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Bullish trend continues but caution ahead of options expiry

It might have seemed that despite the recent volatility the FTSE 100 index has made little progress this week, but the bias has been to the bull side, and again this morning we have good rallies in equities. For a change it is not the miners leading the way but a series of special situations that are worth examining.

Former high flyer British Energy is topping the list so far with a 5% rise after it confirmed it had received a range of takeover proposals, including some priced above Thursday's closing share price. It added that the process of working through these offers might last some weeks, and this is good news after previous concerns that hardly any bidders were interested. We feel that existing holders should stay put, but the shares seem unlikely to get above the 790p area where they topped out two weeks ago.

Another big mover was British Airways with a 3% rally after profits rose to £883m in the year to March despite the well aired problems at Heathrow and a massive fuel bill rise. These figures were good, but understandably it is very cautious on the current year, and continues to review costs across its whole network. Technically we have recently see divergence between price and volume, so it is a hard call right now and we would stand aside.

A similar rise has been seen at Ladbrokes where profits increased by 13% in the four months to April 30. Most interestingly, gross win increased by 16% and by 34% including the contribution from high rollers, and these latter players chipped in £40m but their activity has recently fallen to low levels.

With another cautious statement, and given its exposure to discretionary spending, it looks like further downside ahead here and we remain slightly bearish.

Head of Research at Blue Index, specialists in trading Contracts For Difference
16/05/2008

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