Lloyds ‘Fesses Up To Huge HBOS Losses

Even an HBOS belter from Lloyds (LYG), and a further fall in US confidence, couldn’t knock stubborn equity markets for long. A panicky sell-off was met with buying ahead of the long US weekend.

I put aside my irritation at resilient equity markets to score gains in long GBPUSD, short EURGBP and GBPJPY, and short Lloyds bets. None of the profits were massive in their own right, but they came together to give me a warm glow going into the weekend. Here’s a silly chart:

I’d been getting pretty frustrated with my Lloyds short bet; it was tying up capital and just not doing what I wanted. But it all came together this afternoon with a warning that (surprise, surprise) the HBOS numbers were far worse than those that had recently been announced. The price plunged from +5% on the day to -60% at one point. I closed part of my short at the lows and the balance at 69p when I thought the fun was over. It turned out to be a nice little earner. I also used the weakness to close out my remaining £1 short in HSBC; that was at a small loss from the original sale but it frees up some more trading capital.

I wish I’d consulted Fibonacci before trading this one:

My reasoning was sound; Lloyds had just dropped an HBOS bombshell and had been thumped by the market. This was dragging other banks and FTSE lower, causing Sterling to fall. I reckoned the best way to play a falling Pound in panicky markets was to sell GBPJPY.

My execution was OK; I waited for a break of the previous low, at Y132.50 before selling £1 at Y132.45. The trade worked and had soon broken Y132 and the 21-period moving average on the 30-minute chart. Being a Friday before a G7 meeting and long weekend in the US I really should have closed for £100, thanked the trading gods for a good day and switched off my screens.

But I must have been dizzy from the speed of the ££££s whacking up in front of me (what with being short of Lloyds, HSBC, FTSE and Sterling). I brought my stop loss down to Y132.05 and continued to roll the dice. I was pretty relaxed when the price bounce a bit-it was only to be expected after the sharp sell-off. But it kept on rising until my £100 plus profit was crystallised at a poxy £37 (slippage meant I was stopped out at Y132.08).

I could see that the low point coincided with a previous peak, but sticking Fibonacci levels on the chart added credibility to the bounce. The low point was the 38% retracement of the nearly 700-point rally from yesterday. Granted, the time frame was short, but the forex guys set great store by Fibonacci and it sure worked this time.

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