IX Investment Expo

You know, as I prepare for IX Expo this weekend at Olympia (Oct 22-23) where I hope to meet readers of this column ( and move home and have also a software launch of the Alpesh Patel ShareScope Special Edition too!), it amazes me how much more optimistic people are about the markets. I think this is in large part to do with the property market being flat and people looking for a home for there money and the equity markets are once again it.

I was in Dublin last weekend and certainly there the smart money is going into equities not property. I am in New York this forthcoming week meeting my Prime Brokers and it will be interesting to take the American take on this too. (Not sure why I moved home actually given that I am clearly never there anyway).

Anyway in preparing for the US I am thinking of the S&P 500. "Stomach-churning" and "gut-wrenching" are sentiments familiar to traders. But better than any antacid, is a financial product that again has saved my hide, and the collective hides of thousands of traders worldwide. You will probably not have heard of it even though it is designed for online traders. Indeed it's so useful that professional traders regularly use it.

The e-mini S&P 500 future may sound like a car part, but it is in fact on of the most popular trading instruments in the US. And even if you are a long term investor who has never traded futures, to ignore the S&P 500 would be to ignore one of the most important market indicators in the world.

The S&P 500 stock index has long been the benchmark by which professionals measure portfolio performance. The index is based on the stock prices of 500 US large-capitalization companies. The market value of the 500 firms is equal to about 80 percent of the value of all stocks listed on the New York Stock Exchange. General Electric, Microsoft, Coca Cola, and General Motors are included in the S&P 500. Little wonder, that as goes the S&P500, so goes the global economy. Indeed, according to the Chicago Mercantile Exchange, over $36 billion daily is traded in S&P 500 futures.

The e-mini S&P 500 futures contract mimics the movement of the S&P 500. It trades electronically via online brokers - so net traders will have the comfort of familiarity. Principles of buy low, sell high still apply. The trick to remember with futures is how much does the value change for every point change in the asset they relate to? A one point move in the S&P500 index equals a $50 move in the e-mini futures contract value.

Most stock portfolios are correlated (move to some extent in tandem) with a major index. The (hopefully short-term) losses on the long term portfolio (mine is composed largely of US stocks so using the S&P and not the FTSE makes more sense) are compensated by the profits on the mini S&P futures.

But portfolio hedging is just one benefit of the mini-S&P 500. I was attracted to it because it's totally electronic; virtually 24 hour; you can trade from anywhere; there are numerous excellent websites to keep me as informed as any institutional trader; costs are low because many brokers offer one lower 'roundtrip', versus in-and-out, commission; one is monitoring a key index, not dozens of stocks and the bid-offer spread is low (so hidden costs minimised).

The risks with futures trading can be substantial and it is possible to lose more than your initial stake. Those who should not consider e-minis include anyone trying to recoup large losses in a short time frame and those without at least one years active trading or investing experience.

Value-Growth

On my value growth criteria which are based on stocks meeting revenue and profit growth and good value based on criteria such as price earnings growth, the following names come up. Remember they are for a 6 month outlook: Alexandra, AstraZeneca (still), Chloride, Maintel, Rio, Tolent (new), Touchstone (new).

Remember I am targeting about 20-25% with the value growth criteria. Last year it produced 33% return. On my momentum value indicator I have: Alexandra (again), Beazley Group (a new one), Lookers (still and again).

Crazy Small Stock

These are high risk volatile stocks which could move sharply higher or move sharply lower in my view, but will almost certainly not stand still. Names on the radar include: Trust of Property Shares, Blue Planet, QXL, Windsor, IS Solutions.

Also, if you would like a free multi-media CDROM on 'Investing Better', which covers spreadbetting, CFD trading and momentum indicators like the MACD, posted to you then drop me an email with your postal address to alpesh@tradermind.com.

Spreadbetters

Spreadbetters and futures traders often look at hard and soft commodities. Here's my quick take on the action for the week ahead:

• Oil: Lower
• Copper: Higher to sideways
• Gold: Sideways to down
• £/$: Sideways to down
• Dow: Sideways
• FTSE 100: Sideways to down
• Soyabean Oil: Up