Wednesday, Jan 06, 2010
Big rally in a bear market
FT: Short View: Awaiting the bear
The technicians amongst us may find this interesting. Both technical and fundamentals are suggesting a stockmarket fall.
Posted by letthemfall @ 10:38 AM (1816 views) Add Comment
33 Comments
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1. Dave said...
Cannot see it. Can you copy and paste?
2. flashman said...
If you predict a market fall in a bull market then you will always (eventually) be right. The trouble is that most of the people who predict these things will have lost their shirt several times over, whilst they are waiting to be proved right.
I think it was on this site?? that I read dire warnings of an impending market collapse at FTSE 5000 (and at several other levels). There is no harm in a punt but people should realise that the experts, of all persuasions, have at best, a 50% tack record of being right and even if they are right they are often too skint to take advantage when the time comes.
I have absolutely no idea what will happen next and I am always astonished by the audacity of people who claim that they do.
It is always worth remembering the real money is usually made by taking fees, charges and commissions
3. stillthinking said...
Currently, interest rates are low. This perversely makes liquidating debt more expensive, bond yields fall, bond price rises, bond buybacks are expensive. So at the moment companies that have sufficient cash (if there are any) are locked into carrying debt, albeit cheaply. If rates rise then companies that wish to retire debt will have an ideal opportunity to do so (bond buybacks are cheaper), i.e. the inflation spike predicted by the BoE for the early half of this year will be self-defeating against a corporate mindset to reduce debt.
Further, for the UK, private sector wages(majority) have fallen 1%, so for the population as a whole debt costs are going up, irrespective of how lucky some tracker mortgage holders may have temporarily been.
The only force holding prices up is money pumping and loose fiscal policy by government, and they can't carry the horse for much longer.
So will stock prices go down? Yes, I think so. Everything will. 2010 is going to be year zero. (I could be wrong of course)
4. tyrellcorporation said...
In my own small scale way I'm hedging everywhere. I've bought some gold, some miners, some big pharma, some insolvency specialists, supermarkets, defence and hold some cash (prob too much Sterling). I have no idea which way things are heading but there is a steady trickle of good news driving stocks and bad news is largely being ignored by the markets (so you could argue we're in a bull market). All the time house prices are supposidly heading North I need to make my cash work harder than ever to keep up. If that means taking a risk in equities then so be it. My reasoning is that I'm probably fooked anyway in terms of buying a house in the UK and I've got a bit of a casino mentality at the moment.
Everything on Red my friend!
5. hpwatcher said...
If you predict a market fall in a bull market then you will always (eventually) be right. The trouble is that most of the people who predict these things will have lost their shirt several times over, whilst they are waiting to be proved right.
I think it was on this site?? that I read dire warnings of an impending market collapse at FTSE 5000 (and at several other levels). There is no harm in a punt but people should realise that the experts, of all persuasions, have at best, a 50% tack record of being right and even if they are right they are often too skint to take advantage when the time comes.
I still think this will happen...but not just yet! But please *bear* in mind, that the companies pushing the FTSE up are commodity based but a good many of the companies aren't doing that well - bit like the dot com companies. There has been a flood of money due to QE, interest rates artificially low and a high FTSE is just one of the effects.
6. growler said...
tyrell "if that means taking a risk in equities then so be it"
is where I think a lot of the market is at. Such low interest rates, inflation that eats any gains up, why not?
I'm a bit of a "cash is king to buy up distressed sale items" person - like classic cars and art that are in a huge bubble - probably for the same reason people are having a pop at shares.
I think there is some airt left in the bull run. When this turns fro more than 2-3 days, then it will be interesting. I really don't think this is goign to happen until after the election.
7. flashman said...
tyrellcorporation: "In my own small scale way I'm hedging everywhere"
Sounds like a smart strategy. Preservation is always a sensible policy in times of uncertainty. Mind you, it has to be said that I don't recall a single moment in the last 20 years that have been 'certain'. The only refinement I could suggest to your strategy is to concentrate on paying as little commission and fees as possible. "Everything on red" will result in a lot of wins but the house slots will eventually dwindle your pot to nothing.
8. tyrellcorporation said...
Flash you're right I've got a Barclays sharedeal account and they take a hefty slice from me for each trade. the trouble is I'm not sure I trade enough to get onto a better rate-per-trade. I need to look around but any pointers to limit this expense would be great.
Cheers.
9. techieman said...
Flash "It is always worth remembering the real money is usually made by taking fees, charges and commissions" true - this reminds me of something i read once, that very few speculators that made good money in the "gold rush" in the wild west but that a good income was earnt by those ancillary services - providing the shovels etc.
Of course A FEW did make fortunes from the Gold speculation themselves. As for speculators obviously some are very successful for varying degrees of time, whether you want to look at Jesse or Paul Tudor Jones, W.D Gann etc etc.
As for actual values of markets and a top - i.e. minor and major turning points - thats subject to all sorts of interpretation and methods - but thats the fun part! Just buying the dips against a rising trend channel is a bit of a bore really. Im not sure anyone said 5000 on here. I did say 5300 and stalling and then when there was no follow through to the downside then 5500 (but not much more) now there is resistance at around this level. A dip from here or a bit higher that finds support at 5450 or above, looks a good buy for another thrust up.
A thrust or the final thrust up? You pays yr money and takes yr choice.
You are right the bears are looking silly and the shorts are getting killed! But maybe there will be a return of the jeddi this year? :-). You are of course right no-one knows but we are all entitled to our opinions - right or wrong!
I dont know if you follow the C-O-T reports or the Investors sentiment indicators in the US - but these are looking decidedly dodgy for the bulls. Just another piece of the puzzle.
10. tyrellcorporation said...
'I dont know if you follow the C-O-T reports or the Investors sentiment indicators in the US - but these are looking decidedly dodgy for the bulls. Just another piece of the puzzle.'
Investors who missed the rally perhaps?
11. techieman said...
Also can someone copy and paste the article - i am a poor deluded bear that cant afford the subscription!!! I am even restricting my porridge intake!
12. techieman said...
And re the sentiment here is a nice picture : [posted this yesterday as part of a discussion with b/wether - under the "Rosy consensus v Rosie Consensus" title yesterday]
http://4.bp.blogspot.com/_nSTO-vZpSgc/S0E6jYfnLZI/AAAAAAAAHiM/CkZpXKNXC88/s1600-h/sentiment+surveys.png
13. techieman said...
Hi TC - just for information - im not trying to patronise. Take a look at the sentiment chart picture above - its a contrarian indicator, so you are sort of right. The commitment of traders (c-o-t) is an indicator which shows what 3 groups of people are doing:
1. The small specs
2. The commercials
3. The large specs.
obviously how they are read is subject to interpretation. But basically they show where the big money is going down and what % of the open interest is long or short for each of the groups. So the idea is when they are at extremes that there is the potential for a signal. Contrarian for sentiment and non contraian for the changes or extremes in what the commercials are doing.
You shot from the hip there a bit TC but missed the target!!!
14. letthemfall said...
techieman
Delete your FT cookies or search the title in google. I can't afford the sub either.
I've thought for a long time that the best way to make money from investment is to work in the industry. Track the index, more or less, and charge several percent.
(There is no charge for this advice.)
15. techieman said...
LTF thanks for the advice! Just read it :
"Chartists point out that when the S&P passed 1,120 it had recovered exactly half the ground it lost from its October 2007 peak to its March 2009 trough. Traders take these things seriously and the S&P had tried and failed to breach 1,120 several times before doing so. Breaking through is a bullish sign and should mean that it can keep going until its next level of resistance at 1,228 (where it will have retraced 61.8 per cent of its losses)."
Whoops!! That sounds a bit like mine :
-------------------------------------------------------------------
"This bull just wont die will it!! ok : mine of Nov 8th : "So the S&P top was 1575, the low 666. That gives a move down of 909 points and (so far) we have retraced to 1103. Thats 48%. If that fails to hold, the next target would be 1120 and then if that doesn't hold 61.8% is 1228."
Nov 17th : "You will see from his analysis that the top may be in and if not there will be one more move up. I favour the latter...." re the mom and pop suck in..... This could cause it to go to the level after 1120"
I would generally agree this bull move doesnt look done ... just yet....
However it would be great to see an overthrow of the wedge pattern to finish this off. Where would that take us? Well it should move up very quickly to exhaust the move. I really dont think we will get to the 1228 level but who knows! Lots of people more clever than i have been caught out more than once shorting on the way up."
------------------------------------------- http://www.housepricecrash.co.uk/newsblog/2010/01/blog-rosy-consensus-v-rosie-consensus-27157.php
So much for originality!!!
16. estrader said...
http://twitter.com/escontract
See my entry on : 1:06 AM Oct 24th, 2009 from web
17. techieman said...
ES i dont know why you dont just copy and paste what you posted on twitter?? Also why did you stop on November 17th? Im not being in the least but facetious - im just interested.
18. estrader said...
@16 Techieman, the entry needed to be put into context. I stopped posting on the 17th because I am now convinced my analysis of a 200-300 point move was to the upside. I am not seeing anything yet to indicate a reversal. It has taken many years of study and practice to get to the point where about 90% of my market move predictions are right on the money. I was putting it on twitter so that I can look back and see how right or wrong I was and have access to them anywhere. Now I just keep my own private notes.
19. little professor said...
Article in full for those not able to access it:
As far as the stock market is concerned, the Lehman bankruptcy just happened.
The S&P 500, the world’s most tracked index, is now almost exactly at its low for the week following the Lehman disaster of September 15, 2008.
A lot of bad news had already been priced in to stock prices at that point, and the S&P must still rise by 37 per cent to get back to its high, in nominal terms. But the risks of true catastrophe that arose from the Lehman debacle and the inadequate government response have now been removed from the equation, at least according to the market.
What does this imply for the future? Technical measures (patterns in price movements) and fundamentals (the estimated value of companies) send slightly different messages but they are consistent.
Chartists point out that when the S&P passed 1,120 it had recovered exactly half the ground it lost from its October 2007 peak to its March 2009 trough. Traders take these things seriously and the S&P had tried and failed to breach 1,120 several times before doing so. Breaking through is a bullish sign and should mean that it can keep going until its next level of resistance at 1,228 (where it will have retraced 61.8 per cent of its losses).
Fundamentalists look to the price/earnings ratio, which on a cyclically adjusted basis (taking price as a multiple of earnings over 10 years), is now back above 20. The historic average is 16.3, and the market traded below 20 on this measure from 1969 to 1993. It is only a year since it dropped below 20.
On this basis, the S&P could certainly go up further. It reached 22 in the late 1930s before the second dip of the Great Depression, and peaked above 40 during the dotcom bubble. But fundamentally, stocks are already expensive, and are still in a bear market.
So on this crude analysis, the S&P is in a big rally within a bear market, and trading momentum will likely take it further. But the S&P is not at the start of a new bull market.
20. techieman said...
Estrader - fair enough. I make far less calls than you seemed to be making on yr tweets. 90% is very impressive. Wow if i was at anywhere near that i would have "more money than god" :-). Maybe i need to go back to school or maybe im just a bit lazy - actually its more likely i am lazy to be fair or dont want to confuse myself with too many things that cause me to hesitate.
I may be right or wrong but once decided (and i decide quite quickly) i find it relatively easy to pull the trigger.
21. will said...
Anyone looking to invest in the stock markets must have a grasp on fundamentals even if the markets at times doesn't, because at some point in the future the market will re-adjust to the fundamentals and if you paid too much for a stock you won't be able to blame it on your advisor.
Price to Earnings ratio is one of the best measures of a shares value. According to many seasoned investors, a PE above 15 is over valued. Many economists will tell you that the SP500 during a serious bear market will fall below 10. Currently it is over 20 and could at least halve again, and stocks would fall by a similar amount, hence the bearish predictions out there.
I personally think we will have another leg down in the markets and went to cash before Xmas.
22. estrader said...
techieman, backing an opinion with money is a very different matter! I'd be much, much richer if I always did that! I am a very, very conservative trader and only trade short term moves. Most of my trades don't last longer than 5 minutes and I trade with a very tight stop. I rarely hold a position overnight.
In the process of studying short term moves I have recognised certain patterns which set precedents for future large moves.
23. techieman said...
EStrader - between you and me i am a little worried of missing the move down - i dont think there will be classical reversal indicators, as such i think that the first move down off the top will be difficult to get into (eg a few hundred down before a shallow retrace). Thats really nothing more than a hunch though, but it explains why i am and have been more than happy to take a few bites of the (short) cherry going up and being 100% wrong on those shorts. As i said 2009 was treading water for me - i didnt lose but made nothing to speak of - unlike 2008 (i assign the profits on open positions to the year in which i opened them - so I allocated profits on my shorts that were covered in 2009 to 2008).
Still payments into the equity markets were offset by gains in forex, so cant really complain. Good luck to you this year!
24. techieman said...
estrader @ 21 - right gotcha - well i admire that, because ever since i left LIFFE i could never make money on short term moves, which is why i position trade (and prob spend too much time here!). Now i understand that you probably wont miss the down move in equities - you probably wont be able to run it for an optimum period, but maybe you will. A scalper - now we know!
25. techieman said...
Will
"Anyone looking to invest in the stock markets must have a grasp on fundamentals even if the markets at times doesn't, because at some point in the future the market will re-adjust to the fundamentals and if you paid too much for a stock you won't be able to blame it on your advisor."
hmmm well that only looks at it from a long side, buy and hold strategy. Are you American? As has been said before fundamental valuations can be out of kilter for a long time - if you are an active trader that just wont work because you would get more and more short as the PE gets higher and higher. You might find that a PE does help with assessing momentum and with divergences, but then that would be using it as a technical indicator ;-).
26. will said...
Techie
Not American. But I am looking for a long only trade. I am willing to wait for a better entry point and if it doesn't materialise then I shall stay out of the market. I am also happily retired.
27. estrader said...
Techieman, I am NOT a scalper. I make 1 trade/day if I see the opportunity or I stand aside and just watch. I have learnt through bitter experience that sitting on your hands and waiting until the market selects the entry for you is the best approach...HOUSE BUYERS take note! Ignore the 'NEWS' and ignore the analysts and just 'listen' to what the market is telling you, it is never wrong. Remember, strong hands, weak hands and the public.
28. techieman said...
Will, the clue was "advisor" :-), it wasnt a slight against you or Americans. Gad you are enjoying the retirement - im sure you wont be dipping your toe in too quickly by what you said in 20.
29. techieman said...
estrader - some of my best friends were scalpers on LIFFE -i wasnt knocking it - its an honourable profession! If you are very short term then thats a scalper in my book!
"strong hands, weak hands and the public". yes which is why i refer to the COT reports. This indicates WHO is bullish or bearish, so it gives you the information and the potential direction.
Right off for some lunch now and watching them "damn yankees" this afternoon - no offence Will.
30. techieman said...
Will - i misread - "not American" as "North American!!". Silly me but isnt "Advisor" the American way of spelling "adviser"?
31. flashman said...
tyrellcorporation: "Flash you're right I've got a Barclays sharedeal account and they take a hefty slice from me for each trade. the trouble is I'm not sure I trade enough to get onto a better rate-per-trade. I need to look around but any pointers to limit this expense would be great.
Cheers".
My personal broker is TradeStration but there are several others that are just as cheap. They offer much tighter spreads and fees than you are getting now. The problem with brokers like TradeStation is that you have to have a slightly larger amount in your account and you have to have a few accounts if you want to trade options, futures and equities. The only advice I can give you is to avoid over trading or 'churning' (you already knew that) because that's where the fees and commissions add up. I am a bit lazy so I keep my money in Sterling but several colleagues spread their currency between producing and consuming countries (currency from three producing countries and currency from three consuming countries). You wont make any money but you wont lose either.
I keep my money in Sterling mostly because of laziness but also because I would rather take my chances than drip feed commission and exchange fees to a broker. I also plan of spending most of it here.
32. growler said...
Flash: I also plan to spend most here - and keep sterling therefore. at the moment, i'm averaging about 4.5% after tax on savings/investments. Trend down as the "silly" 7% investments are maturing leaving the later ones...
33. will said...
techie
yes of course you are right - er not or. I do read a lot of American financial reports, so please forgive spelling.