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Welcome to the weekly update. Many investors who struggle to control their emotions when trading will often blame themselves for this 'imperfect' behaviour. However, all of us are in a battle to control these perfectly natural human instincts when we have money on the line - and that includes the professionals. You can feel quite logical towards a potential trade when you have undertaken your analysis, but as soon as you've placed your order, those dreaded demons take over, questioning the very analysis that we had so painstakingly undertaken. It is this behaviour that can cause investors to panic sell when nothing has really changed since they saw the initial setup, or even to close winning trades too early through fear of giving back all the gains.

This behaviour is not an exclusive domain of the private investor; fund managers battle with these same emotional traits too. Standard life, the UK's largest mutual life office had nearly 80% of its with-profits fund invested into equities 4 years ago, but by 2004, this level had slumped to 31%. It appears Standard Life's fund managers may have started to get nervous just as the bear market in equities was ending and started to switch assets into safer bond instruments. Obviously this switch has drastically hurt the with-profits fund performance figures as the FTSE 100 alone has gained nearly 2500 points since then. The insurer has recently had to cut the bonuses it pays on its with-profits pension fund from 2.5% to 2% as a result.

So, even the big professional managers can get the jitters when it comes to investing. The only point to make here is that Standard Life did have to switch more assets into bonds partly as a result of new statutory regulation that required them to improve their reserves. However, we very much doubt that was the sole reason for withdrawing 50% of funds out of equities!

So how do we control the very emotions that can play havoc with our ability to become better traders and investors? Well, the answer to that is an assay in to itself, but there are a few things we can do to get in the right mindset for trading and investing. The most obvious one is to protect our downside through the use of stops. It still amazes us with the amount of traders who don't use them. One of your editors was talking to a full time trader several months ago who said she only kept 'mental stops'. That kind of trading is a fast way to lose money - before you have placed your trade, you should know where your stop is going to be and place it immediately after you made your first trade.

Akin to this, we have to accept that we will always have losing trades. In trading, small losses are the best sign of success - it proves you are doing your job properly. Although losing is not something we are programmed for, in trading, it's something we have to embrace - find strategies that work for you, employ sound money management and the profits will take care of themselves. When we speak to new investors, possibly the biggest recurring emotion we notice is impatience. New investors are so keen to make their first million in the markets that they dive in and make mistakes because they can't wait to get to their goals. There's a winning trade every day of the week, don't chase the market because your impatience is guiding you.

If fund managers who are deemed to be the professionals make rash decisions, we can too. It's just a matter of being as clinical as possible and constantly asking ourselves if an investing decision is based on logic or emotion. We will continue to look at the emotions of trading in future issues of this update

The Economist follows our lead

In the latest monthly research report, we featured what is probably the most precious of all the commodities that are in such high demand - water. In it, we showed the huge lack of supply relative to ever rising demand and as a result, water is going to become more precious still. Well, at the end of last week, the Economist focussed on the water shortages we have too. "The popular perception of Britain as a uniformly dank and sodden island is misleading. The south of the county gets the same amount of rain as parts of Syria and London is dryer than Dallas or Istanbul." The article went on to say that parts of the south-east face the prospect of a summer drought that could be the worst we've seen in decades.

The UK is certainly not the only country having to cope with water shortages. With only 359 publicly traded water companies worldwide, utilities and industrial companies could do well from surging demand from the Asia region. We cover a number of companies in the latest edition of the monthly research.

To subscribe, go to http://www.via-trader.com/via/researchdemo.htm

Sometimes sugar can be good for you

Although we are constantly told to reduce the levels of sugar in our diet, if you had invested into the commodity itself since we first wrote about it last July, you would be sitting on a 'healthy' 77% return since then. However, directly investing into commodities is not something the majority of investors do, so a few months later we featured a sugar stock that is now already up 16%. We believe there is plenty more room for stocks like these and are currently investigating some stocks that should benefit, as users will be increasingly looking towards cars that run on alternative fuels. For example, in Brazil, it costs around £16 to fill up the tank on the car the size of a golf with ethanol - in the UK it would cost around £44 to do so with petrol. Some of these alternative fuels are going to be sugar based and therefore, we want to look for companies that could do well over the long run from any changes we make to the fuel we put into our cars. Watch this space..

What happened to gold and silver?

Several weeks ago, when we last wrote about gold and silver, we said that the next upside targets were $600 and $10 respectively. Gold reached a high of $575 and silver $9.92. Since then, they have put in healthy retracements with them both looking like ABC corrective moves. We believe there is some more downside potential for these metals yet and would look for them to test their respective 50 day averages in the first instance. For gold, this is currently $535 and for silver, $9.00. If they break these levels, we will look at Fibonacci projections to give more accuracy and give these in the monthly research report.

We are nearing the end of the positive seasonal bias these metals benefit from so it will be interesting to see how they behave over the coming months - the charts will give us the heads up on any major moves...

Alan puts in anther strong week of gains

Alan Riches US Day Trader service continues to do well. Looking at Alan's personal trades for last week, he pulled out 763 points which, when you consider he trades a thousand shares at a time, totals $7,630 profit. This is a fast paced service for the trader who is in from of his PC during US trading hours. If you haven't yet tried it, you can get a free 5 day trial by going to http://www.via-trader.com/via/morealan.htm

The markets

Another choppy week for the US indices last week which is frustrating when breakouts keep failing. However, maybe we have seen a new low (S&P) from which we can start a decent rally. Both the Dow and S&P 500 made higher lows as evidenced on the hourly chart last week so now all eyes are going to be on 1275 and 10,950 respectively to see if these indices can stage not only a bull run, but a push towards new highs. We have stated in our monthly research for some time that we could see the potential for new highs going into March so it'll be interesting to see if this takes place. For medium term players, it may be better to wait for the Dow to close above 11,050 before looking for any long positions. Our next target after that is around 11,400 on the Dow and 1317 for the S&P.

The fact that the Dow rallied right into the resistance zone around 10,950 gives us pause for thought in the short term once more. This is the third attempt to penetrate this level over the past week or so and thus places greater importance on it. Inevitably, we should see high volatility until this range bound market can break free of its chains. If we can rally past 10,950 in the coming days, then an inevitable test of the year's highs at 11,047 would be on the cards. So the key levels to look at this week are 10,950 on the Dow and 1275 on the S&P. We would only look for shorting opportunities if the indices break below 10,730 and 1255 respectively.

The FTSE put in a nice tradable decline last week before turning around and rallying towards the previous highs at 5808. For continued strength, we need to see 5813 broken to the upside and for weakness, we would keep our eye on 5700. This marks the current area of the lower rising trend-line on the hourly chart which started last November.

Economic update

There was no surprise in the UK when the Bank of England (BoE) announced that interest rates were to be left unchanged. We are not sure why, but many US analysts were expecting a cut of a quarter of a percent, thus we saw a short rally in the cable when the results were announced.

There was further bad news on the high street as retailers suffered the worst January for a decade. The British Retail Consortium reported that like for like sales rose by just 0.2%. A report out this morning from Verdict Research, said that on-line retail spending grew by 28.9% last year. They went on to say that one in four consumers are now buying on the web with the over 55's the fastest growing age group.

Property bulls were also taken back when it was announced that house prices in January fell for the first time in eight months. It is interesting that some lenders are now suggesting that they expect house prices to be flat when taking into account inflation.

The UK's production figure fell 0.8% in the last quarter of 2005. This took the annual figure down to -1.7%, the first decline since 2003 and the worst performance since 2002. This just shows the country's even greater reliance on the service sector to sure up the trade balance.

It was a quiet week in the US on the economic front. At the beginning of the week we saw that consumer credit increased slightly in December (0.2%). Later in the week we saw the weekly jobless claims rise by 4,000 in the past week although the four week average fell to its lowest level since 2000.

Economic diary

We have a busier week in terms of economic reports which may give the markets more to focus on. In the UK eyes will be on the CPI and BoE inflation report with retail sales coming up the rear. In the US the focus will be on retail sales and production.

Monday 13th February

UK January Producers price Index 09:30

UK CBI Trends survey

US No data due

Tuesday 14th February

UK January Consumer Price Index 09:30

UK Retail sales 13:30 (08:30 ET)

US Business Inventories 15:00 (10:00 ET)

Wednesday 15th February

UK Employment report

UK BoE inflation Report

US Capacity Utilization 14:15 (09:15 ET)

US Industrial Production 14:15 (09:15 ET)

US Crude inventories 15:30 (10:30 ET)

Thursday 16th February

UK RICS Jan House Price Survey

UK January Retail Sales

US Building permits 13:30 (08:30 ET)

UK Housing Starts 13:30 (08:30 ET)

US Initial Claims 13:30 (08:30 ET)

US Philadelphia Fed 17:00 (12:00 ET)

Friday 17th February

UK No data due

US January PPI 13:30 (08:30 ET)

US Michigan Sentiment 14:50 (09:50 ET)

Have a great week

Kevin Burton and Kym Watson

Note Kevin Burton and Kym Watson are editors of the Via Research monthly report. To subscribe to this service go to http://www.via-trader.com/via/signup.htm


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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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