SPREAD BET GURU
MARKET STRATEGIST
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Q. Dear Josh, what are the main weightings behind the FTSE 100 index?
A. The FTSE 100 is a weighted index of the leading 100 companies, as measured by market value, that are listed on the London Stock Exchange.
As you might expect, the companies with the highest market capitalisation have the highest weighting on the FTSE 100 index, and therefore have a stronger grip on where the FTSE moves.
According to Bloomberg statistics, HSBC has the highest weighting on the UK’s benchmark Index (8.14 per cent) while BP, Vodafone, Royal Dutch Shell A shares and pharmaceutical giant GlaxoSmithKline make up the top five stocks. Schroders has the lowest weighting on the FTSE of just 0.04 per cent. From a sector point of view, there are three key heavyweight sectors that historically dictate whether the FTSE is having an up, flat or down day – the mining, energy and banking sectors.
Last Friday’s session was a perfect example of this. The energy and mining sectors were higher by over 1.5 per cent, but gains were kept on a leash by a weaker banking sector, which closed down by 0.8 per cent. Having a greater understanding of the mechanics behind the FTSE 100 Index is crucial in helping you to trade it.
Q. Dear Josh, why do low volumes make the markets more volatile?
A. You only have to look at the markets over the last few weeks to see how low volumes can affect volatility. There are a few arguments flying around as to why this can happen.
My personal argument is that when market volumes are low, it only takes one trade that is bigger than the average market size to move the whole market because it is a greater percentage of the volume.
In contrast, when volumes are at normal levels, one large trade will be a much larger percentage and have a significantly greater effect on the security being traded.
Q. Dear Josh, what are the key companies reporting next week?
A. Earnings season continues full steam ahead this week. IBM kicks us off today and we will also get an update from Texas Instruments. Tuesday is a big day with Goldman Sachs, Yahoo and Apple all reporting.
On Wednesday we will get updates from eBay, Morgan Stanley, Coca Cola and Wells Fargo as well as from Fidelity and Starbucks.
Amazon, American Express, Capital One, Caterpillar and Microsoft are among the highlights on Thursday.
We finish the week with McDonalds and Verizon. There’s certainly lots to focus on this week.