&P rose an astonishing average of 15% when a Democrat won the election, it just flattened with the Republicans in charge. Also noteworthy is the fact that the market rose 8 times out of 11 (a good set of odds to bet on) with a Democrat, and just 3 in 10 with a Republican. November 2012 | www.spreadbetmagazine.com | 41 Special Feature “Throughout this period there were 21 elections with the results split 11-10 between Democrats and Republicans.” Possible ways to profit from the election outcome The data suggests that, if just blindly looking at the year following the election, you have largely a 50-50 chance of making money from a bull position S&P in 2013. If Barack Obama is victorious, then a bull position in the S&P 500 is likely to be profitable based on the data we have unearthed and also in looking at his policies to cut the budget deficit — fiscal cliff not withstanding of course — and that we covered in the previous edition of our magazine. Should the US wake up on November 6th to Mitt Romney in office, then with his tax cuts for the wealthy and seemingly indifferent approach to the deficit, a dual short in US equities and bonds could be the way to go. Indeed, we can see below that bonds have already begun to break down (we suggested that Bonds offer a “once in a generation” short opportunity in our September edition) and the extra tailwind that the short side requires just might be delivered by a Romney victory. 42 | www.spreadbetmagazine.com | November 2012 Subscribe Don’t miss out! November 2012 | www.spreadbetmagazine.com | 43 Editorial Contributor Robbie Burns’ AKA The Naked Trader - November Diary If you’re a spread bettor... well come on, you are reading a mag called ‘Spreadbet Magazine’, so I have to guess you are... Well, if you especially like a bit of short-term trading, you ought to know the best times of the year for particular trades because it is amazing how often history repeats itself. Certain short periods of time, and even individual days, can bring in the money time and time again! For example, do you know what the strongest trading day of the year is? It may well surprise you… It’s the 27th of December, right after Christmas. And indeed the fourth and fifth best days are just before Christmas. So this year, instead of lying on the sofa with a sore head being forced to watch the Christmas edition of ‘Boretown Abbey’, you may want to consider trading during the holiday period. The short trading days of Christmas Eve and New Year’s Eve are usually good too and so, historical evidence implies that one of the best times to say buy the FTSE 100 index is around Christmas time. As spread betters, we also ought to know ex dividend dates and results dates too. So I have produced a diary stuffed with all the important facts and figures you need to know for 2013. It’s ‘The Naked Trader Diary 2013’. One of the main reasons I decided to produce the diary was I realised I always got asked this question: “How do I know when my share is going ex dividend or when it’s going to report results?” A good question. You can find out yourself, but it takes a bit of effort and it’s easy to forget to look it up. So my diary, hopefully, will help solve this problem: it has all the forecast ex-dividend and reporting dates for the whole year ahead for you. I’ve got them all, week by week — keep the diary on your desk and it will tip you off the dividend is about to go ex or a set of results is around the corner. These things are very important to know — after all, both move share prices. “Certain short periods of time and even individual days, can bring in the money time and time again!” It always amazes me that investors, and particularly spread betters, don’t check ex dividends — shares always go ex dividend on a Wednesday. Remember that a share tends to open down by the amount of a dividend on ex dividend day. So, let’s say you are holding a share at 940p with a stop loss of 900p. The share is due to open ex-dividend so will probably start the day down 40p. 44 | www.spreadbetmagazine.com | November 2012 Robbie Burns’ Trading Diary “As spread betters, we also ought to know ex dividend dates and results dates too. So I have produced a diary stuffed with all the important facts and figures you need to know for 2013. It’s The Naked Trader Diary 2013.” Your stop will get hit! You must remember to change it before the share price opens — remember you can change a stop at any time — if you want to remain in the position. Of course, your account will get credited with the net dividend (a factor touched upon in this issue in the piece about share trading vs spread betting). You’d be amazed at the amount of emails I receive from people who got stopped out because they hadn’t factored in the ex-dividend! The same kind of thing happens with results days. People get surprised when an announcement is made, or even miss it. For example, if you’ve had a good run with a share, you might just want to bank a little profit before results, or at least you ought to be alert in case you need to sell them or even buy more when the market opens. Going back to strong and weak days — in my diary, every day has an arrow by it telling you how it has performed in history, and I’ve pointed out the best and worst times to trade. It also has commentary by me on companies about to report sports betting ideas and dates and important stuff for spread bettors like rollover dates... Plus, some fun too: cartoons and some trading ideas! I hope you will find it very useful to have on your desk to help with your trading for 2013. You’re dying to buy it now for next day delivery aren’t you...? Here’s the link... Hope you like it! http:/ /books.global-investor.com/books/868876. htm?ginPtrCode=10453 Looking ahead to November, expect some volatility to make a comeback after the very tight range the FTSE has been trapped in during recent weeks. During and after a US election, shares and indices can start to move around and if Obama loses, expect a tricky time... I’m away on holiday this month, in keeping with the US season: we’re off to Florida to escape this weather! Happy trading. Robbie November 2012 | www.spreadbetmagazine.com | 45 Ashraf Laidi City Index Chief Global Strategist James Chen City Index Chief Technical Strategist Visit cityindex.co.uk/trading-academy Show your support #TradingAcademy Spread bets, CFDs & FX are leveraged products & can result in losses exceeding your initial deposit 46 | www.spreadbetmagazine.com | November 2012 Editorial Contributor Zak Mir’s Top Pick For November At the time of writing, it is not 100% clear that there will not be an October Crash to celebrate the 25th anniversary of the one we had in 1987. I miss those days, having just turned 21 at the time! But at least the challenge of October, making a correct call in online gaming group Bwin. party Digital Entertainment (BPTY), has passed with a notional profit of around 20%. As far as November is concerned, I have to admit there has been quite a lot of scratching around looking for the correct candidate. Gold was actually a contender at its 50 day moving average near $1,720, as was Marks & Spencer (MKS) as it appears that a takeover really could be on the cards this time. But, in the end, I have plumped for a buy of Tate & Lyle (TATE), largely on the basis of it demonstrating one of the more reliable technical trading triggers as detailed in my Zak Mir’s Top 25 Technical Triggers guide that this publication is so kindly offering for free to readers — an unfilled gap through up the 200 day moving average. Jefferies (a personal favourite of mine amongst the big brokers in terms of the strength of their analysis) seem to know something that the market as a whole does not — this could be M&A or raised profits guidance in my opinion. Technically, shares of Tate & Lyle are backed by a falling triple tested July-September RSI support line, as well as a September bear trap below the July and August lows. The third positive aspect is the initial unfilled gap through the 200 day moving average — now at 676p. The implication here is that while there is no break back below the last 688p October support, the upside here will be the top of a rising March 2011 price channel on the daily chart, possibly as high as 820p by the end of this year. Recent Significant News: October 15th — Jefferies upgraded its rating for the sweeteners and food products group Tate & Lyle from ‘hold’ to ‘buy’ and raised its target price from 690p to 800p, saying that the stock currently offers a ‘compelling buying opportunity’. It said that Tate & Lyle has changed dramatically over the past three years and is no longer known as “that sugar company”. October 4th — In raising its rating on Tate & Lyle from neutral to outperform, and price target from 700p to 750p, Credit Suisse said that Tate has spent a few years getting its house in order, disposing of large tranches of the more cyclical/ commodity earnings divisions and investing in “added-value” operations (now 60% of profits versus 38% in 2007). Despite this,the shares have seen no rating change, still trading on 11-12x earnings. Recommendation Summary What is interesting to me about Tate & Lyle is that many brokers have swung towards the stock since the start of the autumn, having been cautious and / or negative regarding the sweetener group in recent years. In fact, October saw Credit Suisse suggest that the shares are an “outperform” candidate, with Jefferies flipping up from hold to buy and raising its price target from 690p to 800p. November 2012 | www.spreadbetmagazine.com | 47 Editorial Contributor Tate & Lyle - Chart September 27th — Tate & Lyle said first half adjusted operating profits will be similar to last year’s level — in line with expectations. The group said it saw an improved performance in the second quarter in its Speciality Food Ingredients business. Within Bulk Ingredients, operating profit is expected to be ahead of the comparative period, with a strong performance from liquid sweeteners in both the US and Europe. They are, in effect, sticking their head on the block — something very few in this industry do. Adding fuel to the Buy fire is the fact that in just a couple of weeks, both Jefferies and Credit Suisse have turned very positive on Tate & Lyle — something which does suggest that they are anticipating positives over and above what was an “in line” September update from the group. This may be related to the £75m in synergies savings related to the rejigging of the businesses over the past couple of years, as well as the likelihood that the stock will re-rate back towards the sector average of 15 plus times earnings as opposed to under 12 currently and so targeting 800p+. Fundamental Argument While I have no scientific backing, in my experience Jefferies is one of the best brokers in their stock analysis dept and although this is not saying much (brokers have an uncanny habit of recommending selling at the bottom & buying at the top!), when it says a company is a “compelling buy” then it is generally worth taking note. 48 | www.spreadbetmagazine.com | November 2012 New blog Make your views known Readers are now able to comment on the stories on our renowned blog page. You can also catch up with us on Twitter and Facebook. Click below to connect with us: November 2012 | www.spreadbetmagazine.com | 49 Special Feature AIM OILIES Sifting through the carnage In small cap Oil and Gas stocks 50 | www.spreadbetmagazine.com | November 2012 Sifting through the carnage “81% of companies in the AIM Oil & Gas sector have delivered losses in 2012.” November 2012 | www.spreadbetmagazine.com | 51 Special Feature “Companies with strong cash resources or farm out partners with imminent drilling prospects are particularly enticing, but remain few on the ground.” Over the last year there have been countless examples of Oil and Gas stocks, particularly those listed on AIM, which offered much promise to investors but ultimately delivered failure with the drill bit. Many of these companies have operated in frontier regions and their disappointments have ultimately led to expensive mistakes for many investors. There are plenty of stories of private investors over-committing themselves on spread bets on the hope of a drill result, being additionally pumped up by bulletin board rumours and then facing oblivion on the inevitable “duster” RNS. The classic example in recent years was, of course, Desire Petroleum and their infamous “water not oil” RNS. If you were heavily leveraged and on the wrong side of that trade then you’re a dinosaur, i.e. extinct! Let’s take a look at some of these companies Along the way the usual “pumping and dumping” has occurred, suspicious sell-offs before drilling results, and plenty of misinformation for the unwary on the various bulletin boards. It is an astonishing fact and one that no doubt many punters can pay testimony to, that 81% of companies in the AIM oil and gas universe showed a share price fall in Q2 2012 (E&Y). In this feature we look at the aftermath of the carnage in the sector and try to find which companies may still offer opportunity for investors. North Falklands Islands’ driller Desire Petroleum’s share price currently sits at 24p — a woefully low figure after the hopes and expectations of its drilling campaign that drove it above 160p in 2010. The company was initially inflated through bulletin board hysteria and hopeful RNS’s which all proved hot air. Since the arrival of the Ocean Guardian rig in the Falkland Islands in February 2010, Desire has served up largely disappointment to investors. It’s fair to say that the exploration campaign proved to be fruitless apart from the 14/15-4a field results (actually as part of a farm-out to Rockhopper) which give Desire contingent resources of 85 million barrels of oil and 178 bcf gas. With the company now down to around $12 million of cash, Desire has insufficient funds to carry out further drilling on its acreage and is now reliant on a further farm out deal or takeover. Like fellow North Falkland license holder Argos Resources, the farm out of Rockhopper’s acreage to Premier Oil gives hope that consolidation of licenses and exploration activity will occur over time. For investors, Argos seems to offer better prospects for those hoping for a deal right now, with a farm out promised by the end of 2012. Desire offers hope of upside to its current price, but in the short to medium term this may be just that — nothing more than hope. This is our least favourite play in the Falkland Islands sector. Strong cash resources and farm our arrangements key Companies with strong cash resources or farm out partners with imminent drilling prospects are particularly enticing, but remain few on the ground. Funding concerns remain a key consideration for many AIM Oilies, and with wild cat drilling, investors need to be aware of the risks involved and deploy their capital responsibly, as failure can lead to dramatic sell offs within minutes of the market opening and literally no exit for those left holding the baby. 52 | www.spreadbetmagazine.com | November 2012 Trade today at cityindex.co.uk/theglobe Spread betting and CFD trading can result in losses greater than your initial deposit. *1 point spread available during market hours on daily funded trades & daily future spread bets and CFDs (excluding futures). November 2012 | www.spreadbetmagazine.com | 53 Special Feature Rockhopper Exploration, in complete contrast to Desire, saw significant success with the drill bit in 2010 in the North Falklands, ultimately landing 356 million barrels of 2C resources after the drill program with their Sea Lion field and ancillary discoveries. This led to the proposed 60% farm-out deal with Premier Oil announced in the summer of this year and which was just approved by the Falklands Islands government in October. Despite the significant 2C oil resources and farm-out, Rockhopper’s shares slumped in September to just over 150p, this after hitting over £5 post the Sea Lion discovery and £3.93 prior to the publication of the latest Competent Persons Report (CPR) in April. Rockhopper/Premier are targeting first oil out of Sea Lion in 2017 and the project is fully funded now. For those investors with patience, the company offers a compelling long term investment case with the shares currently sitting at £1.70 and this magazine made them a Conviction Buy on the 8th October at 157p. South Falklands Oil explorer, Borders and Southern (BOR) has had a rollercoaster of a year, moving above 130p in April from the 45p level just months earlier — a level that they had gyrated around for quite some time. Rumours were rife that they had hit a giant oil discovery, but in the end it was gas condensate that was found in their Darwin East well. Gas condensate has a value but the market perceives the higher recovery and exploitation costs to be potentially un-commercial. In July, the company disappointed further with their Stebbing well that proved to be duster. For now, the company has exhausted its cash resources for further drilling and is somewhat reliant on Falkland Oil and Gas to find a major discovery and increase investor interest in the basin. At these bombed out levels, BOR may in fact be tempting for other sector corporates, given its gas condensate find, and some support from cash-rich oil-majors to further appraise its acreage may be just around the corner. We also made BOR a Conviction Buy at 24p on the 17 Sep — our rationale that the downside here is extremely limited versus a farm-out upside. The continued purchasing of the stock by the respected hedge fund Lansdowne Partners should not be ignored and looks to be in line with our thinking. In 2012, Falkland Oil and Gas (FOGL) has announced farm-out deals with Edison and Noble Energy, giving it significant financial firepower compared with many AIM oil companies. Unfortunately, drilling success has been muted to date with a sizeable gas discovery at its Loligo well in September, but unfortunately no oil, knocking the shares back from around the £1 level to the current 66p. The company is currently drilling the Scotia well using the Leiv Eriksson rig and which has prospective resources of 1 billion barrels with results due in November. However, the COS (chance of success) has been estimated at no more than 25% for this wild cat well. FOGL has the advantage that it is fully funded to drill several additional exploration wells in 2013 as a result of its farm-out deals and so for those with the stomach for it, offers opportunities for the adventurous investor. However, it remains at the riskier end of the spectrum given that the South Falklands basin has only delivered gas or gas condensate to date and costs are high due to its deep water. Certainly the best bet in the South Falklands for now, but, in our opinion, you should not have heavy exposure here — if the drill(s) are successful then there is plenty of upside for even modest position sizes. Offshore Namibian focused explorer, Chariot Oil and Gas has had a dreadful 2012, with its shares falling from over £2 to just 30p at time of writing on a lack of drilling success. Both its Tapir South well in May and Kabeljou well in September proved to be duds. It has acquired further offshore exploration blocks in Mauritania and Morrocco this year to broaden its interests, but much uncertainty remains. With Petrobras and BP having farmed in to its Namibian acreage, the company has the flexibility to drill more targets in 2013. But any further failures in Namibia means that it will struggle to develop its other assets beyond 3D seismics without further significant funding which will be difficult in the current climate. Avoid for now. 54 | www.spreadbetmagazine.com | November 2012 Sifting through the carnage Shares in Kazakhstan-focused Max Petroleum have plunged this year after continued funding problems and lack of drilling success. Its shares currently stand at 4.8p compared with a 52 week high of 15p. Its exploration well in the Baichonas West prospect in September found a good quality reservoir but proved to be smaller than expected. Completion of drilling was only possible after agreeing funding with Zhanros in August with a placing of shares at 5p after serious cost over runs. The company is currently drilling the BSBNE-1 exploration well on the Besbolek North-East prospect in Kazakhstan and success here will be vital in securing the future of the company. The lack of funding certainty remains a drag on Max and investors have already suffered much pain this year as operations have been impacted by the cash crunch; one for the brave only. Gulfsands is a Conviction Buy play for SBM, having called this on the 19 June at 90p and initially enjoying a near 50% return. We added to our call at 130p on the 17 Sep — and it seems pretty much caught the high in recent months! We have covered the stock extensively in previous editions of SBM, but for new readers, the investment basis is predicated on the cash rich nature of the balance sheet, the shareholder list that we think may result in corporate activity and the potential, and hope, that the sorry situation in Syria finally comes to a resolution, not least for the good of the Syrian people. With the shares back at the 94p and so valuing the company’s assets (including its Syrian interest) at a pitiful 50c per boe as a result of the recent escalation of violence in the Aleppo region in particular, should the Syrian assets be returned to the company, investors will likely be looking at a return in the hundreds of percent overnight. We maintain our bull stance on Gulfsands Petroleum and think the stock presents one of the best risk:reward profiles out there with core NAV being valued at just £5 should a resumption of their Syrian activities occur. Conclusion Caza Oil and Gas, the U.S.-focused oil explorer with assets in the Texas Gulf Coast, South Louisiana and Southeast New Mexico, has seen its shares halve from 15p at the beginning of 2012 to around 7p now. In 2011, the company had a series of setbacks at its OB ranch project in Texas, and oil and gas output disappointed investors in Q2 2012. Caza’s production increased 38% to 25,107 Boe for the three-month period ended June 30, 2012 from 18,130 Boe for the comparative period in 2011, but this only equated to 276 barrels per day and, in addition, cash depleted significantly to stand at only $4.7 million compared with over $8 million at the end of the first quarter. Much now depends on its Copperline prospect, Caza Ridge horizontal well and the Forehand prospect well, in finding additional hydrocarbons to allow production to increase materially this year — something that is definitely required to offset the cash burn. Caza offers a lower risk profile than other AIM oil stocks and with a 9% bounce in the share price in the last month investors seem to be coming back on board, but much needs to be done to rebuild battered sentiment after the OB ranch drilling disappointments; one to watch. It could be said that now is an ideal time to be investing in certain AIM oilers given the poor sentiment surrounding the sector and the deflation of hope in many of the company’s valuations. The whole point of investing and speculation is to buy low and sell high (not necessarily in the former order) and with the depressed stock prices detailed here, there is an argument that a diversified, underleveraged portfolio of positions could be picked up at much more attractive valuations, ready for the next round of inevitable speculation. November 2012 | www.spreadbetmagazine.com | 55 Isn’t it time you took off the blindfolds with your trading? DMA CFD trading has been the preference of professional traders for many years now as it allows for trading the markets with complete transparency and full control of entry and exit levels, due to trading directly onto the stock exchange order book. Very few providers have offered this service to spread betters but, a new service www.ise-spreads.com is now looking to level the playing field for serious spread betters. The key benefit of DMA spread betting is that it allows a trader to act also as a market maker through posting their own bids and offers, queuing at different prices where ‘gaps’ appear, or at defined support/resistance levels. For some spread betters, perhaps the other major advantage is that the investor can be sure that the prices quoted are real time and accurate and that they will only ever be filled at a true market price and not some spurious spread bet firm’s own price - a major bug bear for many traders, particularly in volatile markets when stops get triggered even though the underlying price may not have reached that level. Non DMA spread bet firms quote their own prices and, in what is a little known fact, they actually have no obligation to follow the quoted prices offered by the exchanges. At ISE Spreads, a small “spread” that is every bit as competitive, if not more so, than the traditional spread bet firms is added to the underlying market price that you trade at - effectively the same as a commission ISE’s spreads start at just 0.25 of a point on the FTSE for example. 56 | www.spreadbetmagazine.com | November 2012 ADVERTORIAL ISE also pulls in price feeds from across a number of exchanges and so offers traders a larger liquidity pool and better price execution as well as offering arbitrage opportunities across exchanges. In simple terms, this means that an investor may spot that one exchange is offering a different/better price than another, allowing them to buy at the better price on one exchange and sell at a higher price on the other, particularly given the very low spread commissions charged. This is particularly useful when an RNS comes out and the stock moves immediately into auction - savings can be considerable if you are able to trade in these as opposed to waiting for the auction to end. 3. Never hear the words - “Sorry our spread was there Sir” again. Trade only where the actual market trades The other very real benefit of DMA access is that you only ever trade if the actual market price trades there and you are NEVER re-quoted. How many times I’ve seen on bulletin boards the retort about “so and so firm being robbing what-not’s” as they are taken out of a position, usually out of market hours, on the basis that “our (the spread bet firms) price traded their sir”. This was a particularly acute issue for many spread betters around the time of the “flash crash” in May. With DMA this can never happen as you can only be filled if the actual market price trades at your stop or limit. If the market trades at your price then, subject to your order size and the depth being filled, you trade. ISE Spreads also go one stage further and package the LS Trader complete financial spread betting system (worth £1,747 per annum, and which has generated over 70% this year) with their full DMA service. Live news feeds and a comprehensive charting package are as standard too. For clients who deposit a minimum of £10,000 into their ISE Spreads trading account and make at least 6 trades per month (with a minimum bet value of £10), ISE Spreads will supply access to LS Trader’s complete financial spread betting service. LS Trader is a professional trend following system that trades commodities, stock indices, currencies and equities. This is a real world value of £147 per month. One of the very few criticisms with DMA trading is that the onus is on you to input your orders correctly. ISE Spreads recognise this and so offer an initial 1 on 1 demo and/or Trainer account to allow you to familiarise yourself with the platform but also have a dedicated telephone service to receive orders too should you not be able to access a computer/tablet quickly. In short, it is a full service DMA spread betting package that brings all the tools the professionals use within the grasp of the retail trader “a true playing field leveller”. “levelling the playing field for professional spread betters” Here’s the 3 key benefits of DMA spread betting with ISE Spreads - 1. Inclusive Level 2 prices A good DMA spread bet provider will supply you full access to what is called the “ladder” - this is the depth of the market instrument that you are interested in and it allows you to see each individual bid price and offer price. It is also called Level 2 access and many stock market data providers charge separately up to £100 per month for this. Do not underestimate how useful Level 2 access can be relative to seeing simply a “spread” price, as when you can see the true depth of the market you can gage accurately where there is real support for a stock price (or resistance) and also if the share price is being propped up on thin volume for example. 2. Ability to trade in “auction” periods Many traders are aware that there is an opening and closing “auction” in stock prices during which all the bids and offers placed by participants are collated by the LSE and an opening and closing price that fills the optimum amount to satisfy the supply and demand is struck but hitherto which they have been unable to participate in. With DMA trading you can actually participate in this auction process whereas with standard spread betting you cannot. Sometimes, when a stock moves a predetermined amount too (generally 10%), many of you will have noticed that you cannot trade in the stock while it’s in an interim “auction” - a period of around five minutes when the LSE carries out the same process as with the opening and closing auctions. How many times have you seen this and then the shares open out of the auction and move dramatically? With standard spread betting you cannot trade usually during the auction period but, with DMA trading, then you can actuall participate in that auction and so trade at the “uncrossing” price. To find out more about how DMA spread betting with ISE Spreads, visit our site at www.ise-spreads.com *LS Trader is a 3rd party supplier of financial research services and ISE Spreads accepts no responsibility for any information provided. Spread betting carries a high risk to your capital, can be very volatile and prices may move rapidly against you. Only speculate with money you can afford to lose as you may lose more than your original deposit and be required to make further payments. Spread betting may not be suitable for all customers, so ensure you fully understand the risks involved and see independent advice if necessary. November 2012 | www.spreadbetmagazine.com | 57 Editorial Contributor Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for 4 years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science. doMiniC piCaRda’S tECHniCaL takE banking SECtoR Most of the dirtiest words in the English language contain four letters. Following the financial crisis, “bank” is not far off qualifying as an obscenity. the industry is reviled in many quarters of society for its role in bringing about the credit crunch, for the billions of pounds of taxpayers’ money that it has since received, for the lavish bonuses that it continues to pay its top employees, as well as a series of other lesser scandals. Shareholders in the UK banks should be more aggrieved than most at the industry. As of October 19th, the sector as a whole has lost almost two-thirds of its value since its early 2007 peak. After coming back from the dead in early 2009, it has struggled pretty much ever since, save for a few all-too-brief bursts of outperformance here and there. Admittedly, banking has been a pretty decent bet so far in 2012, having gained roughly a quarter since the start of the year. I attribute this performance largely to the European Central Bank and America’s Federal Reserve. Its two major advances have coincided with the ECB’s liquidity—pumping initiative in the first quarter of the year, and then latterly the Fed’s recent commitment to prop up the US mortgage market. In the short term, this rally could well continue. US Quantitative Easing and the forthcoming bailout of Spain should help further improve investors’ sentiment towards financial stocks. The easing of recessionary conditions in Britain should also make life easier for the banking sector. However, a return to the go-go days of late 1990s or early 2000s is not on the cards, in my view. 58 | www.spreadbetmagazine.com | November 2012 Dominic Picarda’s Technical Take Ultimately, however, it is important to recognise that the financial crisis and its consequences are likely to remain major issues for the UK banking sector for some time to come. Further financial shocks from the Eurozone are still a big risk, and the banks may yet require further injections of new capital. In this environment, dividends are unlikely to grow significantly, while increasing regulation could also hold the industry back. To play the current rally in banks, one possibility is to take out a spread bet on the FTSE 350 Bank sector as a whole. This avoids the problem of having to decide between the very different propositions in the industry and allows you to catch the broad market swings. Currently, the short-term trend is plainly upwards, so my bias for now is obviously to the long side. FTSE 350 BANK CHART November 2012 | www.spreadbetmagazine.com | 59 Editorial Contributor The sector recently broke above its February 2012 highs at 4148, which was evidently a bullish development. The next target is the 4306 level, where it peaked briefly in 2009 and twice bottomed in 2010. Thereafter the objective would become 4546. I will stick with my positive stance so long as the price remains above its 55-day exponential moving average. Bounces from around the nine-day EMA are my preferred entry-point. StandaRd CHaRtEREd For those seeking a higher-quality investment within the industry, Standard Chartered makes an obvious choice. After all, the bank is heavily focused on the much more promising faster-growing markets of Asia. And, there’s always the chance that it will be one day taken over, should its large shareholder, Temasek, dispose of its chunky stake. STANDARD CHARTERED Technically, Standard Chartered looks less appealing than some of its peers, however. It has yet to recover all of the gut-wrenching fall that it suffered in early August as the bank was under scrutiny from US regulators over its dealings with Iran. With the price stuck in a broad, choppy sideways range, traders seeking a directional bet are better off looking elsewhere for now. 60 | www.spreadbetmagazine.com | November 2012 Dominic Picarda’s Technical Take HSbC A much more promising set-up is in evidence on the chart of HSBC, another bank that has significant interests in more exotic parts of the world. The giant organisation also offers a noticeably better dividend yield than its competitors do. Having gone sideways in triangular fashion for much of 2012, the price has broken upwards. The objective derived from the triangle implies a possible move right up to 697p. HSBC CHART There is definitely scope for such a move to occur, going by the state of HSBC’s longer-term momentum readings. The weekly relative strength index is currently 65%, whereas tops have tended to occur at 70% and above. My preferred level for going long would be after dips slightly below the 13-day exponential moving average, as the price rallies back above that line. By contrast, I’d have to think again were the price to plunge back below the 568p level. November 2012 | www.spreadbetmagazine.com | 61 Editorial Contributor Royal Bank of Scotland The banking sector’s most risky play is surely RBS. Already largely in state hands, the bank could easily end up being fully nationalised, wiping out shareholders entirely. It has been beset by problems of late including IT glitches and the botched sale of branches. It could be argued that RBS has traced out a significant bottoming pattern just below the 200p level. That is not my reading of the chart, however. A more likely outcome is that the share price ends up returning to and possibly through the 171p level. I would be especially interested in short-selling a reversal between 290p and 300p accompanied by a daily relative strength index reading above 70%. RBOS Chart 62 | www.spreadbetmagazine.com | November 2012 Take control of your spread betting with Direct Market Access. Milli-second fills Live economic news Comprehensive spread betting package (worth £1764)* Absolutely NO re-quotes Ultra competitive spreads FREE Live squawk See the full market depth with FREE Level 2 access CLICK HERE TO LEARN MORE & ARRANGE A ONE ON ONE PLATFORM DEMO Tel: 0203 617 5566 Spread betting carries a high risk to your capital, can be very volatile and prices may move rapidly against you. Only speculate with money you can afford to lose as you may lose more than your original deposit and be required to make further payments. Spread betting may not be suitable for all customers, so ensure you fully understand the risks involved and seek independent advice if necessary. * LS Trader is a 3rd party supplier of financial research services and ISE Spreads accepts no responsibility for any information provided. 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November 2012 | www.spreadbetmagazine.com | 63 Editorial Contributor Alessio Rastani One year on Leading UK chartist Zak Mir interviews the independent City Trader Alessio Rastani a year after his controversial comments on the BBC. Is he still famously, “Going to bed every night and dreaming of another recession.” Zak Mir Interviews - ZM: What next for Alessio Rastani? AR: I have been corresponding with a lot of trading friends and writing a book as well during the past year. Without giving too much information away, it might be called something like “Dreaming of the Crash”, something truly shocking and controversial — to stay true to form! With a few trader friends of mine we are also looking at doing something truly unique in the trading industry, something that nobody else is offering out there. Most trading courses are in the vein of “let’s sit in front of a PowerPoint presentation and cherry pick some well-rehearsed examples of how trading strategy works out” and not much else... I personally think that people are getting frustrated with this and so what we are doing is two seminars with live trading in front of people, real money, and we are going to show how trading is really done. We are going to show people just how to grow an account, show people how to day trade if they want to and how to trade as a living. What do you think of self-help financial books/guides? ZM: 64 | www.spreadbetmagazine.com | November 2012 Alessio Rastani [financial] markets by reading about it or watching videos. They misunderstand the necessary coaching involved. It is a different thing reading about trading in a book and actually trading professionally. True professional traders treat it as a full-time job. It’s like if you want to play golf. You can read a book about golf and that is great. But when you go to play on the golf course the next day and are faced with Tiger Woods, you would have no chance beating him. AR: People think they can learn about the ZM: What is your official job description? “It is a different thing reading about trading in a book and actually trading professionally. True professional traders treat it as a full-time job.” I guess I call myself a full-time independent trader. This is different from an institutional trader. Alternately, I may refer to myself as a full-time day trader. How do you tie in what you do as a full-time day trader and your education seminars? The next day Soros actually went short of the Euro. He realised he was wrong and then promptly closed his position. And that is exactly what a good trader always does. It is not about an ego issue or being right, it’s simply about going with the market. If the market says you are wrong, don’t quibble — get out fast and re-assess. The market is always right. Also a good trader has to be aware that the market might change the next day. Anyone can look like a genius with hindsight. Seriously, if you go back to last September, there is no way you could predict the world was on the brink of a global recession, not in my opinion anyway. I also call myself the “closet bear” — I prefer shorting rather than buying. I personally prefer a market if it is in freefall — one that is going down than going up. Most people think trading is about making a prediction and following a strategy. This is part of it but the main issue is all about risk control. Even the good traders out there get it right only 50 per cent of the time and so you have to know when to hit the brakes. Shorting will never be understood by the financial media. I gave a definition and example of what shorting is in simple terms in a seminar. And I remember that people still came back to me at the end of the seminar and didn’t know what shorting was. That really surprised me. ZM: AR: AR: ZM: year... ZM: Let’s talk about your BBC appearance last AR: I never wanted to be a celebrity. People have since said to me, ‘Alessio, why don’t you go on that TV programme, “I’m a Celebrity Get Me Out of Here?” That’s not for me! I have always loved to trade, it is something I always wanted to do. I have been asked to go on a lot of TV shows out there, approached for documentaries etc and some I have done, but it doesn’t really interest me. I like teaching people what I do. I’ve worked in this industry for a long time — since 2007, and there are other companies out there that purport to teach people to trade. But unfortunately I think a lot of people out there are being misled and are being taught wrongly on the whole trading side. They have been taught simply rubbish from a book or been charged £2000 or £5000 for a seminar — that is unfortunately the reality. The trading industry is making big bucks out of this. AR: No trader can always be right and the pro’s know that it is actually not about being right. With regards to the BBC interview [last year], they asked my opinion of what I was doing in the market. Again, my response was not about being right or wrong as a trader; unfortunately the public don’t get this. Soros actually very famously went on Bloomberg a while ago and he made a prediction on the Euro. He said the Euro was going to collapse over the next six months. November 2012 | www.spreadbetmagazine.com | 65 Editorial Contributor involved with the financial markets for the first time simply do not know what they are up against? The trading education industry in the UK has blood on their hands. Even with a stop loss in place, you can blow out your account. People don’t understand that in many instances trading is a bit like walking into a casino, except the casinos are the brokers and the securities companies. And if you go into any casino in Vegas, most people don’t know this, but you have a limit on the amount you can bet on one table. Like, for example, one table will have a $10,000 limit, one will have a $20,000 limit on one game and that is because there is risk management in place there. They are not going to have anyone walk in and say “Look I am going to put $1bn on this one bet”, because that could be the one that actually wins. And the casino will go bankrupt. I have lost count with the amount of people who have been to seminars and said they have lost £20,000, thousands on one trade, and there was the doctor who remortgaged his house and put it in his spread betting account and he blew his entire money within six months. True. The markets are no respecter of intellectual capability and in fact this can be to your detriment. ZM: Isn’t it the case that most people who get AR: The profits will come only as a by-product of you immersing yourself in the subject. There are great books out there about the psychology of trading by Brett Steinberger. He said for most people, trading is their life. They are truly living to trade. ZM: How has your trading been going this year? AR: I actually publish my trades on my site and on YouTube. So I make videos of my own trades. Everyone can see what I am doing on a weekly and daily basis. People email me and say they are making money from what I am trading in. I certainly wouldn’t be wasting my time and money if I wasn’t making money. My aim is to make 5 to 10 per cent a month. As long as you have got capital to trade with, that type of return is a good return! Do you have any favourite markets or stocks that you trade in? ZM: AR: I like to trade the S&P. Mostly what I trade is the S&P Futures, I like the movements — lots of volatility. I also used to trade the Dow and I trade the Euro, but not on a small time frame. “Isn’t it the case that most people who get involved with the financial markets for the first time simply do not know what they are up against?” ZM: Do you think that trading is really just a game? A leisure pursuit for most participants who do not believe, or are not necessarily bothered, if they lose money they can afford to lose on a punt? How are you different from a year ago and what are your plans for the future? ZM: I’m not so sure. What I know from the emails and correspondence that I receive is that there is a good proportion of people out there who do want to make an actual living out of it. If you really want to become good at trading, you have to immerse yourself in the markets, rather than, “Hey, how am I going to make quick money from this?” AR: AR: The main thing from a year on is that I have been taught a lesson in human nature. People appreciate honesty a lot more. The majority of the response that I got from that interview [BBC] was thanks for your honesty. I didn’t get “Hey Alessio you messed up on that prediction on the Euro.” I still think that the Euro will be on par with the dollar. There is the infamous phrase: “The market is littered with the bodies of people who were eventually right.” I think that we certainly haven’t seen the end of the Euro going down. 66 | www.spreadbetmagazine.com | November 2012 Alessio Rastani Anyway, I think people really appreciate people who don’t bullsh*t them. Most people go on television channels with a supposed solution, I am not about solutions. And I am willing to make money from it. A lot of the traders wrote to me and said, “Hey, you are right.” There is a phrase, I don’t know who said this, but: “The best things in your life come as your worst nightmare.” So the first few days were a real nightmare for me. I had never had that sort of attention in my life. All the newspapers in the world were on my doorstep, and calling me! I wasn’t expecting that level of attention for one second. It was a nightmare for me, but I think the best things come to you as a nightmare. It was really a good thing for me, however, as I have made friends with hundreds and thousands of people around the world. What I said about “Goldman Sachs, ruling the world” resonated. Economy? Conspiracy against the Euro? By the US credit agencies? ZM: AR: I don’t think so, no. The credit ratings agencies initially gave Greece a good rating but, in reality, they didn’t really know. Europe is still in a big mess, with debt issues affecting the peripheral economies. I can’t really see a big American credit ratings conspiracy, no. ZM: Are you an anti-establishment hero? How are you regarded in the City? First of all, I wouldn’t describe myself as a hero. There are people out there who do far more deserved things than I, to be described as a hero is preposterous. I am also not really anti-establishment either. I just said what I felt was true. Interestingly enough, it divided people. I had one guy who used to work at Goldman Sachs who said to me you are wrong to say that Goldman Sachs ruled the world. Newspapers were attacking me, in the aftermath of the interview. But then the very same newspapers came back and changed their tune. The Telegraph initially attacked me, but are now saying Alessio is right. A year on we have had the Libor scandal, Greece… With regards to the US elections, it doesn’t matter who is elected, Barack Obama or Romney, they all sleep in the same bed with the Feds and the big corporations. There really isn’t anybody out there we can trust. The only really alternative candidate is someone like Ron Paul. AR: November 2012 | www.spreadbetmagazine.com | 67 School Corner gann tHEoRy by tHiERRy LaduguiE oF www.E-yiELd.CoM William Delbert Gann, who was a commodity and stock market analyst in the first half of last century, designed several techniques based on geometric angles and time. Gann was one of the greatest traders of his time, his methods were based on ancient mathematics and geometry. He believed that the ideal balance between time and price exists when prices rise or fall at a 45-degree angle. If a trend-line is too steep, prices will often break the trend-line and adjust to a slower and more sustainable trend-line as shown above. Gann believed that the 45-degree trend-line was the most important. It is drawn at a 45-degree angle, also called the 1 x 1, which he said represented one unit of price for one unit of time. For example, if a market moves up 1 point per day and the unit of price is 1 point and the unit of time is 1 day, the market will follow the 45-degree line. School Corner 68 | www.spreadbetmagazine.com | November 2012 Gann Theory Gann angles are drawn at various angles, they provide support and resistance. The steeper the trend-line the higher the angle: According to his theory, each time a trend-line is broken, prices should be expected to fall to the next trend-line which will act as a new support line. Trend-lines are drawn from prominent highs or lows. We saw that the 1 x 1 is moving one unit of price with one unit of time, the 1 x 2 means the angle is moving one unit of price for every two units of time and the 2 x 1 moves two units of price with one unit of time. Gann identified nine significant angles: 1x8 1x4 1x3 1x2 1x1 2x1 3x1 4x1 8x1 82.5 degrees 75 degrees 71.2 degrees 63.7 degrees 45 degrees 26.2 degrees 18.7 degrees 15 degrees 7.5 degrees As noted, the most important trend-line is the 1 x 1. Gann felt that a 1 x 1 trend-line provides major support during an uptrend and, when the trend-line is broken, it signifies a major trend reversal. In a downtrend, Gann angles provide resistance. Note on the chart below how the price of gold initially followed the 1 x 2 trend-line, then when the 1 x 2 trend-line was broken, gold moved the 1 x 1 trend-line which became a new resistance line. November 2012 | www.spreadbetmagazine.com | 69 School Corner gann REtRaCEMEntS To determine key support and resistance levels, we can combine Gann angles and retracements (horizontal lines). The most important Gann retracements are 50% and 62.5%. For example, in a downtrend a Gann angle will often cross the 50% retracement level. This combination will then set up a key resistance point. The same can be said in an uptrend, when a Gann angle crosses the 50% level the area becomes a key support point. On the weekly chart, I have chosen 10 points per week to draw Gann angles. Not surprisingly, the steepest trend-line occurred at the start of the bull market in 2009 (1 x 3). When that trend-line was broken, prices found support on the next line (1 x 2) from July 2010 to June 2011. The 1 x 2 was broken too and prices moved to the 1 x 1 trend-line, indicating a more sustainable advance. The FTSE should continue to follow the 1 x 1, however a break below 5500 would push prices below the 1 x 1 in which case the next target is the 2 x 1 near 4700. This level is near the 50% retracement (4810), therefore the area 4700-4810 becomes the next key support area. To conclude Gann angles are used to find support and resistance levels. When used with Gann retracements, these support and resistances levels become even more significant. To get the best results always look for coincidence between the two techniques. For example in an uptrend, a 50% retracement to the 45-degree line would be an excellent support area. 70 | www.spreadbetmagazine.com | November 2012 November 2012 | www.spreadbetmagazine.com | 71 Special Feature The ski season beckons... 72 | www.spreadbetmagazine.com | November 2012 Ski season beckons Roll back the years and think of when you were heading home after a hard day’s snowball fighting with your mates on a freezing cold winter’s day. You walk into the house and the immediate smell is your mum’s home cooking, a warm hearty meal that re-energises the body in readiness for the following day’s adventures... Now, without meaning to offend your mother’s cooking, multiply that ten-fold and you will get a rough idea of the culinary delights and mouth watering treats that await you in many of the luxury chalets available in the Alps — a true mountain home-from-home. November 2012 | www.spreadbetmagazine.com | 73 Special Feature Luxury ski chalets are not only about the skiing, however, a great deal of love and attention goes into providing exemplary levels of service, enough boys’ toys and facilities to keep MI6 wannabes sufficiently entertained, and gourmet fine dining. Gone are the days of the sloppy bolognaise served up by the indifferent chalet girl (or boy)! If you are a lover of the snow, what better way could there be to spend your cherished time in the mountains than having an adrenaline fuelled session on the slopes, followed by a few après-ski Jägerbombs with friends before getting picked up by your private chauffeur, driven back to your chalet to then plunge into the hot tub and sip on some Laurent Perrier? All the while your chef cooks up a delectable, seductive and alluring four course meal that will ensure you fall into a deep food-coma sleep, enabling you to be fully recharged and ready to hit the slopes again the following morning! It’s a hard life sometimes, isn’t it? You also do not have to be a Russian oligarch to afford such service, although in many cases it would definitely help! During the low season weeks you could be living like a king in one of the premier luxury chalets in Europe for a surprisingly reasonable cost. Below is a small selection of chalets offered by Ultimate Luxury Chalets, who feature the top 100 luxury chalets available in the European ski rental market. Chalet Les Brames, Meribel Only a stone’s throw from the village yet discreetly located in its own grounds, Les Brames is a jewel in the Alpine crown. The chalet offers a rare combination of privacy, comfort and space. The chalets size is breathtaking with several different areas where guests can relax. The living area is over 600m allowing for every possible creature comfort. From early in the morning the sun streams into the spacious interior, flooding this fabulous chalet with warmth and light. Each individually designed room blends Alpine charm with state of the art facilities to create a truly magnificent family home. Shop ‘till you drop while your chauffeur awaits, or enjoy the new spa with plunge pool, steam room, two massage rooms and relaxation/pilates room, or soak up the rays in the outdoor hot tub. It is a unique destination for mixing business with pleasure. The choice is always yours, the staff will look after everything, and you have not a care in the world. Chalet Grande Corniche, Les Gets Grande Corniche is a brand new chalet offering the utmost in style, luxury and technology. Set over four floors with a living area of 650m². The six en-suite bedrooms are equipped with plasma screen TV and enjoy stunning views across the valley. You can relax in the glass sauna with 180 degree views of the valley or drink champagne and gaze at the stars from the outdoor hot tub. After pampering yourself in the wellness area, you and your guests will be invited for canapés and aperitifs around the chalet’s grand piano before taking a seat for the evening meal prepared by your private chef. Grande Corniche has a number of unique features, including the slide that runs from the bar area on the fourth floor down to the wine cave on the lower ground floor! There is also a full sized snooker table to keep you entertained on evenings at home. 74 | www.spreadbetmagazine.com | November 2012 Ski season beckons Chalet Artemis, St Anton The ultimate après-ski destination with two of the most renowned ski party bars in the world: the Krazy Kangaroo and the Mooserwirt! Spread over four floors and some 500 square metres, the chalet provides everything for the perfect winter holiday. There are six bedrooms and six bathrooms; one with a rain forest shower overlooking the mountains. Every bedroom is fully wired for sound and vision. The ‘Wellness area’ on the lower ground floor consists of a wet room, sauna, steam room, massage room, an indoor pool and an indoor/outdoor hot tub. For big sporting moments and feature films there is a separate 12 seater cinema complete with retro red velvet chairs. If your trading has been successful this year and you are looking to de-stress and immerse yourself in the mountains this forthcoming ski season, visit www.ultimateluxurychalets.com for some inspiration. November 2012 | www.spreadbetmagazine.com | 75 Directors Dealings Directors Dealings We wrote a piece in our July edition about potential “ten baggers” and how to spot them. Johnston Press could have been one of those as the company fits the parameters of a heavily indebted company that, as a consequence of the debt burden, has had its equity component crushed. What makes up a company’s total financial value is what is called the “Enterprise Value” (EV). This comprises two elements — the equity market capitalisation and its outstanding net debt (i.e. total debt minus cash). What generally happens with heavily indebted companies where there are question marks as to their ability to service debt is that the equity element diminishes in value. This is logical as debt of course has a prior charge on a company’s assets and so, if the risk of the company rises, then the risk element of the equation — the equity — should therefore fall in value in order to compensate for this. Of course, should the debt issue diminish in importance to the company and more specifically, the debt burden fall through cash flow payments or asset divestitures for example, then all things being equal, if the EV remains the same the equity value will rise. This is why so called vulture funds buy distressed debt first — as a back-door way to gain control of an ailing company and then reap the equity rewards themselves on a turn around. 76 | www.spreadbetmagazine.com | November 2012 Directors Dealings Coming back to Johnston Press, the chart below shows clearly just how beaten down they have been over the last five years — from 300p to 4p at the lows — effectively a 99% wipe out of equity value. This is principally due to one reason — the company’s debt burden. On virtually all equity valuation metrics — price to sales, PE, price to book, price to cash flow — then the company appears exceptionally cheap, but of course the debt overhang is what has acted as the brake on the stock price. The last audited figures in April of this year show a net debt figure of £361m with an annual interest bill of almost £27m. The Group reported net assets of just under £300m against a current market cap of just over £70m, however. Johnston Press - Chart In April of this year, management took concrete steps to address the debt burden through a successful refinancing. This gives the Group headroom of £393m until the end of Sep 2015, and so giving the Board a good degree of breathing room to allow their strategy of investing in digital media in order to increase advertising revenues to bear fruit. Additionally, newspaper entrepreneur Sir Ron Tindle has been stake building during the last year, holding just over 8%. He has gone on record as stating that JPR has “one of the best collections of newspapers in the country”. There have been numerous Director purchases this year as well as at the tail end of 2011 with the majority being bought around the 5-8p per share level. On the 15 October, CEO Ashley Highfield purchased another 90k shares at 11p — not a massive capital outlay, but on top of the sustained purchasing by the rest of the Board in September and June — either side of the closed period, certainly a signal that is being sent to the market that he believes there is a way to go in restoring meaningful equity value. The shares have had a bit of a run in recent weeks, from the 8p level to scratching 14p in mid-October. Consequently, as we can see from the chart here, the RSI measure is somewhat overbought now and so we wouldn’t chase the shares just now, but allow them to consolidate the gains first if you are minded for a bull trade. November 2012 | www.spreadbetmagazine.com | 77 UK100 | WALL ST | DAX | NASDAQ | S&P | CAC | GOLD | BRENT CRUDE | COPPER | EUR:USD | GBP:USD | USD:JPY | EUR:GBP | APPLE | RBS | VODAFONE | GOOGLE “Yup, I held on as tight as a Capital Spread.” capitalspreads.com Spread Betting | CFDs The tightness of our spreads is legendary. Spread betting carries a high level of risk to your capital and can result in losses that exceed your initial deposit. Capital Spreads is a trading name of London Capital Group Ltd (LCG), which is authorised and regulated by the Financial Services Authority and a member of the London Stock Exchange. 78 | www.spreadbetmagazine.com | November 2012 Take a better position Currency Corner Currency Corner Is the sun finally about to set on yen strength? November 2012 | www.spreadbetmagazine.com | 79 Currency Corner It is said, in market circles, that aside from shorting Japanese Government Bonds over the last 10 years, that the other so called “widow maker” has been trying to call the turn in the yen. No amount of intervention by the Japanese Central Bank has been able to put a concrete floor under the currency, with every bout of intervention by the BOJ to drive the currency lower being met with renewed strength only weeks (in some instances just days) later. Do I wish to make the missus a “widow” in calling for the turn in the yen?! No, but I think that the confluence of factors that have now aligned on the Japanese currency point to a potential major reversal which is now in the process of being born. The all time low on the dollar yen pair (which in terms of daily volume traded in the currency markets is second only to the Euro dollar) was in March of 2011 when it hit 76.54 during a late evening dip in New York in thin markets. This pushed the pair decisively through the previous all-time low of 79.75, a level that had held since 1995, some 16 years earlier. I personally traded the dip lower last year from the bull side, reasoning that the sharp move lower would trigger a lot of serious stops and that, as is frequently the case when they are hit, there would be a potential sharp reversal. Within days of the all time low, the Japanese Central Bank was galvanised into action in attempting to stop Japanese exports disappearing down the plug hole and they sold massive amounts of yen. But, as the chart below shows, even this display of strength did not cause the yen bulls to falter and the currency was soon back below the key 80 level. The chart to the right actually has a multitude of bullish clues within it. I have used the weekly chart in order to give a more medium-term view of the pair. The suggestion of a long position in this piece is not from a short-term trading perspective, but from a medium-term position trading basis. With the interest rate differentials between the dollar and yen effectively non-existent at present, there is also next to no cost in carrying this position over the medium-term — something that is a problem when shorting higher interest currencies against a lower interest rate one, and that can catch the unwary spread bettor out. In the first instance, we can see clearly that the pair has broken to the upside through the downtrend that had been in place since late March of this year. There is an argument that the pair has in fact been trapped in a “wedge” formation (the 2 red lines) and so the first target is 84 (the height of the wedge) in coming weeks. Adding fuel to the bull fire is the positive MACD cross over and the rising RSI that has cut up through the key 50 level. Finally, it is not too clear on the chart but, two moving averages I personally find useful — the 19 & 37 week exponentials, look to imminently cross through each other — with the pair trading above these, if this holds then this is a very positive additional sign. Also from a technical perspective, the current intermediate downtrend has been in place since late 2007 and so just over 5 years — generally about the exhaustion point of a currency trend. Turning to the fundamental backdrop, it seems that the US economy, even in ‘real’ terms (i.e. adjusting for Japanese deflation) is now pulling away from the Japanese economy — the differential between US Treasuries and JGB’s is now at its highest for some months and this has historically been a good lead indicator for the pair. 80 | www.spreadbetmagazine.com | November 2012 Yen strength “The all time low on the dollar yen pair (which in terms of daily volume traded in the currency markets is second only to the Euro dollar) was in March of 2011 when it hit 76.54 during a late evening dip in New York in thin markets.” I also personally believe that the Japanese Central Bank are likely to try and play a different game to that of recent years which has been essentially to throw a brake in front of progressive yen strength and so merely look to halt the yen’s ascent. The current BOJ head Shirokawa would be well advised to actually go back to first principles in currency trading — that being that “the trend is your friend”. Actually leaning into the wind on a reversal back above the 80 level, instead of against it, will most likely prove much more fruitful. Also, the recent Euro strength is probably very unwelcome in the Eurozone and will be adding extra pressure to Spain, Italy, Portugal and Greece, each of which desperately need exports to fuel an economic recovery. Consequently, co-ordinated BOJ & ECB intervention cannot be ruled out and which would “kill two birds with one stone”. With a fundamental and technical backdrop alignment, a long position in this pair has high odds of success in our opinion. Dollar / Yen - Chart November 2012 | www.spreadbetmagazine.com | 81 Competition £1000 82 | www.spreadbetmagazine.com | November 2012 Guess the FTSE month end value to win Guess the FTSE month end value to win £1,000 in keeping with the betting and trading theme of this publication, Spreadbet Magazine offers entry to our competition to all readers. Simply click the link at the bottom of the page to arrive at our competition page. Insert one entry as to what level you believe the FTSE 100 will close at on the last trading day of the forthcoming month. PLEASE NOTE THE CLOSING DATE - The last day for entries is the third Friday of the forthcoming month. For this month entrie’s - November 16th is the closing date. ? Enter the competition Rules 1. Only 1 entry is allowed per person. If multiple entries are found to be made, that party’s entries will be voided in full. 2. Entries received after 5pm on the closing date will not be allowed. 3. If there are multiple winners, the £1,000 will be split amongst them. 4. Entries must be made to the nearest 1 decimal point, ie 5456.8. November 2012 | www.spreadbetmagazine.com | 83 The e-magazine created especially for active spreadbetters and CFD traders Issue 11 - December 2012 in next month’s edition... why do you spread bet? How to dEaL witH a LoSing StREak StoCk MaRkEt CRaSHES LESSonS FRoM HiStoRy ManagEd SpREad bEtting SERviCES - wHat aRE tHEy? 84 | www.spreadbetmagazine.com | November 2012 Thank you for reading, we hope your trading is profitable during the forthcoming month. See you next month! www.spreadbetmagazine.com November 2012 | www.spreadbetmagazine.com | 85