Ftse Bull Run Over

[#1 on West side]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

[AvidFan]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

Maybe not. Intel reported "their best quarter EVER" late yesterday.

[Phil S]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

It was around 5800 a couple of months ago so who knows which way its going next??

[Guest Steve Cook]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

erm, you were saying?....

Edited July 14, 2010 by Steve Cook

[davidcameron]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

Sounds like you're a bit short then.

[#1 on West side]

It was around 5800 a couple of months ago so who knows which way its going next??

Yep, it was also around 4800 a few weeks ago... That is quite a spread...

[#1 on West side]

erm, you were saying?....

Oh dear... when I get them wrong I sure get them wrong!

Anyway, let's see where this nutty market ends today...

[Guest Steve Cook]

Oh dear... when I get them wrong I sure get them wrong!

Anyway, let's see where this nutty market ends today...

Personally I can't, for the life of me, see how this rally can be sustained. It looks to me like the last gasp of the party on the Titanic just prior to the ship going down.

But, what the hell do I know?

Edited July 14, 2010 by Steve Cook

[Realistbear]

FTSE 100 5280.03+0.17%

The incredible exuberance seems to have been based on the FACT that the recovery is underway and the danger of a double dip (which would have impacted earnings negatively) has passed.

What evidence is there to support this?

1. Stocks have been rising (self-fulfilling prophecy as to future growth prospects).

2. House prices have been falling for 3 months in a row.

3. The US economy shows stronger signs of a double dip with continuing house market problems and unemployment.

4. Local inflation in the UK is rising and standards of living are falling as cuts spread from the public into the private sector. Higher IR will have to follow as a result.

5. Our trade gap is widening as the EU contracts and US also import less by way of UK made goods and services.

The bottom line is that none of the above will affect our economy as the article below confirms which means stocks will be a one-way bet for the foreseeable:

http://www.bloomberg.com/news/2010-07-13/u-k-budget-cuts-unlikely-to-lead-to-double-dip-recession-cebr-says.html

The U.K. government’s emergency budget has the right “balance” and is “unlikely” to drag the economy into a double-dip recession, the Centre for Economics and Business Research said.

The economy will expand 1.2 percent this year and 1.6 percent in each of the next three years, the London-based group said in a report published today. It also said the labor market will remain “relatively weak” and job growth will be restrained by public-sector cuts.

Bank of England policy maker Adam Posen said June 30 that the economy is “tentatively” in recovery.

Do I share this optimism? No I do not. The price has yet to be paid for a decade of imprudence and trillions in debt creation. It just does not go away that easily.

[headrow]

FTSE 100 5280.03+0.17%

The incredible exuberance seems to have been based on the FACT that the recovery is underway and the danger of a double dip (which would have impacted earnings negatively) has passed.

What evidence is there to support this?

1. Stocks have been rising (self-fulfilling prophecy as to future growth prospects).

2. House prices have been falling for 3 months in a row.

3. The US economy shows stronger signs of a double dip with continuing house market problems and unemployment.

4. Local inflation in the UK is rising and standards of living are falling as cuts spread from the public into the private sector. Higher IR will have to follow as a result.

5. Our trade gap is widening as the EU contracts and US also import less by way of UK made goods and services.

The bottom line is that none of the above will affect our economy as the article below confirms which means stocks will be a one-way bet for the foreseeable:

http://www.bloomberg.com/news/2010-07-13/u-k-budget-cuts-unlikely-to-lead-to-double-dip-recession-cebr-says.html

The U.K. government’s emergency budget has the right “balance” and is “unlikely” to drag the economy into a double-dip recession, the Centre for Economics and Business Research said.

The economy will expand 1.2 percent this year and 1.6 percent in each of the next three years, the London-based group said in a report published today. It also said the labor market will remain “relatively weak” and job growth will be restrained by public-sector cuts.

Bank of England policy maker Adam Posen said June 30 that the economy is “tentatively” in recovery.

Do I share this optimism? No I do not. The price has yet to be paid for a decade of imprudence and trillions in debt creation. It just does not go away that easily.

4 companies that i have shares in have reported over the past two days.

ASOS sales up 54%

Ashmore assets under manangement up 7%

Cranswick sales up 19%

Wetherspoons up 1%.

When you see this happening why not buy shares?

My 5k investment in ASOS is now worth 9 times that amount.

[Realistbear]

4 companies that i have shares in have reported over the past two days.

ASOS sales up 54%

Ashmore assets under manangement up 7%

Cranswick sales up 19%

Wetherspoons up 1%.

When you see this happening why not buy shares?

My 5k investment in ASOS is now worth 9 times that amount.

Yup--I am also taking short term advantage by dipping my toe back in Honeywell when it dropped below $40. The DOW is powering ahead on Intel with the best ever profits.

[blue skies]

Post Is that the Sound of a Dead Cat Bouncing?

The markets are bouncing. Quick get on board before you miss the train. It’s all up from here.

A 250 point rally in a week from very oversold levels is enough to get anyone’s heart racing. Is this the low of the pullback? Is the uptrend from March 2009 still intact and therefore is this the time to jump back into the markets?

It could be. We have fallen 17% from mid-April to the lows in May which is a decent retracement. If the uptrend is still in play then you would expect the markets to find a base around here and start trending up again.

To gain a better insight into whether this current rally is an opportunity or a bull trap we will have to dig a bit deeper under the hood.

Volumes traded in the markets over the past week have been anaemic. For example yesterday’s volume of $3.7 Billion was in the top three lowest volume days this year apart from early January when everyone was on holidays.

Usually I would say that a rally on very poor volumes after a huge sell-off was more than likely a bull trap, but the difficulty with judging the current rally in this way is that we are in the middle of school holidays in Australia and post the end of the financial year a lot of Fund Managers will be off to Bali with the kiddies.

Our results season gets under way in August and the US reporting season is about to get into full swing. Most Fundies will sit on their hands during this period while they await the results to be released. Therefore it is to be expected that volumes will drop away in July and they have been doing so over the past few years only to see a bounce back in August.

Therefore the current very low volume that we are experiencing is a seasonal occurrence. It may not be possible to disregard this rally based on the low volume that is behind it, but it certainly makes me wary of jumping onto this rally at this point. When the music stops the market can be hundreds of points lower in a couple of days and all of the new buyers will be trapped.

To gain a better insight into whether this rally can continue it is perhaps better to have a quick look at the spread of data that is coming out at the moment.

Australian business conditions appear to be stabilising at quite healthy levels. After hitting a two year high of +13 three months ago the Business Conditions Index has stabilised at +8.

In the last two weeks we have seen the Central Banks of Malaysia, Taiwan, Korea and India all lift rates and after our strong employment numbers last week we are probably going to see rates raised here before long. Also the IMF came out last week to increase their projections for world growth in 2010.

This all points to the recovery actually gaining a firmer footing as time goes on and would make current prices look like a bargain.

Now what are the warning signs that we should be taking notice of?

Chinese steel demand has weakened off substantially in the last few months. Iron Ore spot prices have collapsed to their lowest level for the year having dropped by nearly 40% since mid-April.

This sharp slowdown in Steel demand may be a sign of weakening growth in China and could bleed through to weakness in our resource stocks going forward. The outlook over the next quarter will be weak and expectations may be set too high currently.

I think it is far more important to be listening to China’s heartbeat at the moment than anything else.

Also it is interesting to note that the correlation between stocks on the S+P 500 is at its highest level since the 1987 stock market crash as pointed out in The Wall Street Journal.

This is not a call for an imminent crash but it is food for thought.

Now let’s turn to the technical picture currently and ask ourselves whether now is a good time to buy.

ASX 200 Daily Chart

Click here to enlarge

This first chart shows the ASX 200 daily chart going back to 2002. In it I have drawn an ellipse around every time the 35 day moving average has crossed under the 200 day moving average thus sending a long term sell signal.

The first occurrence was in early 2002 just prior to a sharp sell-off that lasted until the beginning of the US/Iraq war in March 2003.

The next occurrence was in early 2008. We all know what happened after that.

The third occurrence was in early June 2010. I don’t know about you but that alone is enough for me to remain on the sidelines in the face of this current short term buy signal. Until the 35 day moving average is back above the 200 day moving average I have to say that the market is in long term downtrend.

If we have a closer look at the market what do we see?

ASX 200 Daily Chart

Click here to enlarge

This chart shows the number of times in the last few years that the 10 day moving average has crossed under the 35 day moving average. You can see here that when the 35 day is under the 200 day and thus in long term downtrend, a crossing of the 10 day moving average under the 35 day moving average has had a very high strike rate in terms of being a good intermediate downtrend sell signal. It is only while we were in long term uptrend that the signal had a lower strike rate.

Also when looking at the long term price action in this chart you can see that the rally from the lows in March last year reached the 50% Fibonacci retracement at 5000 points in the ASX 200. If we are still in a secular bear market as I believe we are, then a retest of the 50% can be the beginning of the next leg and could take us back to the lows reached in March last year.

We are in intermediate downtrend having just confirmed that we are now also in long term downtrend, but we have bounced 250 points in the last week.

When looking at it from this point of view, the 250 point bounce looks like a drop in the ocean and if anything is a clear bull trap. I will not be advising anyone to jump on this rally, but that doesn’t mean that I’m not wrong. It just means that the big picture is far too bearish for me to try and pick up pennies in front of bulldozers.

Murray Dawes

For Money Morning Australia

[Confounded]

I think we are going to be in a volatile period for a while fluctuating between a range. Later this year and into next once the right shoulder has formed the main drops will come.

[goldbug9999]

Yawn, noone knows which direction the FTSE is going in the sort term least of all me and anyone who tells you different is a techno-chartish bullshitter (probably someone paid, or hoping to be paid, to give "advice") however ... the upside has a hard ceiling of whatever we reached at the 08 peak (6400 ?) scaled down by the reduction in money supply cause by the subsequent credit crunch ( - all the QE of course) so that give us what 5700 ish ??. So the maximum you stand to gain tracking the index is about 10% ish up from its current level, but that has to balanced against a potentially MASSIVE dowside - a sovereign default could wipe off 20-30%.

So roughly speaking if you judge that the odds of a eurozone dept crisis are less than about 1/3rd then you should be "in" FTSE otherwise you should be "out".

[#1 on West side]

Yup--I am also taking short term advantage by dipping my toe back in Honeywell when it dropped below $40. The DOW is powering ahead on Intel with the best ever profits.

Keep going, Mr "Shoeshine Boy", with talk like that and the "one-side bet" comment, the market is DEFINITELY going to shed a few points today...

[@contradevian]

BLACK WEDNESDAY! I'm calling it!

[#1 on West side]

BLACK WEDNESDAY! I'm calling it!

Getr your own thread, you bl**dy poacher!!

[Phil S]

Looking back, the FTSE 100 is actually lower than it was 10 years ago. So you could argue that it's currently undervalued.

[Confounded]

Looking back, the FTSE 100 is actually lower than it was 10 years ago. So you could argue that it's currently undervalued.

Lots of people have, would be interested to hear a well reasoned argument 3 years post peak credit?

[Guest Steve Cook]

All gains from this morning now lost and gone negative

Edited July 14, 2010 by Steve Cook

[AvidFan]

FT reckon there's been some funny money injected:

http://ftalphaville.ft.com/blog/2010/07/14/285706/nothing-fundamental-about-this-rally/

Coupon or Bill pass, anyone?

[Realistbear]

40 points down (from overnight peak of about 5310) in 12 minutes.

Have we seen an end of the ridiculous bull run of the last 6 trading days?

You may have been right:

FTSE 100 5223.74-0.90%

[@contradevian]

All gains from this morning now lost and gone negative

Automatic trading? Banks/hedge funds putting in large trades with no intention of executing. Denninger describes this as trying to pick up pennies in front of a steam roller. It ought to be illegal, it probably is illegal, but blind eyes are being turned. Its being done under the guise of providing market liquidity.

[#1 on West side]

Automatic trading? Banks/hedge funds putting in large trades with no intention of executing. Denninger describes this as trying to pick up pennies in front of a steam roller. It ought to be illegal, it probably is illegal, but blind eyes are being turned. Its being done under the guise of providing market liquidity.

Can you please explain the benefit to the banks/hedge funds in doing this...?

[Gigantic Purple Slug]

Up down up down up down up down.

Down.

No, up.