Traders will be very averse to opening any new trades that might upset their annual bonuses, so I’m expecting markets to remain in good shape for the remainder of 2005. Next year, ignore the soothsayers and bet trends, not predictions

As 2005 comes to an end, I don’t think anyone can complain about financial markets this year. Good profits have been made in financial indices, commodities, equities and currencies. Of course, markets are forward pricing and are always asking what’s next, so it would be wrong to become too complacent. But for the rest of 2005 I expect no serious upsets.

For now, I continue to remain long on major market indices including the US Dow Jones, FTSE 250 and German Dax. All of these are at or near 52-week highs. I also remain bullish on gold – we could still see $550 an ounce in the first quarter of 2006.

New Year headaches
At this time of the year many financial experts like to come out with forecasts and targets for the year ahead. I would strongly advise you to ignore these psychic predications, as crystal ball gazing is not the way to make big money in markets. Followers of this column know my style is to trade trends rather than predict moves. I use simple price charts to make a judgement whether an up or down trend is in progress and I bet with the trend until it comes to an end.

What I can say is that, just as enjoying too much seasonal cheer can leave you worse for wear, the current bullish market action will leave many with a sore head in the New Year. Markets do have seasonal bullish biases between November to January, so we are still in a sweet spot. That said, experience tells me that a sharp pullback will be due in early 2006.

Bet big in Japan
I don’t feature the Japanese Nikkei 225 that much, however, it could be a market worth looking at in 2006 and you can spread-bet the Nikkei with all major bookmakers. As the chart shows, from 1999 to 2003 this market was in a sharp down trend. Since then we have been in a sideways range, with the last few months seeing a break-out. Based on this chart we can say that Japan is coming back into fashion. The current trend should continue in 2006 and we could see the Nikkei back up to 17,000 within the next eight months from the current 14,500 level.

It’s been a long time coming, with many false starts but the Japanese economy is finally starting to look better. Overseas investment is returning to Japan, which looks fair value compared to the USA. Also, the weaker yen and stronger US dollar is also helping Japan to become more competitive again, with economic growth re-started, a supportive government, companies with healthy balance sheets, low unemployment, deflation nearly defeated and early signs of consumers spending. The opportunity is that, while this has begun to show up in earnings, it has yet to be fully valued in the market. The PEG ratio (forward p/e over the forward EPS growth estimate) shows Japan to be the most attractive developed market, currently on a PEG of 1.0 compared to the US on 1.4.

Of course, after the current strong run-up of over 36 per cent since the May low, the Nikkei 225 will see some sharp corrections along the way, but I would expect pullbacks to be short with the index moving higher. I suggest a small spread bet with a larger stop to avoid the short-term whipsaws.

FTSE 100 v FTSE 250
The FTSE 250 is still not really followed but is doing far better than its big brother and continues to look strong. What I think has put a few traders off is the wider spread. But if you are trend-trading then the wider spread is not a big deal. I urge you to take a look at the FTSE 250 as a serious trading tool. It gives you a fast way to get exposure to UK stocks.

Vince Stanzione’s home study course teaches private investors how to trade financial spread bets and fixed odds, priced at £347. Visit www.fintrader.net or phone 01908 330748 (24hrs).