Think Financial Markets - Excellence In Trading Financial Markets

Think Financial Markets - Excellence In Trading Financial Markets

Market Sentiment

It is essential that we have a general feeling of which direction our market may trade on any given day.

To achieve this it is necessary to be aware of how global markets have performed on the previous day as well as during the night.

We measure this sentiment by allocating points to certain global indicies to measure their strength or weakness.

We look firstly to The Dow Jones Index. This index is one of the world’s most influential and as such rates very highly in determining the daily sentiment.

We allocate between 2 pts plus or minus if the overnight movement is less than 50pts or 4pts if over 50pts

The next most important indicator is the SPI200 which is the futures contract covering the Australian markets top 200 stocks and trades almost 24hours per day.

We also allocate between 2 and 4 pts as per the Dow.

Then we add both the Nasdaq and the S&P 500 indicies from the U.S they are allocated points as follows

Nasdaq above /below 30 ,plus or minus 2pts or less than 30, 1pt

S&P 500 above /below 15, plus or minus 2pts or less than 15, 1pt

Next we add the FTSE 100 results from England and the NIKKEI 250 from Japan which are allocated 1pt for a plus or minus result.

The maximum points on our table are 14 and variations of this will gauge bullish or bearish sentiment.

Other very important overnight markets to be taken into consideration when trading the Australian market are firstly the strength or weakness in the Aussie dollar versus the US dollar and we rarely have a good day if the commodity markets have been sold down during the night.


Saturday, July 28, 2007

The Sub-prime Story

It was first called a "storm in a teacup", now it has been said "its the tech wreak of 2007. What has sent global markets into a tailspin? What is the Sub-prime story? In a nutshell, it is loans that have been made to US home buyers who normally would not qualify for a loan, hence the name "sub-prime".
These loans are provided by lenders who charge higher interest rates, the loans are then onsold to larger banks, they in turn "bundle" these loans with other products and sell them to fund managers, investment companies (listed and unlisted) and private investors.
Some investors take out margin loans to purchase these debt products, (mmmm use debt to buy someone's debt, great idea... NOT).
The returns to investors/fund managers on these debt products rely on the orginal US homebuyer, who didn't qualify for a loan under normal credit terms, ability to pay back the loan, when they default on the loan, the assets (home) is then sold in a fire sale. Where does the leave the investor/fund managers who purchase the debt product with borrowed funds/margin loans??.... Out of pocket of course.
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