The war is turning, and though this ghastly pandemic has yet to be resolved, we are staring at a brighter future with more certainty. Sector rotation continues and equities continue to trend upwards. In some sectors, the eagerly awaited bull is already on the move. Marks & Spencer (MKS) has not had a down day since 7 November and is up more than 40 per cent since Vaccine Day.
It is clear also that with the number of takeovers occurring on the London Stock Exchange many of our stocks are considered cheap. No doubt there are many predators with envious eyes, who are lurking and considering making a move. While one shouldn’t buy a stock in the hope that it will be taken out (people have been holding ITV (ITV) for years hoping for a takeover and the price has only ever gone down since 2015) recent activity does give credence to the view that UK equities are cheap.
This is all very positive, and commodity prices are on the rise too (including Bitcoin). Copper is on the move upwards, and while gold has come off since its highs in August, it is still nicely up on the year. It traded below $1,500 in December 2019, and currently sits above $1,800.
Ferrexpo (FXPO) is an iron ore pellet producer that sells to the steel industry. It’s a global company and a FTSE 250 constituent. I rarely used to care whether a stock was a FTSE 250 constituent or not – but with IG Markets jacking their prices up for non-FTSE 350 stocks by a whopping 250 percent from 0.1 to 0.35 percent on cash CFDs – it now matters.
This may not sound a lot, but let’s look at an example. To trade £10,000 of stock it was previously 0.1 per cent or £10 commission minimum, plus overnight fees. To make the same trade from next week it will cost £35, or £70 for a round trade. Do 20 round trades and you’ve now racked up at least £1,400 in commission, instead of £400. That’s an extra £1,000 assuming you do one closing trade less than once per day every month. An active scalper is certainly going to notice the difference.
With Alex Newman and Lauren Almeida reporting on IG’s job cuts this week, perhaps it is better to be a shareholder rather than an employee or a trader.
The answer, I believe, is to move capital to share dealing accounts (which are often charged at £8, or £3, or free). I’ve looked and no other UK platform offers CFD trading with the range of UK equities that IG offers. There is no leverage, and you can’t short, but it’s the next best solution I feel. To come back to Ferrexpo – Chart 1 shows the stock languishing in the doldrums in the 2015 commodity crisis. The price went as low as below 13p at one point. I also notice that my filter that I am building on SharePad (I will call this Michael Taylor Investors Chronicle in the filter library for those who have asked) would have picked this stock up once it had risen 100 percent from the lows, and retraced. Using filters is a far less laborious process than scanning stocks manually, although it is from the manual scanning that special situations can be found.
If we look closer at Chart 1, we can see that volume begin to increase a few days before the breakout where I have drawn the arrow (my volume filter would’ve picked this up – search Michael Taylor VOL) and this continued into the breakout. It’s a clear sign of accumulation as the price rose, and we see this pattern repeat again in the red line above in October 2016.
In a world of noise, being able to spot clear signals of buying intent in the form of breakouts and accumulation is an edge against those who are punting mindlessly. Trading is a game of playing hands that are in your favour repeatedly with good risk management. Of course, it’s easy to say in hindsight, but patterns repeat and I like to look at how stocks have historically acted.
Chart 2 shows a similar pattern. The moving averages are now trending upwards, but the stock is trading in a range. It has failed to break out several times, and volume has come down too. We are seeing the stock consolidate, and I want to go long should the price take out the recent high of 211p.
Ideally, should this happen, we will see volume increase as the stock moves up. This will show demand in the stock as the trend begins.
If we look at the 200-day exponential moving average (pink line) we can see that the stock has tested this three times, in June 2020, again in September, and a tussle in October too. I would not want to put my stop below there, as it’s too far away. The beauty of breakouts is that we know very quickly if they’re working, and should the stock go below 195p once I’ve entered, I’d want to close this down and revisit at a later date.
- Michael has released his UK Online Stock Trading Course. Investors Chronicle readers can download Michael’s book and learn more about the course by visiting www.shiftingshares.com/online-stock-trading-course
- Twitter: @shiftingshares
- New subscribers to SharePad can claim a free month of data with the code: Michael
