CFD Trading Weekly Report 17 March 2005

More bull market fun - the markets take off

This week, the train finally left the station in the US. In the slipstream of other major equity markets, there is a breathless air to analysts as they now see five year highs appearing on the horizon for the Dow Jones Index. Students of Dow Theory will have noticed multiple bullish confirmations in the states this week, and everywhere one looks, there are new individual highs appearing. These are spread across most sectors and both within large caps and small cap shares. The only relative weakness is in tech stocks, which are short term bullish, but way below historic highs.

No doubt on the US bulletin boards and forums this weekend, there will be floated convincing reasons to settle the argument as to whether or not the last three years have been a secular rally within a major bear market. The view coming from the mainstream US financial press and commentators is that we are once again off on a bull market run, after months of sideways action. Technically speaking, which is all that really matters from a trading perspective, we are not so sure. We would point to huge resistance overhead on the Dow, and the fact that volume on the recent rallies has been good, but not outstanding. Our jury is still out on the bigger picture, but in the short term (one to five days) it does point to further gains.

But enough of conjecture, let's enjoy an amazing few days for our recommendations. Clearly in the UK, we have been in a bull market for some time, despite the occasional threat of a trend change, and this week the FTSE 100 index moved up again, backed off for a short while, and as we write, has blasted above 6000, last seen in the first year of the millenium. To be honest, there isn't that much resistance between here and the all time highs close to 7000 on the Footsie, and it is interesting to note that if one were to take the influence of Vodafone away over the last five years, the picture would be far more bullish, perhaps more reflective of the FT mid 250 index. So maybe more to come next week on the upside.

The M&A game has gone crazy this week, giving us our best "trade of the month" for March so far. We didn't think we could match the huge gain on our recent Google short, but on Tuesday afternoon Blue Index clients were alerted to a surge in volume on Body Shop International, enabling us to buy around 255p. Today, there has been an agreed bid by L'Oreal and we have closed out this morning at 296p, representing a clean 16% profit in 3 days. We have also seen good gains in long positions in Cairn Energy, Royal Sun Alliance, BT, Xstrata, Centrica, Scottish Power, German Dax, Collins Stewart, and a great short on CSR which gave us 7%. As well as this there have been the predictable 2% losses on a couple of our shorts (BAT Industries, British Airways), but overall it has been a splendid week.

There' not a lot of glamour in getting up at 5.30 each morning and trawling through a load of charts/websites, but it is possible to make money steadily by adopting Jim Slater' famous "Zulu Principle". What we try and do at Blue Index is look over the heads of everyone else, and the key to making money is doing your homework, not being influenced by paper talk, and being that little bit better than the crowd.

From now on, we aim to bring you this report by Thursday Lunchtime. If you are like me, and you tidy up your inbox at 5pm on a Friday before trying to get a head start on everyone else heading out into the country for the weekend, the last thing you want is a pile of emails to read. As much as I like to see what the competition is up to, it gets a bit tiresome trawling through offers to make me £80000 from £5000 with ten minutes work a day, or reading yet another précis of today's market action. Lunchtime is far better, we think, and on that subject I am about to enjoy a well-deserved bite around the corner with a grateful client, who's fund is up 50% (yes 50%) this week. Now that is some performance, probably never to be repeated. What a week!

CONTRACTS FOR DIFFERENCE (CFD) TRADES TO WATCH NEXT WEEK

BUY COLLINS STEWART TULLET
TICKER: CSTL 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS:
The shares have reflected the wider bull market in the sector, and have enjoyed a substantial bull market for the last eighteen months. Of interest in recent days has been a sharp increase in buying volume, and having moved to a fresh high yesterday, we can look for a similar move to that seen in recent days with 740p as a short term target. Only a reversal below yesterday's low at 691.5p on decent selling volume would negate the short term bull story.

LATEST SIGNIFICANT FUNDAMENTALS:
The recent news is that Collins Stewart Tullett have rejected an approach from a rival firm for its inter-dealer broking side, Tullett Prebon. The unwanted approach was from GFI, based in New York. It is believed that Goldman Sachs, was ready to act for GFI in any deal. The talks were unsuccessful. In November CSTL ended talks with several US private equity firms interested in funding a buyout of the entire group after failure to reach agreement over pricFood for thought within a bull market.

RISK AND DURATION INFO:
10 Day Trade Plus                 
Risk 8/10              
Trade Rating 8/10        

BEST CASE SCENARIO: Impulsive new highs above 800p

NIGHTMARE SCENARIO: Below recent lows at 665p 

SELL ASTRAZENECA
TICKER: AZN 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS: 
The longer term trend is clearly up, but over the last two days the price has edged back on fairly high volume.  There has been a feeble rally, and we now have a reasonable set up for a short term sell. The aim is for a 50% retracement of the recent sharp rise, so we are looking for 2800p as an initial target. Any move above yesterday?s high at 2936p obviously negates the bear call in the short term. This must be viewed as a higher risk trade. 

LATEST SIGNIFICANT FUNDAMENTALS: 
Under a joint venture set up in 1998, Merck markets and distributes certain AZN products in the US, AZN makes annual contingent payments to Merck under the terms of the joint venture, based on the products' sales. In 2008, Merck's rights to some of the products will end, prompting a payment from Astra. However Merck also has the option to relinquish rights to a further group of products, triggering another payment. The option covers heart drug Atacand and Plendil.  The four-year study on Atacand, selected people with a condition called pre-hypertension. At the end of the study, the patients treated with Atacand had 15.6% less risk of developing hypertension than those who had only received a placebo.

RISK AND DURATION INFO:
10  Day Plus trade                    
Risk 8/10                  
Trade Rating 8/10

BEST CASE SCENARIO: Down to 200 day MA

NIGHTMARE SCENARIO: New highs above 700p 

BUY PERSIMMON
TICKER: PSN 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS:
There is a strong uptrend in place with the shares well above a rising 200 day moving average, and supported by good buying volume.  Yesterday we saw a good rise on decent volume, which suggests a resumption of the bull market We recommend long positions with a target of 1435p, then 1500p, and stops should be placed just below short term support at 1380p.

LATEST SIGNIFICANT FUNDAMENTALS:
On the 27th February, Persimmon gave an upbeat view of its prospects for 2006 after it reported record annual profits. I"Visitor levels have been good and new reservations have been encouraging. Whilst it is too early in the New Year to predict the market, it is nevertheless a good start to the year," it said. It has so far achieved forward sales of over 7,000 homes with a value of £1.25bn. That included initial contribution from Westbury PLC of "around £300m according to CE John White. It plans to open over 300 developments this year. The comments accompanied a 5.9% increase in ptp to a record £495.4m, with turnover up 7.5% to £2.29bn after completing the sale of 12,636 homes, up from 12,360 previously.

RISK AND DURATION INFO:
10 Day Trade Plus                  
Risk  8/10              
Trade Rating 8/10        

BEST CASE SCENARIO:  Impulsive new highs above 1500p

NIGHTMARE SCENARIO:  Below recent lows at 1325p 

If you wish to receive advice and trading ideas from Blue Index please contact our Trading Desk on 020 7398 2552 or info@blueindex.co.uk for further information.

IMPORTANT NOTES: This CFD Trading Report is issued by Blue Index Limited, which is authorised and regulated by the Financial Services Authority.  This Report was prepared and distributed by Blue Index for information purposes only.  This document does not constitute an offer, or a recommendation to enter into any transaction.  The opinions contained in the Report were considered by Blue Index to be valid when published.  Whilst Blue Index has taken all reasonable steps to ensure this information is correct, Blue Index does not offer any warranty as to the accuracy or completeness of such information.  Any person placing reliance on the Report to undertake trading does so entirely at their own risk and Blue Index does not accept any liability as a result.  Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Short term trading in these markets is generally considered to be suitable only for the more experienced investor as is carries a high degree of risk.  The investor may not receive back the amount of his original investment and in certain circumstances may be liable for a greater sum than this. If in any doubt, please seek further advice. Blue Index Ltd. 23-26 St. Dunstan's Hill, London, EC3R 8HN. Visit Blue Index to open up a Contracts for Difference (CFD) trading account.