30/09/2003
My one abiding thought this week has been what the hell am I doing back in this country. I could still be in sunny Mallorca rather than in a cold Britain which seems to get colder every time our "beloved" chancellor Gordon the Grinch advocates throwing even more of our wonga down the bottomless pit of our public services.
Today the financial press are all trying to explain yesterday's somewhat manic movements in the Forex markets where the dollar received a good old fashion kicking. The consensus seems to be that the dollar fell due to a rumour of a report which was to advocate both a weaker dollar, and then either in the same report or perhaps another one that Europe could quite happily live with a strong currency. As usual this is all a load of rubbish and is an classic example of how commentators and traders make up story to explain a move. Much of the Forex market turnover is derivatives based and unlike the futures market Forex has an options expiry every day at 3.00 pm UK time. Accordingly many large movements occur around 3.00 o'clock as FX options market makers will often get left with large positions. Yesterday afternoon some large options trades to sell dollars went through and the banks that "sold" or "wrote" the options had to go in the market and sell dollars. They started at around 1.1450 on the Euro/USD. 1.1525/35 was a major resistance level and there was another resistance just behind at 1.1550. Accordingly there were large stop loss orders in the market just above these levels which when triggered sent the dollar even lower. This shows how important it is to know where the stops in the market are and not to pay much attention to the media.
Another thing traders shouldn't pay too much attention to is the Dow Jones Industrial Average. It is always surprising to me how many people do not realise that this is not an index and it has some peculiarities that mean fund managers do not touch it with a barge pole. An imminent stock split in one of its 30 constituents is about to highlight just how peculiar it is. Currently the "biggest" company in the DJIA is 3M. 3M I hear you say? Harry must be mad, it is only a third of the size in terms of capitalisation of fellow member Intel. There lies the rub. The Dow is a dollar average if 3M goes up a dollar and Intel goes down a dollar then the Dow does not move. 3M is currently at $140 so it is actually quite easy for it to move a buck whereas a similar move from Intel ($28) is far greater in terms of capitalisation. Shortly 3M will be splitting its shares so rather than being priced at $140 they will be priced at $70 and whereas a 1% move would account for a 10 point move in the Dow it will soon only account for a 5 pip move. This my friends is why all the hedge funds and myself stick to the S&P 500 and sometimes the Nasdaq, trust me it's a lot less confusing and much easier to read on the charts.
I have wittered on enough so I will hold my rants over to tomorrow so if you want to hear my latest musings on MoneyAM, who seem to have removed me from their subscription list but have failed to remove Potter, Teehee, and about the fun and games I had on my return with Easyjet then I shall see you tomorrow.
Harry