Trading Thoughts For The Week Ahead  - Sunday 11th July

This week's guest is Big Al and gives his own thoughts on the week ahead and a personal view on his trading strategy. If anyone else would like to be the guest next week please let us know by emailing mike@moneyam.com

Bet you never thought youd be subjected to my meandering brain, did you? Was asked and accepted. Eejit! Sgt T. Wide seemed to get a sniff of it on Friday, however, but I didnt tell him!Monday 12th JulyMarks and Spencers trading statement and strategy update is probably the most exciting item of the whole week and their AGM is also due Wednesday.Will Green succeed and how would they drag a once great institution back from the depths? Apart from a brief flirtation with 400p in early 2002, this is the best price shareholders have seen this century. If I was them Id take the money and run!St Modwen Properties report interims. I wonder if they can deliver as before. Interims have often been erratic, but 8 straight full years of double-digit profit growth and over a decade of double-digit divi growth is impressive. I note 3 directors exercised options without selling in May and Aprils AGM was bullish.Pace Micro Technology release prelims (I have 12th in the RNS, although other sources show 13th). The recent story has been one long woe after another culminating in proceedings being taken by the Financial Services regulator. I rather doubt it matters whether they stated results should be in line.Tuesday 13th JulyAnite Group release finals. As with all techs, things faltered around Easter and this was followed by a less than glowing trading update in late May nicely ahead year-on-year, but a greater than expected restructuring charge will be taken in addition to provisions for loss-making contracts. Lets see how theyve coped since. Inter Link Foods are very small cap, but have a very good history of growth. They faltered last year as profits only increased 10%, but a return to a slightly better than average 68% growth is predicted. Suppose weve all got to eat and apparently the Oldham Bakery turns out over 101 million chocolate mini rolls a year, enough to keep a few traders well stocked! A very acquisitive outfit.Wednesday 14th JulyCentre Parks report its maiden finals. The pre-close statement was upbeat with strong forward bookings, the chairman bought over 100k shares thereafter and they want a full listing from AIM in the current year. Going places?BT holds its AGM. Its about time they really sorted out where theyre going!Thursday 15th JulyOttakers are due a trading statement today. Mays update was bullish, but tinged with reality as comparatives to last years stellar performance kicked in. Wonder if they can kick-start that marvellous run of the past year or two.Friday 16th July The Babcock AGM might shed further light on their bid for Peterhouse, but OFT have their hands on it even though 94% had accepted as of 22nd June

UK reporting is rather thin, but the US season sees many of the major players posting results. That is likely to be where the fun is and might give the indices a bit more direction (see below).Thoughts on the indices certainly not my forte! The past week saw the indices, as predicted by mg, fall. Black gold reared its ugly head once more, as did Osama and his buddies. From a TA point of view, it all dropped back to confirm a downtrend channel.UKX made its first lower high last month since this bull run began, also following its failure to reach the top of the up trend channel late April (green). By Thursday wed made a very handy V-reversal intraday, which stopped the rot, and this coincided with the base of the down trending channel (red). Much more importantly it has broken a very decent up trend line (blue). For good measure, it has also firmly broken the 200d SMA (yellow) Grrr!? Odds are for a rise initially, but I cant see 4500 any time soon in all honesty. If the blue line is retested around 4450, we may see it reverse right there. Theres been a lot of talk of volume to confirm these moves, but I dont see much to say this has been lower than in the past. Im finding the US very difficult to call. Recent highs on the S&P could be explained by a sharp bounce off the 200 day SMA (yellow) in May. That is currently around 1100 and has not been broken for almost 15 months. Junes performance broke out of its channel, but were back in again. It is making decreasing highs, but thats as good as it gets and with all these indicators converging we may find ourselves pretty range-bound again. Ive marked a few support/resistance levels about 20 points apart (green), which seem to have been popular all year, but its very subjective. The Dow has broken the 200d SMA once and got back above it, but is toying with it again. The channel is not the best fit, but its certainly more believable than the S&P. However it is also getting squeezed by the channel and the MA and so its decision time. Id put my money on the 200 for now, but a dip to below 10100 is not out of the question intraday. Overall, all indices are short term oversold and that position should limit the downside for now, but Im at a loss to see how much upside there is either. I guess the Concorde Method rules.Trading Strategy It seems to have become a tradition to set out how we each play the market here. I made a shift to mainly SEAQs about a year ago, more by luck than judgement, but it was a real mental shift from scalping SETS stocks. Primarily, I had to find a system that would pick up potential trades. I also had to get my money management properly sorted. As a fan of Elder, I make no apology for totally stealing his format and applying it, just as he invited! In addition, conversations with other traders (they know who they are!) refined it still further, although I am branching out to trading breaks both up and down as per any 1-2-3 strategy thats used by many. The basic tenet is to determine a long term up or down trend as defined by an EMA. If its going up, you want to be long, if its going down you want to be short. The next step is to find good entry points. For that I use another EMA 1/5th the length of the longer one, precisely as Elder defined in his books. Hopefully, entry is a pullback of the price to between the two EMAs and I use candles/ previous support/resistance and breakout levels to identify potential resumptions of the trend. I settled ages ago on 17 day and 85 day EMAs. This worked fine until March-May, when everything pulled back an awful long way and I kept getting stopped out of longs and got caught on shorts taking off again. I reverted to 50/200 SMA for a while because I thought most would watch these and it may stop the whipsaws. It seemed to work fine, but recently most have begun to give good results with the original settings once more. What was brought to my attention by someone (they may own up LOL) was that oscillators are an excellent means of showing when a stock is oversold in an up trend and overbought in a downtrend. Ive personally modified that to watch for oscillator levels at which theyve turned before. I use RSI for this purpose mainly now and have settled for a 13 day exponential on SSRT. I also use MACD/MACDH with standard settings, but am increasingly finding it giving false signals and it doesnt carry as much weight as it used to in my decisions. Finally, I also look for chart patterns such as flags, pennants and triangles combined with support and resistance levels. Theres been quite a number that have fulfilled recently. I was going to post a couple of example trades, but heres what Ive done shorting WHT. It can also be clearly seen how last year buying in earlyOctober and mid November also covered the long strategy.6th April dead cross EMAs & retest, small descending triangle, RSI failed to get above 50, short 310p. Covered on 14th May at 258p. Reasons price over-reached channel extremity, at Oct 03 break up = support?15th June price had recovered to trend line, between EMAs, RSI>70 = overbought. Short 272p. Covered 9th July at 240p. Reasons price around normal channel limit, RSI oversold, news was big seller was out. I do run a data-mining filter on SSRT to pick potential targets. It basically looks for stocks with prices less than the 17 day EMA and greater than the 85 day EMA for longs, vice versa for shorts. Its then a matter of going through them and looking at the best possible targets to stick in the watch list. Unfortunately SS wont filter for any other chart indicators yet, even though Ive had it on their wish list for ages. To combine the above with one that, say, would hunt for RSIs greater or less than 50, for example, would make it a doddle. I guess thats a wrap. Sorry its a bit wordy. If you need any further ideas email mikey@moneymayhem.com or martini@tupperwaretips.com, coz Im fresh out of them and knackered after trying to put this into something rather concise and coherent. Rambling was always my strongpoint unfortunately. Have a good week!and for Gods sake, DYOBR!

Big Al

All the above comments are purely a personal opinion and no investment advice is intended. Please do your own research