Guest Blog - James @traderdiarycouk Trading to the end of 2016

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The markets globally have started to feel instability.

Markets over recent weeks have been stable as there has been no action by central banks in Europe and US. Article 50 for the negotiations to start on Britain leaving the EU has been parked to March 2017. 

UK Stocks in the majority reporting strong earnings and FTSE pushing up from 6300 to 6900+ area.

The markets this summer are contrary to previous summers where they needed constant intervention by central banks. Now they are a happier place if left alone. Amazing how things can move full circle. 

Global Market starting to get more volatile and will continue to January 2017 in my opinion. There will be plenty of opportunities to make or lose. As always I find it’s more important not to lose than to win.

The old term "buy in September and hold over the winter months for a bull market" I suggest to be avoided as we've had a strong Summer trading period and the FTSE is running high. In terms of UK market I think we are in a touch complacent mood.

Anticipate Political and economic uncertainty will be affecting the market "if" the news is delivered in a way to shock the market and expectations / fears not managed over months ahead. If the delivery is well managed then expect markets to continue north direction.

Events I feel could affect the markets

US Market
The US federal bank stating they will have an interest rate rise (possibly two rises) between now and end of 2016. The market is very fearful of this causing too much pressure on the US economy and therefore slowing it down. Combined with the new President of US being elected (8th Nov) by the year end will create further uncertainty in the world’s biggest economy. The fact that both Presidential candidates are not over popular and US split down the middle will not be positive either. 

In terms of trading, it's a short position on an interest rate rise being released before US President Elected. Applying the short only if the market doesn't accept the rate increase.

If Trump gets in as President, I feel there will be plenty of trading opportunities from his blunt approach. I don't expect him to be as controversial when in office because that would be crazy but we shall see. The American people seem unhappy in general in the direction their country is going.

Europe 
The Greece debt issues and Italian banking crisis has moved into the background. The market is focused on Brexit when article 50 will be released and will there be other countries wanting to break free?

Lots of posturing going on by European leaders to try and keep UK inline and prevent an uprising from within.

The banking crisis in Italy seems to rumble on but controlled at present in terms of major headlines. 

The major player is obviously Germany and for the first time I see some risk. Two of the largest companies, VW and Deutsche Bank, are open to colossal fines from US. The fine for Deutsche Bank is expected to be near its valuation. The recent statement from PM Merkel stating she's not looking to bail out the bank has introduced fear on how it will pay. Expect US government to meet with Merkel to negotiate reduced fines for something in return. 

Over time this will be a legacy issue which the companies will require decades to claw back. It's sad really as these were top organisations and the drive for greed has burnt everything they achieved. It's very short sighted but this is human behaviour for you.

UK Markets 
The UK Market has had Bank of England providing QE and interest rate drop since June's Brexit result. The BoE seem to back shuffle on another rate cut recently as they are saying UK market is stable at present. 

Sterling is falling in value and exporter data is picking up. We are going into the 1990s. 

Help to buy scheme is being pulled at the end of the year which may dampen house builders. The recent pledge of £2Bn to flood house market with properties is the Chancellor’s latest call. We shall see if this has the desired affect.

Scotland's leader has remained quiet since Mrs May’s visit which may indicate there has been some unity. We shall see how vocal she gets when article 50 is being deployed. At present its No to Scotland Veto of Brexit and No to another referendum. Again its human nature looking for something for nothing / easy deal etc. by Scottish PM. Maybe more value in improving the country's processes than being a professional soapbox surfer.

The UK Market is awaiting the budget from the new PM and Chancellor. Anticipate this to be interesting and how they will protect house builders, small businesses and financial institutions. If well delivered expect FTSE to push well above 7000 area. Rumoured that the government will want to boost public spending and Construction / Engineering companies may enjoy a move up in price. Maybe time to start building positions in Engineering Companies.

If it's negative or unknown policy change I expect we will have a correction on the FTSE. 

For me, all or nothing thinking is something to avoid - i.e. setting up mentally that the FTSE has to correct itself because it doesn't. I feel no short positions until the budget and the content of the budget to be assessed and traded accordingly.

The situation is very fluid. Anything could happen and it’s feeling your way through the news and how things are shaping up.

Positioning in Utility companies are an option if uncertainty looks high. Companies such as Severn Trent Water, National Grid  and United Utilities look good options. If things go fearful they will rally, if they go positive they will move upwards by a smaller amount.

Banks are low in price at the moment and may rally on Government Support from the UK budget. Interest rate cutting is a negative in my opinion on bank share prices. I feel EU banking issues have squashed prices and I'm starting positions as feel some life will be breathed into them.

Survival 
I don't recommend buying weak / missed expectation type companies at present as FTSE high and we could come across rocky ground. It's best to trade them on their next RNS. I've done it before and bought these companies and after a couple of months, leading up to RNS, I'm nursing a position 10% to 15% down and hoping for a great RNS. The RNS is flat or downcast and the descent starts again leading to losses or buying into a lower position. The cycle continues over the months. Bottom fishing for me is the lazy traders approach and fraught with pain. 

Best to trade news which foresees future positivity or a change in expectations verses current sentiment. Saves a lot of time and hassle in my opinion. 

Always say "No news, No trade" saved me £. Never ever let price tease you into taking a position. Fairpoint, Capita, Sports Direct, Vislink etc. Catching a chainsaw I would describe - no support, no news, no positivity, decent spread and lack of demand combined with a high flying FTSE. How are they going to do in a bear market? - Exactly.

Overall try not to be greedy and emotionally biased. Don't get held up on things - i.e. House builders got to rise or FTSE has to correct.

Things are fluid, there are strong or weak outlooks and there is economic change in policy. Just trade these as they are released ensuring the chart illustrates good support. The contrary for short positions etc. 

I think being agile in trades, quick to close or open on news would be saver / gainer for many. I'd avoid fully loading up in multiple companies as we may have indices dropping by 3% a day with US and UK markets. 

Will do an update on methods of making money on market in weeks to come.

Good luck in your trades and hope to see you on the other side.

Thanks James