Bumper Day For Banks And Sterling

Sterling defied a barrage of negative press stories to rally against both the Dollar and Euro. A relief rally in banks pushed my FTSE short deep into the red.

Whenever a chart looks ‘irritatingly simple’ beware-or you might get caught out like I did. And I made matters worse, not only by trading, but by trading badly. Instead of just selling the rally at Friday afternoon’s high I waited for my mechanical trigger and by the time the green light flashed the FTSE index (^FTSE) had fallen to 4030. I sold £3 at 4033; a trade which is now covered in red ink.

In fairness, I could have taken a small profit in pre-trade this morning, but took the lower market as confirmation that the sell-off remained in place. As Julia Roberts once said, “Big Mistake, Big Mistake.” I’m currently about £250 in the red on that trade and a touch more on what’s left of my bank short bets (luckily I took a nice turn on the HSBC (HBC) bet on Friday).

This is a huge week for US earning reports (check out the Weekly Wrap for details) so I’m not looking to panic out of my trades on a Monday rally. However, the US missed a trick on Friday, allowing the S&P 500 (^GSPC) to close above the key 812 level; despite dropping below the line during the day, support has continued to stand up and look strong:

Surprise of the day must be good old Sterling. Another weekend of negative press (Darling plans another rescue, MPC member says rates should head for zero, biggest fall in house prices since 2001, yeah, yeah, yeah) saw a predictable sell-off in early trade. I can count my blessings that I didn’t join in, but my discipline paid off. I didn’t want to press the button until my MACD indicator confirmed the moving average crossover. No confirmation, no trade; not long afterwards Sterling bounced, taking out a couple of resistance levels to boot.

I was happy to let the school walk/gym combination get in the way; my trend indicators still have Sterling heading south so I wasn’t too keen to open a counter-trend bet so early in the week. But an hour and a half later, with GBP/USD just breaking $1.38, I decided to push the button. My indicators showed that I was late to the party, but had scope to come away with a result.

I paid $1.3803 for a £5 bet and took a £50 profit out of the trade, but the usual rush to bring my stop loss up for a profit meant that I missed out on the bigger gains. That’s OK; for me it’s too early to call a change of direction in Sterling, so I’m happy to nibble away at the smaller trades.

Update
Interesting that traders tried to take GBP/USD down at the US open (1-1.30pm) but the break below $1.38 aroused as much interest as a Gordon Brown press conference. It looks a tempting buy, but I’m going to be off the desk for a while so I’ll leave it and kick the cat later when I return to a higher level.

On a similar theme, equities look to have ignored the early negative earnings releases, FTSE lacking sellers below 4100. I can’t bring myself to buy the market but can expect a bigger loss on my short when I return.

Happy Trading.

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