Special Feature
Bullish stock market action is fuelled by aggressive monetary easing from central banks. The Fed is engaged in the biggest monetary easing in years, buying $85 billion of Treasuries per month, while the ECB may cut rates soon. Not to be forgotten is the Bank of Japan’s gargantuan monetary printing program too. So, how should investors trade this market? Tactically, I would not favour a highly directional portfolio, be it long or short. This is because of the risk that still remains of a market correction. A combined long-short approach is better. To select stocks, I would go bottom up and filter out stocks that have poor risk-reward ratios. This way, even if the market weakens into the summer — typically a weak period during the year — then the risk to one’s portfolio is minimised.
In this month’s edition, I highlight three interesting long offerings in the UK market.
Supergroup Owner of the fashion brand Superdry — looks to be developing a large base formation to me. The stock had an exceptional run in the months following its IPO in 2010. Alas, expectations were too optimistic and had gotten somewhat ahead of themselves at the heights of 1800p and the stock subsequently crashed to 300p a year later. Now, its chart is starting to look better. The pattern of rising lows from 400p may lead to a base breakout at 800p, especially as the stock is affirming the 150 day simple moving average as support.
chart - supergroup
“From the perspective of a long-term investor looking for a buy, nothing beats a decisive break out of a multi-year base.” 92 | www.financial-spread-betting.com | May 2013