This week’s LS Trader financial spread trading update is now available and can be read by clicking here.

Last week was a relatively light volume week for the stock markets as expected due to the holiday in the US. This week will likely see a return by traders to their trading desks and should lead to a considerable increase in volume. The week ahead is likely to give us a better idea of short term action for the stock markets than we got from last week in spite of the impressive rally.

In this week’s spread trading update we take another look at the S&P 500, which had a considerable rally from support. We look at the levels to watch out for next for this market and how to pay attention to the all important long term trend.

We also look at the ever popular Gold market and look at how last week’s patterns may influence market direction this week, as well as taking another look at Crude oil and the best way to play the crude oil market.

We focus also on the forex markets and in particular the 3 main markets that we trade which are the US dollar index, the British Pound and the Euro. Last week’s action shows some indecision in the Pound and the Euro and possibly some support for the Dollar as well as a tightening of the price ranges in these markets, which points to some bigger moves ahead.

This week’s LS Trader financial spread trading update begins with:

The past week saw the stock markets rally sharply from support during a light volume holiday week in the US. It will be interesting to see.….continue reading by clicking here

Good trading

Phil Seaton

PS. You can sign up for a risk free trial of the LS Trader financial spread trading system by clicking here. The system comes with a 30 day no questions asked money back guarantee.

There are many spread trading strategies that can be used for spread trading stocks and commodities such as the S&P 500 and gold and we have been looking at both of these markets in a fair amount of depth over the past few weeks on this blog.

Let’s start with the S&P 500 today and we will look at Gold later in the week. Firstly, the S&P 500 had a long term change of trend to down last week according to our proprietary trend indicators at LS Trader when it broke through the major support level at 1034.8 before reaching new lows for this year at 1006.5. We have been writing for several weeks at LS Trader that we were expecting the stock markets to break lower and move lower again between now and the end of this year. It remains to be seen if this is the time for that move lower.

Last week we wrote that we were looking for a test of 1000 support, which is a major psychological round number and that we may initially get a bounce higher. Yesterday morning in early trading we saw new lows at 1003.1 (September contract) before a major rally all the way back up to highs for the day at 1038.3, at which level the market stalled and sold off again. Yesterday was clearly then a day of indecision as many bargain hunters initially entered the market and then common sense prevailed later in the session.

In the long run, success in spread trading comes from implementing spread trading strategies that have been proven to work over time. In the S&P 500 scenario that we currently have it is best overall to follow the trend and not try to fight it. If the market fails at 1000 support there is a lot of room to the downside, but if the market rallies then it is best to admit that the trade was wrong and take a small loss. In this way a favourable risk/reward trade is in play, which makes good profit if it is correct but only loses a relatively small amount if it is wrong. If this spread trading strategy is employed consistently over time then the odds are stacked in the favour of success.

Good trading

Phil Seaton

PS. To find out more about the LS Trader financial spread betting system and our proprietary spread trading strategies for spread betting stocks and commodities please click here.

The questions that we at LS trader are asked most currently is where we think the stock markets are headed and where we think the bottom of the market is and what are the best spread betting strategies for today’s markets. This is a very common question these days and it seems to be on everybody’s lips these days.

My personal view is that nobody knows and regardless of what fundamental analysis or technical analysis you use, the bottom line is nobody knows. There are a huge number of very smart people who try to use all sorts of research and indicators to predict where markets are going but the fact remains that it just can’t be done consistently enough to make it a worthwhile approach.

Subscribers to LS Trader or regular readers of my blog will know that I don’t put any weight at all in fundamental analysis, nor do I think that many technical indicators have any value. Most of them when tested over historical data have no statistical validity and the reason for this is that they are predictive and are attempting to predict the future, which as of now does not exist.

Where does that leave us then? If we conclude that we can’t use technical analysis or fundamental analysis with any consistent accuracy, what do we do? Well, the fact remains that the only indicator of any value is the price. The price tells you everything about a market and represents the sum total knowledge of all market participants in that particular market. Therefore, all the different trading and spread betting strategies that are of any use will be based on and built around the price.

The price is the indicator used in trend following and quite simply, you use the price to identify trends in the markets. As of now, the trends in most markets are down, be it stocks or commodities. This is true of both the long and short term trends.

Therefore, rather than trying to predict of guess where the bottom of the market is, traders should just notice that the markets are trending down and position themselves accordingly.

At LS Trader, our spread betting system identified that the stock markets were trending down again several weeks ago and we have been short ever since. Therefore, all our current spread betting strategies for stocks will be from the short side only. How long will this downtrend last? We don’t know, nor do we need to. We just ride the trend until we get confirmation that the trend has ended at which point we exit.

Will we get out at the bottom? No, because trend following does not set profit targets and exit trades when or if such targets are hit and it does not try to predict the bottom of the market. It leaves the trades open until the market reverses a bit and then exits. This means that we must necessarily give back a portion of our profits but this is necessary to give the trend the maximum chance to continue and enable us to extract as much as possible from the trend.

For us here in the UK, the market that we seem to be fascinated with most is the FTSE 100. As I have written previously, this market was headed towards 3500 and that was an intermediate target that we had identified. This week 3500 was taken out and the market drifted lower, although it has been higher since. Will it go lower again? Who knows?

One thing that we can do to give us some sort of indication as to where we think the market may go is to identify key support and resistance levels on the chart. Looking at the FTSE, we can identify 3277.5 as the bottom set back on the 12^th March 2003. This was the level that the FTSE was at following the technology crash and this proved to be the bottom of that bear market.

If the market does fall again to test this level, one would expect major support and buying interest from bargain hunters. This level also represents a low set back in May 1995 and should represent major support. If this level fails then we may well see a swift decline further to around 3000. If this happens we will review things from there.

This is though as I have written above, all speculation as the future cannot be predicted and nobody can consistently call the bottom of the market except in hindsight and it’s equally possible that the lows set yesterday at 3464 (March contract) were the bottom of the market. Time will tell of course but the main point is don’t buy in to all these people trying to predict the bottom of the market because the fact remains nobody knows.

Good luck in your trading

Phil Seaton

PS. If you want a way to simplify your financial spread betting and avoid all the noise and hype in the markets you can sign up for a risk free trial of the LS Trader system here.