Another very busy week for news and a generally positive feel to trading
29/02/2008
Weekly trader report 28th - 22nd February - Lloyds TSB provides no great surprises It's been a difficult week for trend traders with daily switchbacks as traders grapple with conflicting economic and corporate reports. To be fair the intra-day moves give excellent opportunities for day traders, but the annoying factor at the moment is the lack of clear volume, so longer term trades are more difficult to find. Today the focus has turned to Lloyds TSB, which announced a steady set of figures, for which the bulls heaved a sigh of relief. Although they missed forecasts slightly, the accompanying statement was pretty confident, and it just could be that the worst is over here. What we really want to see is a surge of buying volume, and indeed that applies right across the bank sector, because this could be one of the bargains of the year. As for the market itself, it remains very jittery after Wall Street's fall last night, and there remains something of a standoff between the bears and bulls this morning. If you look at the overall volatility this week, it has declined steadily, so the key may be to watch for the first impulsive move. As for the direction, it is unusual for us to sit on the fence, but that is what we are doing right now.
25th February - Financials burst into life with a three figure rise on Footsie A fine start in London has been driven by a big change in sentiment towards the financials which as we have been saying hold the key to where the market is headed next. It would seem that the bombed out losers such as Alliance & Leicester and Bradford & Bingley are now considered fair game for a potential takeover, and over the weekend there was talk that Lloyds TSB was assessing whether there is value in these stocks. In terms of volume, the buyers have not really shown their hand yet, but it is also interesting that the scale of share price falls on bad news has lessened. This is bullish in the short term, so we look to statements from HBOS on Wednesday and RBS on Thursday. Another volatile sector worth consideration is property, and there was some reassurance from Hammerson today as it reported a 3% rise in full year NAV, while adjusted profits and earnings both improved markedly on the year before. It expressed some confidence for the future despite current uncertainty and given the big discounts to NAV in the sector, the shorts have been very quickly squeezed. We saw a similar move with SGRO some weeks back, and if the morning's rally can hold on the day, it would be extremely positive for commercial property. 26th February - Another strong performance as the bears are squeezed We have been warning for a while that you cannot write off the bulls, and the FTSE 100 index has risen for the second day running, making almost a 200 point gain so far this week. The reason is simply that value investors believe the scale of pessimism is overdone and many cyclical plays look rated on a worse case scenario. Yesterday, three sectors hogged the winners, namely transport, commercial property and housebuilders but the financials also saw some very strong moves, and that theme has continued this morning. Alliance & Leicester have actually risen 30% from Friday morning's low point so it is not all plain sailing for the shorts. Standard Chartered led the way though this morning with a 6.6% gain after it reported a strong increase in pre-tax profits and said its capital ratios were well above management's target ranges.
There was plenty of excitement ahead of results from Persimmon, but the figures themselves were entirely respectable given the dullness of the housing market. Profits rose 1% in the year but the order book fell to £1.05bn against £1.3bn last year. Despite the group's caution about the market, the shares held up well and were 1.8% ahead mid-morning.
27th February - Sharp reversal in the financials with HBOS leading the fallers Although it has felt very bullish this week, there was a more sober aspect to this morning's market with a wave of early selling across the financials. The early faller was HBOS, with a nasty 8% fall as it reported slightly better than expected profits but issued a fairly downbeat assessment of the next year. Given the almost 20% rise in its shares over the last two weeks, a pullback was not unexpected, and traders will now turn to RBS, who announce their latest update tomorrow. Elsewhere there were plenty of results to chew on, but generally few surprises so we have something of a standoff mid-morning with the FTSE 100 index down 47 points mid-morning. William Hill provided some excitement after it missed forecasts on a poor performance from its internet business. Initially the shares moved ahead on what was a fairly confident statement, but doubts about demand began to creep in and the shares were unchanged but looking potentially weak again. The other big background news is the continuing rise in crude prices, with oil now at a new high above $101. Whether it is sustainable remains to be seen, but big winners if it carries on will be the likes of BG, Tullow Oil and Cairn Energy, and it is bound to put pressure on airline stocks including British Airways and Easyjet. 28th February - RBS completes a busy bank reporting week and pleases the market Results from the UK's second biggest bank were eagerly awaited this morning, and RBS did not disappoint with a 9% increase in full year profit, which was ahead of market forecasts. Of more interest though was the decision to raise the dividend by 10%, suggesting they were confident on their underlying reserves, and if so, we may be ready to see another rerating of the major banks after what has been a very good couple of weeks. Also in the financials, Aviva sounded very confident as it reported a better than expected 1% increase in full year operating profit on a European Embedded Value basis despite exceptional losses caused by last summer's floods. With it now aiming to double IFRS total earnings per share by 2012 at the latest and to drive further dividend growth, there again could be a case for value buying and the shares were towards the top of the list mid-morning with a rise of 4%.
Although there were plenty more results to chew on, an interesting story overnight suggested that Vale's expected $85bn takeover of Xstrata was on the brink of collapse, and the latter's shares were down over 3%, but it has been mischievously suggested that this is simply a tree shake to force out weak holders and enable the bulls to buy in some cheap stock before the next expected higher bid. We shall see and the key as always is where the shares end up by the close of dealing tonight.
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