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Alpesh Patel's columns :
10/23/2006	UK Markets Follow the Leader >>
10/06/2006	Eastern Europe and All That Jazz
09/26/2006	The Undecided Market
09/20/2006	Long Summer Into September
09/11/2006	Come on Markets - Get Back to Work
09/06/2006	Hurray its September and it is easier
08/30/2006	Last of the Quiet Time
08/23/2006	Roll On Work Time
08/15/2006	A Rabbit Like Market
08/07/2006	Looking both Ways
07/24/2006	"What a rally" or "What rally"?
07/17/2006	Quiet Summer on the Markets?
06/27/2006	Stock Analysis Principles
06/15/2006	Half-way point
05/31/2006	Almost Mid-Year...

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Alpesh Patel – A weekly look at market opportunities and pitfalls

Alpesh B. Patel is one of the UK's best-known traders and financial journalists. He writes a regular column for the Financial Times, has written seven bestselling books on trading, and makes regular television appearances for Bloomberg, Sky Television, Channel 4, The Money Channel, and the BBC.

UK Markets Follow the Leader

10/23/2006

After a great series of talks at the IX Investor conference where I was able in a couple of the sessions to discuss the features on ADVFN and how to use them for trading the markets, it's back to work and back to the markets again.

Of course the US boom means everyone is looking at the States and not just the UK, so let's look at both markets.

With the US markets, the general feeling is that a lot of people were 'short' the market, expecting it to fall, and when it got pushed higher, they had to close those positions and that pushed the market even higher. And now, everyone is getting even more anxious as it moves higher. They are buying, but seeing who blinks first.

I said at the start of this year, that I expected the US markets this year to outperform the UK markets because of strong earnings, so there is a fundamental reason for market support, but in the short-term, people buying into the US markets, should be looking to keep a close eye on the slightest dips.

For those who heard me talk about charting on ADVFN will know that the weekly MACD (moving average convergence divergence) can sometimes be a better way to know where the market is going, and if you look at the weekly chart of the Dow you can see that that is exactly the case with the Dow. On the weekly charts, the MACD is rising strongly, and is a better predictor than the daily chart. Looking at that chart, there remains some strength still in the Dow. But I remain cautious�very cautious.

So what if instead of trading short-term price momentum, we want to trade some longer term valuation stocks. Examining the Dogs of the Dow: stocks of the Dow Jones with the highest dividend yield, lowest price/earnings ratio and lowest price, which tend to outperform over the longer term includes some which I particularly like: Caterpillar (construction is so strong), ExxonMobil (commodities bull market), Microsoft (solid as ever), Coca-Cola (again a perennial favourite - and solid in terms of growth and earnings).

Looking at the FTSE 100, what is interesting is looking at the weekly charts, the technical indicators are only now showing a rise up, suggesting that if the US markets do not dip sharply in the next week, the UK should rise as strongly as the US. I think we UK investors have been cautious in ploughing into the UK markets, purely on the US market moves alone.

The stocks showing the strongest short term bullish momentum are: Antofagasta, Yell, Admiral, Brit Insurance.

(Email me if you would like the presentation on the stocks I like for 2006, which I broadcast on BBC2 - the picks in the past two years produced a 83% compound return.)

Value-Growth

For a 12 month outlook, I look for stocks based on company growth criteria (eg revenue and profit growth) and on valuation criteria that I have developed over the years (incorporating price earnings growth). I then datamine for outstanding names. Currently on my radar are: Dairy Crest, International Power, Smith (DS) (a new one for the radar), Trifast, UCM Group.

On my momentum value search for stocks based on momentum (eg price moves over the 2 week and 6 month periods) as well as valuation criteria (such as price to earnings growth, dividend yields), names showing up there include: SHL, Chaucer, Woolworths.