Articles

Our market was again US driven last week. The Australian bourse spiked on Tuesday in reaction to the positive response by US investors to the 8.2% GDP growth in the September quarter. Without taking anything away from the US markets, what is more important is what future level of GDP growth can be sustained? The 3rd quarter growth was largely from increased consumer spending part of which came from a tax cut but also some came from an increase in “fantastic plastic” credit which adds to the lurking “indebtedness” bubble.

Over the past few weeks I have put the topic of ISF aside. This week I have received several calls relating to how the price of an ISF relates to the price of the underlying stock. We advocate that a trader follows the chart of the stock to identify a trade and calculate the entry and exit points. The orders given to the broker are based on prices associated with the underlying stock.

Following on from last week’s article on the Euro Dollar, I wanted to introduce a couple more concepts to highlight the position this market is currently in. Last week I looked at the idea of the Euro moving into uncharted waters as it looked likely to continue past it’s all time high.

Recently I haven’t had to go far to hear or see suggestions that the next bull market is already under way. It seems the concerns and pessimism relating to the capitalist world has fallen by the way side in the wake of the Iraq War. One thing the world learnt earlier this century was that war is good for economies. It generates spending across many areas in industry and in turn creates jobs. With the focus shifted back to general affairs now the war is over, corporate America especially needs to ask itself if the reasons for its previous market downturn have actually been alleviated.

We have been following a mock trade using a butterfly strategy on the Nasdaq 100 Trust (QQQ) this past month and so far it has worked out well. In fact, Wednesday’s trading left the Qs at 34.21, which is just 21-cents above our max profit point. The Naz has performed like we expected, which saw some profit taking while staying in a trading range. Remember, a butterfly is a strategy that benefits from sideways trading in the underlying security. In our case, we entered a slightly bearish butterfly, choosing to use slightly OTM strikes for the body.