Trading US stock futures offers the trader leverage, because he trades on margin. Obviously, this can enhance profits or magnify losses. An attractive feature of stock futures is the ability to simultaneously sell stocks that one owns and engage in a futures contract to buy the stocks back at a later date. This, in many instances, amounts to a low interest rate, short term loan and is the primary reason that some traders trade US stock futures. This is known as an Exchange Future for Physical (EFP) transaction. According to OneChicago,

“An EFP is the simultaneous selling of a stock and buying of a Single Stock Future (SSF) for a long equity position or buying of a stock and selling of a SSF for a short equity position. SSF have an interest rate built into their price that is determined by a true competitive marketplace. Like repos and reverse repos in the debt markets, EFPs provide a cheap and efficient financing vehicle.”

Just as in successful stock trading, success in trading US stock futures depends upon a thorough knowledge of the basics of the stock in question and of current market sentiment. In times of extremely volatile stock trading, such as happened in the last year, those who enter long, or “buy” positions expect to see a stock rally and those who enter a “short” or sell position expect to see a stock fall in price. Those who choose to use an EFP (Exchange Future for Physical) in order to obtain short term financing are well advised to thoroughly understand their stock positions before entering into a futures contract. As always our suggestion is not to trade stock futures or to ignore them but to learn the range of choices available today in trading for trading stocks both at home and abroad.

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There are a number of basics that have been and will be affecting markets. The debt situation in Europe has dragged on for a couple of years and there is no clear resolution in sight. The possibility of one more nations in the EU being unable to pay their national debts scares bankers and big investors alike. The US appears to be coming out of the recession but the risk of a double dip recession in Europe makes investors skeptical. China, the growth engine of the last decade or more, is looking at a decrease in exports, a possible real estate market crash, and a more expensive Yuan as both the European Union and United States steadily devalue their currencies. When trading stocks in a low volume market, keep an eye on the printing presses. The so called Bernanke Doctrine designed to avert a depression, calls for, among other things, printing money in large quantities to maintain credit and keep businesses running. The new president of the European National Bank appears to be following the path of Mr. Bernanke so that we may see a steady devaluation both the Euro and US dollar. This is meant to forestall a depression and make exports from both economies more competitive. However, it will also make things valued in dollars and Euros cheaper and that could include US stocks. Someone trading the Russell 2000, for example, might find that his stock portfolio is going up as valued in dollars but going down when compared to oil, gold, and other commodities. Those still in the game trading stocks in low volume market have typically picked a scenario to follow and are doing so.

As we have often pointed out, not all stocks do badly in bad markets. If war breaks out in the Persian Gulf traders may want to brush up on how to trade oil stocks. Oil companies with operations outside of the Persian Gulf could do very well if Iran tries to close the Straits of Hormuz. Oil stocks could, in fact, go either way as the US is using new technology to extract oil that was previously difficult to bring to the surface. In fact, in the last few years, the US has reduced its dependence on foreign oil to forty percent. In fact, combined US and Canadian production is expect to surpass record levels by 2016 according to a report in the Houston Chronicle. The United States could possibly become the number one producer in the world by the end of the decade. When trading stocks in a low volume market, traders may wish to keep their eye on oil.

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The so called “Big Three” used to be General Motors, Ford, and Chrysler. However, both General Motors and Chrysler had to be bailed out during the early stages of recession. Fiat ended up buying Chrysler. Even prior to the recession Toyota passed General Motors in total cars sold to become the world’s leading auto maker. All of this may have import for the long term investor who lost out as two of the Big Three faded. But, for the short term trader, especially those interested in the options route, the questions have to do with the future and the degree to which American automakers can recover, increase, and maintain sales. A couple of years ago we wrote about trading the GM IPO as the carmaker came out of bankruptcy. The IPO came in at $34 a share. As recently as July of 2011 the stock was trading just above $31 a share but for the last four months it has been in the $21 to $26 a share range. Ford bottomed out at around $1.50 a share in 2009 and then rose over $5 only to come back into the $1.50 to $2 a share range by the end of 2011. Chrysler emerged from bankruptcy as a private company with 53% ownership by Fiat. Fiat was trading in the $6 range until mid-2011 and now trades around $3 a share.

Each of the former Big Three has obviously seen better days. If first impressions from the most recent Detroit auto show are any guide they seem to have gotten the point. The world needs smaller, fuel efficient, reliable cars. Will this translate into profits? In buying options on US automakers one will buy calls on Ford or GM if he believes that profits will soon follow. He will buy calls if he believes that things will get worse. And, he may consider selling calls or puts if he thinks that stock prices of these automakers will not change. Anyone interested in Chrysler via Fiat should remember that in trading Euro Zone stocks the economic and fiscal mess in Europe may have a lot more to do with Fiat stock going forward than any profits from Chrysler.

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An issue for stock traders is whether to trade individual stocks or index funds such as those that follow the S&P 500 or Russell 3000. If in increase in consumer credit is a prelude to economic recovery in the US then a rising tide may indeed raise all ships, or stocks, in this case. Rather than trying to outguess the market and find individual tradable stocks, traders can trade a broad index fund. In doing so, the trader can often limit his fundamental analysis to economic indicators.

By using technical analysis a stock trader can follow and anticipate changes in market sentiment. He can often profit by trading index funds and not worry about the performance of or fundamentals of individual stocks. The current increase in consumer credit has two broad implications. The one we have already mentioned is that an increase in the use of credit goes with increased consumer confidence. It also goes with more hours on the job, conversion from part time to full time work, and having paid off old bills. The cash and barter economy in the USA is real and often not included in any meaningful statistical reports. To a degree the increase in consumer credit may be seen as the tip of the iceberg of consumer wellbeing. If individuals see themselves as having put their financial houses in order or have stashed enough cash and paid off enough bills they may feel secure in buying consumer goods on credit. It is this second interpretation of consumer borrowing that implies a stronger than expected economy.

Whether our speculations about a stronger than expected economy are right or wrong makes little difference, however, to the technical trader. He may suspect that United States Economic Expansion is gaining a head of steam. However, he will use technical indicators a guide in buying and selling stocks. He may choose to keep his cash outside of the market except when scalping profits on high volume trading days. Many traders use stock options as a tool for trading the stock market. When buying calls and puts on stocks or index funds the trader limits his investment risk and also leverages his cash investment. As always we are not predicting economic expansion or any specific direction for the economy. Rather we are suggesting a thought process for traders to go through in search of trading profits.

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When looking to profit from trading a United States economic expansion smart traders remain aware that not all companies will prosper to the same degree as the economy rights itself. Many with cash are already looking for partners or buying competitors in order to strengthen their positions in the months and years ahead. For example, Devon Energy will get $2.2 Billion from the Chinese oil company Sinopec International Petroleum Exploration & Production Corp. in return for a 1/3 interest in several oil shale developments. MMM is going to pay Avery Dennison half a billion dollars for their office and consumer products business in order to further grow this arm of their business. It takes continual fundamental analysis to help decide which business strategy will succeed and which will fail. In the meantime traders use technical analysis in order to anticipate changes in market sentiment and consequent changes in stock prices.

The report than has lightened spirits is the Institute for Supply Management’s manufacturing index. It rose to 53.9 in December, up 1.2 points on the month. Anything above 50 is considered a sign of expansion in manufacturing. Many analysts, however, want to harder data. They point to last year when many believed that the recession was lifting and invested heavily only to lose in the second half. Astute traders, however, were able to sell short at the top of the market last year and successfully trade options as the markets waffled up and down. Whether we see volatile stock trading like in the second half of last year or the long awaited rally that raises all stocks smart traders will use a combination of shorts, options, and straight stock purchases to selectively profit as a United States economic expansion clicks into gear. Traders will do well to watch for upcoming figures on retail sales as well as jobs data. The other large issue to watch is still the debt crisis in Europe as necessary austerity measures take hold on the continent. These will help in the long term but may well act as a drag on global recovery in the short term.

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The ability to generate European Central Bank loans without excessive need to consult the cumbersome EU bureaucracy is seen as a positive by many. Markets are not looking for all of the EU debt issues to be resolved but traders and investors are waiting to see a clear direction. Lacking a clear direction, traders have been limited to using very short term technical analysis in order to eek profits from market reaction to various pronouncements by EU officials. A perceived resolution to the EU sovereign debt dilemma would likely touch off a market rally, both in the EU and in markets throughout the world. Chinese factory production is off while new housing starts are up in the USA. These are mixed signals and the market is waiting for a clear direction. Although traders can make profits from short term market reactions they could find much more profit from successfully anticipating a substantial stock surge.

Trading Euro Zone stocks might be especially profitable if the EU is seen as getting its act together. Trading the Euro could be profitable as well if a resolution to the debt crisis drives the European Union currency upwards. In trading the EURO traders need to follow economic data and economic policy of the EU and of the nation against whose currency they trade the Euro. In trading Euro Zone stocks traders need to look at whether the company primarily does business in Europe or does business worldwide. A thoroughly European business would likely prosper in an EU recovery. A multinational located in Europe could suffer from a higher Euro as their exports would be priced higher abroad. As always traders are strongly advised to use both fundamental and technical analysis in trading stocks or currencies. Often times successful traders scout out stocks with trading potential but only trade them when market conditions are conducive to a sufficient likelihood of profits.

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The recent European financial summit yielded promising results for the long term. The EU needs closer financial integration and will likely get it. The extra power given to the European Central Bank may well help in streamlining efforts to bailout members of the so called PIIGS group of nations. However, the story is likely not over yet and there is probably a bumpy road ahead. What we are openly wondering about is a so called flight to quality or flight to reliable dividend paying stocks in the event of chaotic market events in the first half of 2012. This is not a certain thing. Thus the better play than simply buying any of these stocks in hopes of an uptick may well be to trade options on them. Buying reasonably priced calls will give the trader the option to purchase the stock in question if it does, indeed, go up in price. However, the cost of an options contract on each 100 shares is cheaper than buying the stock. Thus the trader gains leverage in the bargain. He also gains insurance as nothing is certain and the forecast of a downturn could well be in error. The trader will look for periods of volatile stock trading in order to increase his chance of profits. That scenario could be profitable but may or may not happen.

The other aspect of trading beer stocks is that each stock is unique and this may favor one stock versus the other. For example, the Brazilian brewer, Ambev, has jumped up in price nearly a forth in the last year and grown two and a half fold in the last five years while the other big brewers have seen growth or loss in the 1, 2, or 3% range. Watching a stock like Ambev with technical analysis pattern analysis could be profitable as the stock may continue to climb or may correct in the coming year. As always we are not suggesting that traders buy, sell, or trade options on any specific stock but that they use the thoughts above to help formulate a successful trading strategy.

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Chinese traders indicate that a new economic stimulus package might be in the works. If that is the case then we may see short term gains in the order of a year or so. It might, indeed, be time to buy Chinese stocks in search of short term profits. If you are going to buy Chinese stocks where to you look for short term profits? Certainly the export sector will suffer if Europe and North America buy less. If the Chinese government aims its stimulus at infrastructure, that would seem to be the place to look for profits and share price growth. Any wishing to profit from trading Chinese stocks needs to do their research and refrain from trying to outguess the market . Here is a short list of Chinese companies engaged in construction or known as makers of construction supplies. Some of private and some are public companies. Anyone interested trading these stocks will need to research them individually.

• BBMG Corporation
• Broad Group
• China Communications Construction
• China Construction Design International
• China Harbour Engineering Co Ltd
• China National Building Material Company
• China National Materials Group Corporation
• China Railway Construction Corporation
• China Railway Engineering Corporation
• China State Construction Engineering Corp
• China State Construction International Holdings
• Chongqing Road Engineering Group
• CSG Holding
• Jiangsu Expressway Company
• Road and Bridge Construction
• Shaanxi Construction Engineering Group Corporation
• Shandong Gaosu Group
• Zhejiang Expressway Company

To buy Chinese stocks such as those construction-related companies listed above it may be necessary to open an account with a broker that offers stocks on the Shanghai exchange. The exchange has English language information on its web site, at www sse.com cn sseportal en_us. Anyone without sufficient hard information about any stocks listed on the Shanghai exchange should proceed cautiously. However, it may indeed be time to buy Chinese stocks, at least in the short run. If a stimulus package is involved one might look at this opportunity as recovery trading in Mainland China.

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The issue for investing in or trading airport bonds from the three airports mentioned above is that they are hubs for American Airlines. According to a Dallas – Fort Worth press release, “DFW International Airport is the world’s fourth busiest, offering nearly 1,750 flights per day and serving 57 million passengers a year. DFW provides non-stop service to 145 domestic and 47 international destinations worldwide.” Unfortunately for DFW a large percentage of its passenger traffic is dependent upon American Airlines continuing to use the airport in high volume during and after its reorganization. DFW, Miami, and O’Hare all have the same problem in that they could each lose substantial passenger traffic from American if the company chooses to reroute planes or stop serving certain destinations. However, passengers will still fly and other airlines can take over unused gate facilities as traffic warrants. Those interested in successfully trading bonds related to the airport bond downgrade need to remember that it is not a matter of trying to outguess the market but of calmly and carefully examining the profit and risk potential in each individual case.

There is a track record to follow in the case of this airport bond downgrade. American Airlines, it turns out, is the 189 th airline bankruptcy since the government deregulated airlines in 1978! Airport bonds tend to be insured. Checking that out for each of the airport bond downgrade victims would seem to be first on the list of things to do. A good benchmark to keep in mind is that an airport should have revenues of around 150% of what it needs to service its bonds. If American pulls out of DFW, Miami, or O’Hare where will that leave them in the short term? Look to see what sort of gate agreements each airport has with American. If they can quickly and efficiently reassign gates it could be good indication of flexibility and profitability. In addition, if an airport is in the middle of a development plan it is expecting to see its expansion result in higher traffic volume and more income. The bonds for the DFW two billion dollar expansion plan could be a problem here on top of the two billion in bonds already in place. Although trading in this scenario is not so much trading a disaster like the Japanese tsunami or the market fall after the world trade center attack it has some of the same characteristics. Uncomfortable investors may bail out of these investments driving prices very low. If the trader believes that bond prices will stabilize after a period of market inefficiency, buying these bonds after the airport bond downgrade could be profitable. As always this discussion is an exercise in profitable trading and not a suggestion to go out and buy or sell airport municipal bonds.

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Nevertheless those trading Euro Zone stocks saw substantial action in response to what was perceived as good news coming out of Berlin and Paris. However, volume quickly dropped off in trading European stocks as traders and investors adopted a subsequent wait and see attitude. For the individual stock trader looking to profit from trading Euro Zone stocks there a couple of possibilities. First of all a trader can trade directly in European markets through exchanges such as Deutsche Börse AG or NYSE Euronext, or by trading Euro Zone stocks listed as American Depository Receipts on the NYSE North American traders can deal with an exchange that uses its own language. Traders can use the same trading techniques and strategies as in trading North American stocks. Options trading is a useful approach to limiting risk chaotic markets, which certainly fits for stocks trading in Europe today. Technical trading works as well. The recent reverse head and shoulders charting pattern seen recently in both the Euro and European stocks is just as predictive of a bullish reversal of a downward trending market in trading Euro Zone stocks as in other markets. Banks and insurance companies are especially volatile these days in Europe because of their exposure to the debt of the so called PIIGS group of nations (Portugal, Italy, Ireland, Greece, and Spain).

Following the news is essential in trading Euro Zone stocks, at least over the short run. Every positive pronouncement is met by a rise in the Euro and stocks and every cautionary pronouncement is met by a slide in the same. Over the longer term the picture is different. One does not need to limit oneself to trading banks and insurance companies. Companies like Diageo, Siemens, and Roche do business worldwide. These companies are not likely to be hurt greatly by the slow currency devaluation brought on by falling currency values. In fact a cheaper Euro might well help a company like Siemens in selling their products in the four corners of the earth. What such a company loses in sales due to a European recession could well be made up for in international sales. For those with a longer term view timing stock trades is less important. As always we are not suggesting that anyone trade Euro Zone stocks or avoid them. We offer this discussion as an example of the thinking that might go into choosing stocks to trade and learning how to trade them.

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