Today’s chart pattern on the FTSE 100 reminded me precisely why those who are trading the markets do it. It is not to be mesmerised by the latest Philly Fed numbers, the fact that apart from QE the Bank of England has nothing left in its armoury and it is now left to fiscal policy as the last lever should further stimulus be required, or even that U.S. Weekly Jobless Claims were weaker than expected today.
No, it is none of the above. What we all want to see, or more likely, be on the back of, is a clear set up and stay on it until we reap a decent reward in monetary terms. It does not of course have to be technically based, it could in fact be based upon the type of economic data described above. But, from my perspective there is nothing as clear cut as a chart formation.
The bull flag on the FTSE 100’s hourly chart was just about as good a piece of technical trading material as you could wish to see, especially when combined with other factors, both fundamental and technical. For instance, the run up to yesterday’s Ben Bernanke Testimony to Congress had created something of a log jam effect as far as the indices in general were concerned and in particular with the FTSE 100. While there had been a rebound from the scare served up by the Federal Reserve Chairman “Yellow Belly” Ben over QE tapering, further progress above 6,600 was only going to happen – if at all – after his testimony was over.
A useful additional piece of charting information going into today was the way that, as indicated on the hourly chart by the trend line, there was a brief bear trap yesterday below 6,540, and which became support going into this week. Therefore, this morning we were biased to the long side after the trap. However, the fireworks were only delivered around midday with the consolidation of the opening couple of hours move to the upside between 6,560 and 6,605. Indeed, it was the break of the 10am peak at 6,605 which triggered this afternoon’s sharp spike and a move that has so far seen the index run towards 6,660. The implied target of 45 points up from the floor of the flag at 6,591 (6,636) was therefore easily beaten.
Of course, while the theory here may be relatively easy, as most of us are aware, the practice is largely not quite so easy. Whilst most traders may have nerves of steel in terms of holding onto a position which is hundreds of Pounds against them, the heat of success can very often turn a would be George Soros into someone with the nerves of an amoeba – if indeed such creatures have feelings at all! Ironically, it may very well be that a one celled creature would make a better job of running a profit than most of us humans.
A couple of footnotes as far as this blog is concerned. The first is that it was inspired through being bombarded by tweets from all the “experts” I follow, telling me what the Weekly Jobless Claims were. After the 15th Tweet of a widely available piece of data you kinda switch off… But of course, no one tells you what market to trade or in which direction to go, or even that, as in the case of the FTSE 100, it might be worth looking to the long side. None that is except this blog and which I was proud to take on the editorship of following Richard Jennings’ moving onto pastures new at Titan. I was first alerted to the site as one of the very few that frankly “puts their neck on the block” and it is a responsibility I now shoulder with pride and great seriousness.
Similarly, going forward, I have not seen any Tweet reminding me that Euro / Dollar has bounced off its 200 day moving average at $1.3078 for three days in a row and therefore could represent a significant buying opportunity. Presumably, such information would simply be too useful but hey, it is duly tweeted here!