-Chaos in the Markets-

If the price of progress is that 10 million people around the world now have sufficient computer power to use the same types of investment software that produce similar technical analysis signals, then the outcome is bound to be increasingly erratic and almost chaotic price action in the short term.  This is something that has become more and more apparent in the last ten years, certainly to those of us who were around in the 1980s, when the first efficient data mining systems were developed.

As committed trend traders, the name of the game for us is to sort out the obvious trend from the background noise, and we have occasionally found that the traditional stops we employ, placed just outside of support and resistance, are increasingly being touched off. 

Viewing the glass as half full, this means that our risk profile on certain recommendations has risen, which means we need a commensurate improvement in expected returns. That is why clients will have noticed that some of our targets are further away than usual for certain trades.  It's not a problem, and our recent short recommendation on Smith & Nephew (SN.) as an example produced a pleasing gain of around 8% in two weeks as the price almost perfectly hit our rather presumptuous target of 400p.  Let us hope we are not being too greedy because Blue Index clients now have another opportunity to go short at 415p or thereabouts after a two day rally with the same short term target to start with.  Acceptance below that level would suggest an eventual move to 360p.

But let's take the view that the glass is half full - maybe this evolving price action process is simply giving countertrend trades more prominence and a higher possible win/loss ratio for trades with a higher bias towards sentiment indicators.  We'll be doing some work on this subject in the next few weeks, and clients of Blue Index know that to make money trading, you have to have an edge, whether you view it as a treasure hunt, crossword, Sudoku or even Cluedo!

A BIG PROFITS WARNING FROM EMAP

Some of the best profits in the market can follow profit warnings, and on Thursday EMAP (EMA) warned that half-year revenues may fall slightly in the first-half and be broadly flat for the year amid a deterioration in trading conditions.  There is an opportunity here, so this is how we view the outlook for the shares fundamentally:

EMAP was on a prospective p/e of 13 and priced at 837p prior to today's news.  Forecasts now suggest profits of £225m, which still looks a bit rich, given how quickly the advertising market can turn down, so they might do 62.5p for the year.  On a p/e of 11, which itself is probably generous, but a fair reflection of expected future growth until we know more, the projected target is 687p.  Guess where the last major low on the chart in recent years is - 684p in August 2004. If this were "Goodfellas" that would be close to "beautiful", as it often is in this game, but we're no wiseguys!

The bottom line is that if you want a longer term short, you could do worse than start with EMAP and that target.  If, however, earnings projections really do start to slide, then there is a bigger band of support around 650p. The shares are already down to 727p, so there is plenty to go for.

GOLD - ANOTHER WINNING TRADE

Another month - another Blue Index winner on Gold.  After our patience in awaiting the trigger to buy at around $580 on 22nd June, the break of last Friday's low at $630 triggered a sell signal, and that gave Blue Index clients another $50 profit in just over two weeks. With gold at $651, the obvious question is, were we too early? Probably.  Are we happy? Well, seven gold trades this year, six wins, and a cumulative profit $280 - you judge.  As it stands, gold is at the top of a broad band of resistance between $630 and $655, so we wouldn't chase it at present. For long term players only at the moment.

CONTRACTS FOR DIFFERENCE (CFD) TRADES TO WATCH NEXT WEEK

SELL AMVESCAP
TICKER: AVZ 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS:
As a high beta, cyclical play Amvescap creates great opportunities when the market volatility increases, as has been the case in the last two months. Having been a great performer up to late April, the most noticeable change has been the move to underperformance against the FTSE 100 index since then. The shares have fallen in a series of lower highs and lows and are now right on the sideways moving 200 day moving average. The failure to rally away decisively from here is bearish, and with a short term change of trend this week, we recommend selling with a target of 457p, and then 442p. Stops should be placed at 486p, just above yesterday's high.

LATEST SIGNIFICANT FUNDAMENTALS:
Yesterday, Amvescap said its funds under management fell to $413.8bn by the end of June, down from $414.6bn a month earlier. This followed the May statement confirming a similar fall.

RISK AND DURATION INFO:
10 Day Trade Plus                  
Risk 7/10              
Trade Rating 8/10        

BEST CASE SCENARIO: Impulsive new highs above 260p

NIGHTMARE SCENARIO: 200 day moving average at 221p 

BUY PREMIER FOODS
TICKER: PFD 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS:
The big picture shows a one year trading range with the upper edge showing a very slightly declining trendline. It was noticeable, however, that in recent months there was increasing buying volume support, and yesterday the shares exploded on huge volume, convincingly breaking out of the range. This now sets the stage for a move towards the high seen in June 2005 at 343p, and if this level is broken, it is blue sky ahead.  As expected, we have a pullback on Thursday morning which gives us a good opportunity to buy at around 325p. Stops should be placed at 312p.

LATEST SIGNIFICANT FUNDAMENTALS:
On Wednesday, Premier Foods stated it is to buy the UK and Irish businesses of the Campbell Soup Co. for £460m.  Premier Foods, which will acquire well-known UK brands such as Oxo stock cubes and Homepride cooking sauces through the deal, said the acquisition will be funded through a rights issue at a minimum subscription price of 160p raising approximately £450m. The company said the deal would take its branded sales mix to 69% and sees projected cost synergies of £28m within three years.

RISK AND DURATION INFO:
10 Day Plus trade                   
Risk 9/10                  
Trade Rating 7/10

BEST CASE SCENARIO: Impulsive new lows below 100p

NIGHTMARE SCENARIO: 200 day moving average at 127p 

SELL SMITH & NEPHEW
TICKER: SN 
TARGET: 4% plus 
UK  
STOP: 2% 

TECHNICALS:
To remind you of the background, the shares collapsed below the 200 day moving average in April, since when they have fallen steadily and continued to underperform the wider market, hitting new multi-year lows along the way. After the most recent drop to 398.25p, we have seen a two day rally up to the current level of 414p, where we have some short term resistance from last week. Once again we recommend going short, and acceptance below the recent lows would indicate the possibility of a fall to 360p. Stops should be placed at 426p, just above the most recent high of note.

LATEST SIGNIFICANT FUNDAMENTALS:
On 30th June, Smith & Nephew said US antitrust officials yesterday formally requested documents from the company, as part of the Department of Justice's (DoJ) ongoing investigation into the sales practises of orthopaedic companies.  Officials have asked the companies to provide documents going back to Jan 2001, and were examining possible violations of antitrust laws.  The DoJ, which launched the investigation in March 2005, is thought to be concerned about the close relationship between companies and joint surgeons, who are often paid to conduct research and training into new products.  Regulators are concerned about potential implications for competitiveness within the industry.  The concern for SN is that the US may make regulatory moves to free up competition, which could force prices down.

RISK AND DURATION INFO:
10 Day Trade Plus                  
Risk  7/10              
Trade Rating 7/10        

BEST CASE SCENARIO: Impulsive new lows towards 360p

NIGHTMARE SCENARIO: More important resistance at 445p