After studying economics and moving into the banking sector, Tyson Appadoo took up a career in hedge funds. He now works with the markets on a day-to-day basis and also knows a thing or two about Financial Spread Betting. In his new column, GX readers will be let in on Tyson's secrets as he casts his eyes over the markets in search of riches.

The markets can seem a complicated and scary place for a lot of people. However, for a select group, it is a very effective way to make money. As soon as you can get past the jargon and complexity of it, all that's left to overcome are the two human motivators of market behaviour - greed and fear.

Sounds simple doesn't it? Unfortunately, if it were that simple, everyone would be out there making a fortune from the markets. Because asides from the potentially lucrative returns available to the educated investor, there are just as many dangers and pitfalls lurking.

Three Golden Rules

I've been very fortunate to have ridden the financial storm over the past couple of years and have managed to gain invaluable experience working with the markets during this unique period in financial history. And here I'll be looking at possible opportunities ahead in the markets and present ways for you to trade them where relevant; although I must stress that this should not be taken as advice, but purely as the opinion of a speculator.

When assessing the markets, I focus on technical analysis trading patterns as opposed to a solely fundamental approach, which gives a greater scope of markets and asset classes to observe such as equities, fixed income, commodities and FX. Returning to my economic roots, I also keep a close eye on Macro economic data releases (unemployment, interest rates, house prices etc) and the impact of such releases on the markets.

There are three things I would stress to any would-be traders out there to do before risking any capital: (i) Learn to remove any emotion from trading decisions. One way to do this is to open a virtual trading account and test a strategy,  while only ever trading according to that strategy; (ii) Master the skill of bankroll management - a term that any poker player and indeed sports better should be familiar with; and (iii) Try to time your entry and exit to a tee.

Out of the Trough or Sliding Back in?

The world is in a perilous economic state right now. My personal opinion is that the fundamental state of the world's economy does not match the rally seen in the equity markets since the March low - the S&P500 cash index has rallied 70% in this time. And I really don't think the state of the world has improved that much in such a short period of time.

The banks have still not revealed the full extent of their exposure to sub-prime (as well as the credit card bubble which is yet to burst), and there is still scope for unemployment to increase; as a result of which, consumption may drop. The way I see it, the various Government stimulus packages around the world have done two things.

Firstly, the banks have hoarded cash to sure up their balance sheets rather than use the stimulus to increase lending and hence boost the economy. Some may argue that attempting to mend the credit crunch by increasing borrowing is an oxymoron as it was one of the root causes of the crash, but there's no denying the economy needs that boost. And secondly, some of the excess and very cheap cash has ended up buoying up the stock markets.

The ongoing debate within the industry is whether we'll see a 'V' shaped or a 'W' shaped recovery. Following the last recession during the tech bubble, the recovery was 'W' shaped in that there was a 'double dip.' Evidence from global post-war financial downturns (with the exception of Japan) shows that stock prices do typically return to their previous peak within three years, despite the ills of unemployment and house prices. History also tells us that the deeper the recession, the stronger the recovery.

However, my view is that the credit crunch has had far deeper implications on the markets than previous crashes, so assuming we'll see a 'V' shaped recovery this time around would be optimistic. But there are arguments for both sides, so it's important to keep an open mind.

The Year Ahead

The areas to keep an eye on in 2010 will be tax rises and the cutting of public spending - both in the UK and abroad - the British election, the end of quantitative easing and inflation - and its consequences on interest rates - and also sovereign debt. So with a trading hat on where you're in it to make money, all the above will be sure to create good opportunities to take advantage of some volatility.

Right now, the major equity indices are enjoying a ten month bull run with a huge diagonal support (trend line) on the weekly chart. The S&P has successfully broken above the 50% Fibonacci level and this is a bullish sign (which means it's a signal that the markets might rally, as opposed to bearish).

Don't worry if the Fibonacci level sounds like one of Dan Brown's new books, it's a tool used to identify a financial asset's price based on a retrace of an original move where it may find support or resistance before it continues in the original direction. It has key levels at 23.6%, 38.2%, 50%, 61.8% and 100%.

So as long as the level holds, I will be buying at the dips with a target of 1,200 (cash index). Medium to long term however, I am bearish - especially on the UK. Once the flow of cheap cash is halted by an increase in interest rates, and if this is accompanied by a break of the diagonal support, I will be looking for a big short position to catch the wave down, possibly looking at the FTSE. Whether or not we will see new lows as we did during the tech bubble is another question.

It is important to keep a close eye on the economic releases in the US and Europe - bad data could lead to a fast and painful drop, but improving data could signal a continuation of the rally. Something I have found interesting is that when bad data has been released, the equity indices have proved resilient. One theory is that the longer the economy appears to be struggling, the more likely interest rates will remain at record lows and hence investors will look to the markets to boost their returns on their savings. How central banks handle inflation and interest rates is going to be pivotal.

The Future is Nuclear

There has been a 90% inverse correlation between the S&P and the US dollar in recent months, a relationship I expect to continue in the short to medium term. The USD has fallen in general terms over the last year and a rally in the dollar may be bad news for equities; which leads to my next idea - if we see a double dip in the equity market, go long dollar.

I'll first be waiting to see what happens in the equity markets before I take a punt on the dollar rather than being short now and having to reverse if the S&P falls. A good way to get exposure to the dollar is through the Dollar Index - a basket of six major currencies verses the USD. The index broke above its long term diagonal resistance on December 4^th but has met resistance at 78.3. I'll be keeping a close eye on the index to see if it presents any good risk-reward opportunities.

My big play going into next year and beyond is the nuclear sector. Nuclear power has emerged as a low carbon alternative to non-renewable energy sources and has been heralded by the government to be the solution to the impending energy crisis in the UK. The powers that be have set a target that 25% of Britain's energy should be generated by nuclear power reactors by 2025, from current levels of about 13%.

Planning rules have been eased, cutting the time of decision making to no more than a year when it was previously six. And even a cluster of tree huggers have been swayed to join the nuclear revolution with Stephen Tindale, a former executive director of Greenpeace, lobbying for the use of atomic power to battle climate change.

Should the American Clean Energy and Security Act 2009 become law, the Environmental Protection Agency predicts that nuclear energy generation will more than double by 2050. And it's not just in the US and the UK -53 nuclear power plants are currently being built worldwide with countries like Poland, the United Arab Emirates and Indonesia seeking to build their first reactors. I would even go so far as to say that we are in the dawn of a nuclear age and exposure to this area may provide an investor with medium to long term opportunities.

The average Joe Bloggs investor out there may well have been influenced by the previous generation's view that a nuclear world would be dangerous and hard to manage. Yet the French, for one, have done very well to dispel the doubters. Technological advances and the fact that governments around the world are struggling to meet ever-increasing energy demands, driven by the world's growing population, should tempt investors towards the sector in the near future. Research has shown there is a capacity shortage, which makes the nuclear sector an even more attractive prospect. It's also a good alternative to holding oil stock. The fundamentals are set for the sector to prosper and I will be looking to build exposure over the first half of the year depending on how equity indices perform.

Profiting from the New Age

The question here is: How can we profit from this new nuclear age? Well the price of Uranium has tumbled from the high of $138 per pound in the summer of 2007 and now looks fundamentally under priced at its current level of around $43 per pound, especially considering that production will have to rise significantly at some point in the future.

Exposure can be got from through Uranium Ltd - a fund that tracks the long term price of uranium. And while the price has been flat for a while, I'm expecting the price to rise in the long term. And it looks like a good risk-reward trade as it's trading near a support allowing for a tight stop.

One other option is to look at uranium producers. I like the look of Cameco Corp, a company that produces 15% of the world's uranium - just behind Rio Tinto on 18% - and plans to double annual uranium output from existing operations by 2018. The price recently broke the 61.8% Fibonacci level which may act as support for a next wave up.

Shaw Group are a US engineering giant who I also like the look of - they are the leading contractor to build new reactors in the UK and even have exposure to China. The price has bounced off a long term diagonal support and should have a clear path to its recent highs. Another play in this area is the iShares S&P Global Nuclear Energy Index Fund which would give diverse exposure to the sector - it has broken up from a converging wedge formation which is a bullish move.

Next month I'll post all the facts and figures of the aforementioned stocks to track their movement and see how they've fared. In the meantime check out www.tyson-knows-best.blogspot.com for a closer look at these stocks as well as other market movers.

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