Investment club: US recklessness gives little cause for cheer, but SSE looks hopeful

As WE head into the festive season there is precious little cheer for the Investment Club. Its unit price sank again last month to £2.57, and looks set for another bad month, thanks to the latest barmy antics of US president Barack Obama.

As though America is not in enough debt, he is now proposing the US Treasury forgoes another $501 billion of tax revenues while increasing spending hugely by extending unemployment benefits and payroll tax benefits.

If it is disastrous for banks to lend and the public to borrow recklessly, then why is it sensible for the state to act with greater recklessness? It is not, of course, and we are now heading for an even greater catastrophe than the Alan Greenspan calamity of late 2007.

But where does the club's analysis see the markets heading? Currently the FTSE100 is sitting around 5,700. Our analysis sees the Santa Claus rally that kicked in at the birth of December, pushing the Footsie up to 6,133 by Christmas and the Dow Jones at 12,018 in the same time frame. At this point the FTSE100 will be 600 to 800 points shy of its pre 2000 and 2007 crash readings. The Dow at its Santa peak will be 300 points above its pre-2000 crash level but 2,000 points short of the pre-credit crunch high. These numbers show that there is plenty of scope for a post Santa rally after a short consolidation in January.

The club decided to buy shares in an attempt to profit from the market rally and mitigate some of the losses wrought upon it in the club's gilts holding. The stock we decided to purchase was Scottish & Southern Energy (SSE). It is a utility with a good dividend record and, at the current share price, has a perspective yield of around 6 per cent.

What is holding its share price back is the large debt it carries. On the up side, if it breaks through resistance at 12 there is nothing to stop it going on up to 14 before some consolidation sets in. The dividend is covered one and a half to two times. At the start of November the share price stood around the 1160p mark. The club at this point put in a limit-buy order of 11.40. On 12 November the order was triggered and we bought into SSE at a market price of 1137p.

The analysis now anticipates the festive rally in the FTSE dragging SSE's share price up through a falling resistance line with a top at 12 and a current resistance level of about 11.50. This outcome would give the club a badly needed profit.

But what are the New Year prospects for the newly acquired shares? If SSE breaks through resistance at 12 then it should climb up towards the 14 resistance mark by 26 January 2011 when the shares go ex-dividend.At this point the club will take stock of its holding and decide whether to stick with the shares or bale out.

So the game plan this Christmas is to, like the shepherds, watch its stocks at night and wait for the markets to develop.