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Happy NY to all SBM readers!

On a rather less upbeat note, I have been asked by the “Dear Founder” of Spreadbet Magazine to offer up my three best shorts for 2014. This is perhaps somewhat ironic given the way that I expect the FTSE 100 to break into record territory early in the New Year! I believe the UK leading index will make up for lost time and join the massive bull run seen in QE addled U.S. markets.

It is also the case that given my bullish view of the FTSE 100 for 2013, one that thankfully came to pass, you can probably count on the fingers of one hand how many bear calls I made over the last 12 months. My view was that it would be easiest to “go with the floor”, and it has been, apart of course as far as the dreaded mining stocks were concerned…. Indeed, as well as this momentum view for major equity markets is concerned, I also prefer to avoid “hero” trades which attempt to call the top or bottom of markets. But of course, I respect (and envy) those who can do this successfully. Instead, it seems less hairy to me to continue with the sweet spot of an entrenched move.

So, without further ado, onto my top 3 shorts for 2014…

Imagination Technologies (IMG) is number one. The stock has clearly been hammered over the autumn and, on the face of it, the market has not been able to get over what appears to have been an autumn from hell on the fundamental front. There seems to be an anticipation of further nasties waiting in the wings… All this pain culminated with the lowered guidance and H1 profits decline as reported on December 11 by the graphics and video chip group. In fact, one might have thought that this company with its Apple partnership, as well as the wider boom in smartphones, would be all the rage as far as bulls are concerned. However, it would appear that the stock market cliché of it being better to travel than arrive is at play here, over and above the profits setback.

From a charting perspective, one could argue things are even worse as we have a descending price channel in place on the daily chart since March. While the stock has already more than halved since then, the fact that December witnessed an unfilled gap to the downside through former August year lows above 200p implies very bearish momentum here. The risk is that while there is no end of day close back above the 20 day moving average at 197p that we shall see a sub 100p target towards the floor of the 2013 price channel. Perhaps as soon as the end of February.

Iodine extractor Iofina has moved from hero to not too far off zero over the course of the last year and although there has already been an almighty collapse for the share price, it seems too early to look for a lasting floor here. This is despite the way that December did offer a relatively sharp rebound off the 79p level. But the view now is that the latest recovery is likely to be nothing better than a dead cat bounce, one that offers a shorting opportunity in fact. Indeed, unless or until, we are treated to an end of day close back above the former June 113p intraday floor there is every reason to go with the idea of further losses here – possibly lower than the levels of late under 80p. At this stage it may very well be that the only really robust buy signal is likely to be an end of day close back above the 20 day moving average at 123p currently.

Finally, we have a “fun” situation. This comes in the form of Euro / Sterling where I have been a bull – largely for contrarian reasons – the market as a whole has been too bearish on the single currency. However, for 2014 I feel it right to “capitulate” in favour of Sterling here – not only on the basis of our “booming” economy, but also on the likelihood that the ECB will have to keep its interest rates as low as possible for as long as possible. It is probable too that the likes of “Super” Mario Draghi will enjoy keeping the differential between UK and Eurozone rates as wide as possible in order to try and import both inflation and economic growth. That said, while I am bearish here, it may be wrong to get too carried away, and the technical target is initially back towards last year’s 81p support line destination over the next 1-2 months.


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