Watch out for quick reversal now ! Hidden potential buying !
Friday, November 21, 2008
Thursday, November 20, 2008
Wednesday, November 19, 2008
9 am - DJIA closed higher on higher volume !
It is critical DJIA today to close higher or not break the 8188 support level.
Tuesday, November 18, 2008
9:15 am - FKLI gap down but started to move back up. Notice the double top at the top !
I expect FKLI to move down unless it break above the double top at 890/891.
Monday, November 17, 2008
3:26 pm - Market Outlook by Bill Wermine !
Dear Traders ,
Carving out a bottom
In late 1974 when the Dow Jones was below 600 and the air was thick with doom, Warren Buffet in an interview with Forbes magazine said “ I feel like an oversexed man in a harem. This is the time to start investing.” Within months the greatest rally in history began with the Dow running almost 450 points in a bit over a year.
This was a percentage return of over 75 % Buffet also said in the interview “ You pay a very high price in the stock market for a cheery consensus.” Some of my clients said there are too many question marks about the near future, wouldn’t it be better to wait until things clear up a bit ?
You know the prose: “Maintain buying reserves until current uncertainties are resolved,” Before reaching for that crutch, face up to two unpleasant facts:
The future is never clear, you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values. Justin Mamis, a former partner specialist in the NYSE wrote a book in 1982 , How to Buy, an Insider’s Guide to Making Money in the Stockmarket. The best opportunity he said is after a selling climax. A true climax he said must be preceeded by a prolonged and steady decline, accompanied by deep rooted gloom and a sense of doom.
Finally, investors who have been tormented by the down trend but have held on decide to disgorge their holdings because they have become convinced that prices can only become worse. Thus in addition to such a prior extensive decline, stocks have to embark abruptly in a form of free fall. Often it is sparked by a specific financial crises, such as a major bankruptcy, and then the dumping of stocks seems to pick up momentum. A specialist in the NYSE is a market maker and is obligated to buy in a market collapse to maintain an orderly market. Their average earnings each year is in seven figures and they profit by exploiting the human emotion of fear.
These fellows become rich by being smart like Warren Buffet. We trade in the now and take advantage of what is offered. In my opinion we are in a stage 1 accumulation phase. We need to deal in shares moving into stage 2 and confirmed by volume. Risk is relatively low at this point. Use your Advanced TAVA Metastock filter to find such shares.
One of graduates, JL Tan shared this powerful clip with me. Listen to the uplifting inspirational words and music. It applies to the current market and life itself.
Have a good week
Bill
Carving out a bottom
In late 1974 when the Dow Jones was below 600 and the air was thick with doom, Warren Buffet in an interview with Forbes magazine said “ I feel like an oversexed man in a harem. This is the time to start investing.” Within months the greatest rally in history began with the Dow running almost 450 points in a bit over a year.
This was a percentage return of over 75 % Buffet also said in the interview “ You pay a very high price in the stock market for a cheery consensus.” Some of my clients said there are too many question marks about the near future, wouldn’t it be better to wait until things clear up a bit ?
You know the prose: “Maintain buying reserves until current uncertainties are resolved,” Before reaching for that crutch, face up to two unpleasant facts:
The future is never clear, you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values. Justin Mamis, a former partner specialist in the NYSE wrote a book in 1982 , How to Buy, an Insider’s Guide to Making Money in the Stockmarket. The best opportunity he said is after a selling climax. A true climax he said must be preceeded by a prolonged and steady decline, accompanied by deep rooted gloom and a sense of doom.
Finally, investors who have been tormented by the down trend but have held on decide to disgorge their holdings because they have become convinced that prices can only become worse. Thus in addition to such a prior extensive decline, stocks have to embark abruptly in a form of free fall. Often it is sparked by a specific financial crises, such as a major bankruptcy, and then the dumping of stocks seems to pick up momentum. A specialist in the NYSE is a market maker and is obligated to buy in a market collapse to maintain an orderly market. Their average earnings each year is in seven figures and they profit by exploiting the human emotion of fear.
These fellows become rich by being smart like Warren Buffet. We trade in the now and take advantage of what is offered. In my opinion we are in a stage 1 accumulation phase. We need to deal in shares moving into stage 2 and confirmed by volume. Risk is relatively low at this point. Use your Advanced TAVA Metastock filter to find such shares.
One of graduates, JL Tan shared this powerful clip with me. Listen to the uplifting inspirational words and music. It applies to the current market and life itself.
Have a good week
Bill
Saturday, November 15, 2008
7:52 am - US retail sales in record fall, but sentiment up
WRAPUP 4-US retail sales in record fall, but sentiment up By Alister Bull WASHINGTON, Nov 14 (Reuters) - Sales at U.S. retailers suffered a recorddecline in October as fears of recession sapped spending, but part of the dropwas due to slumping gasoline prices which helped buoy consumer confidence. The Commerce Department said on Friday that retail sales slumped 2.8percent in October to a seasonally adjusted $363.7 billion, the largest declinesince the department's current methodology was adopted in 1992, as mountingunemployment hit shoppers' appetites. A separate Reuters/University of Michigan November survey of consumersshowed that confidence unexpectedly rebounded from a record October drop astumbling gas prices offset worries about the economy. While lower gas prices were welcome, declines in a broad number of retailsales categories showed consumers were still on the defensive. "What you are seeing now is the turmoil in the credit and funding marketsplaying out into the consumer sector," said Kevin Flanagan, fixed incomestrategist, global wealth management at Morgan Stanley in Purchase, New York. Consumer spending is a crucial driver of U.S. growth and stocks fellsharply, with the Dow Jones industrial average ending 337.94 points, or 3.82percent lower at 8,497.31. The dollar rose, aided from its role as a safe haven in a deterioratingglobal investment climate, while U.S. Treasury notes advanced in price for thesame reason and because a weaker economy theoretically favors such fixed incomeassets. Economists polled by Reuters forecast a 2.0 percent fall in Octoberretail sales as the escalating financial crisis took a toll on consumers. Retailsales last month were down 4.1 percent from a year ago. Sales excluding autos fell a record 2.2 percent in October versus aforecast of a 1.2 percent decline. Lower gasoline prices, as crude oil retreated sharply from a July peakaround $147 a barrel, helped depress sales at gas stations by a record 12.7percent in October. As a result, a closely watched core measure of retail salesexcluding autos and gasoline fell 0.5 percent in October. "Take out cars and gas, it's a drop of half a percent. It's not good, butit's not horrific. This could have been worse; it's encouraging that it wasn't,"said David Resler, chief economist at Nomura Securities in New York. The sharp drop in gasoline station sales may also have reflected fewermiles driven by Americans last month. The Reuters/University of Michigan Surveys of Consumers said itsconfidence index edged up to 57.9 in November from 57.6 in October. Despite therise, sentiment remains at depressed levels, with the index below the lowestlevels hit during the depths plumbed during the last two recessions. "Lower gas prices and sizable discounts at retailers helped to slightlyimprove consumers' assessments of current economic conditions, while higherunemployment and a deepening recession dimmed their expectations for futuregains," the Surveys of Consumers said in the report. "You might have hoped, say gasoline was way, way down in price, thatmight free up money to spend on other stuff. But that didn't happen, peoplestill spent less on other stuff. So that's not good," said Nigel Gault, chiefU.S. economist at Global Insight in Lexington, Massachusetts. Lakshman Achuthan, managing director at the Economic Cycle ResearchInstitute, a New York-based independent forecasting group, put it more bluntly:"Not only is no economic recovery on the horizon, but the economy is falling offa cliff at its fastest pace in at least six decades. Individual car makers have reported a collapse in sales sincemid-September after auto-loan terms tightened sharply in the aftermath ofinvestment bank Lehman Brothers's failure. The Commerce Department said motor vehicle and parts sales slide 5.5percent in October after a 4.8 percent September fall. October's performance forthe category was the weakest since August 2005, when car sales were off 10.3percent. Majority leader Sen. Harry Reid, a Democrat from Nevada, said he "plansto press forward" with emergency aid to American automakers and will begindebate on Monday of a $25 billion bailout. It was not clear if there wassufficient backing from Republicans to deliver the emergency aid. General Motors Corp, Ford Motor Co and Chrysler LLC are furiouslylobbying for $25 billion in immediate bailout money to help them survive theindustry's worst financial crisis. A report from the Labor Department showed U.S. import prices posted thelargest monthly drop since 1988 in October as the cost of imported oil slid. Separate Commerce Department data showed that stocks of unsold goods atU.S. businesses unexpectedly fell a seasonally adjusted 0.2 percent inSeptember.
Friday, November 14, 2008
3:37 pm - FKLI continue to move sideway !
Short sellers will be covering their positions soon as they do not wish to carry over the weekend.
Thursday, November 13, 2008
Wednesday, November 12, 2008
Tuesday, November 11, 2008
Monday, November 10, 2008
11:00 am - FKLI break down on lower volume but has no follow thru on the weekly basis !
Looks like the FKLI is reversing ! The low is 800 level.
10:54 am - DJIA raise up on lower volume !
Sellers had temporarily left the market for the time being !
10:24 am - Market Outlook by Bill Wermine
Dear Traders,
Today I attended a market outlook by Pong Teng Siew, Head of Research of Jupiter Securities. There was a full house, standing room only. Mr Pong is a highly regarded analyst and has been able to consistently forecast KLSE market turns. He feels 802 is the near term bottom because credit markets world wide are unfreezing. The new fear he said is world wide recession which 1/2 of the developed countries including the US, UK and Europe are in. however; markets turn in the depth of a recession as players anticipate an economic upturn.
He suggested to be in defensive mode. Avoid property, construction, banking, auto and airline shares as the economy is slowing. On the other hand, he recommends Sime, TM and PPB Group due to defensive qualities and solid dividends. I hold these shares for my managed accounts.
He also forecasts a recovery in crude oil and CPO as these commodities are deeply oversold and are trading at less than fundamental value. He also feels the US Dollar will resume its fall as credit markets unfreeze and the US prints money to bail out the banks, auto companies, un employed workers, housing etc. Obama will print massive amounts of US Dollars to fulfill his election promises.
We are holding our monthly Traders Club at Phillip Capital Office on 15 November at 10 AM . If you have any topics you wish to share please let me or Martin know.
I will present an interesting study on Gap trading in the CPO and CI Futures and how to use volume to confirm the success of a gap trade. I need someone to present on point and figure.
Have a good day
Bill
Today I attended a market outlook by Pong Teng Siew, Head of Research of Jupiter Securities. There was a full house, standing room only. Mr Pong is a highly regarded analyst and has been able to consistently forecast KLSE market turns. He feels 802 is the near term bottom because credit markets world wide are unfreezing. The new fear he said is world wide recession which 1/2 of the developed countries including the US, UK and Europe are in. however; markets turn in the depth of a recession as players anticipate an economic upturn.
He suggested to be in defensive mode. Avoid property, construction, banking, auto and airline shares as the economy is slowing. On the other hand, he recommends Sime, TM and PPB Group due to defensive qualities and solid dividends. I hold these shares for my managed accounts.
He also forecasts a recovery in crude oil and CPO as these commodities are deeply oversold and are trading at less than fundamental value. He also feels the US Dollar will resume its fall as credit markets unfreeze and the US prints money to bail out the banks, auto companies, un employed workers, housing etc. Obama will print massive amounts of US Dollars to fulfill his election promises.
We are holding our monthly Traders Club at Phillip Capital Office on 15 November at 10 AM . If you have any topics you wish to share please let me or Martin know.
I will present an interesting study on Gap trading in the CPO and CI Futures and how to use volume to confirm the success of a gap trade. I need someone to present on point and figure.
Have a good day
Bill
Saturday, November 08, 2008
9:42 am - Stocks rise after 2 days of heavy selling
Stocks rise after 2 days of heavy selling NEW YORK (AP) - 1107b--wallstreet Buyers returned to Wall Street Friday after two days of heavy losses,mindful of the economy's growing problems but attracted by stocks' lower prices.Analysts said the advance was to be expected as Wall Street experiences a rockyrecovery from October's devastating selling. The major indexes jumped more than 2 percent, including the Dow Jonesindustrial average, which rose nearly 250 points in light trading. For the week,the Dow and broader benchmarks like the Standard & Poor's 500 index lost about 4percent after surging 10 percent or more last week. Friday's trading was a mini-version of the market's performance over thepast two weeks, with investors upbeat, then realizing there was little basis inreality for their resurgent confidence, then changing their minds again. The market briefly came off its highest levels of the session afterPresident-elect Obama reiterated at a news conference that there is a great dealof hard work to be done to restore the economy to health. Investors hadoptimistically sent prices higher, only to temporarily pull back when Obamaunderscored what they already know: that the economy's problems won't be easilysolved. George Shipp, chief investment officer at Scott & Stringfellow, said Obamaappeared to be trying to telegraph to the market not to expect too muchimmediately. Obama, noting that he has until January before taking office, saidhe will work to support an economic stimulus plan and will seek ideas forhelping the auto industry. "My expectation is that he lowers the bar and buys the time," Shipp said."Certainly there is no reason to create any undue expectations right now." The market fluctuated after Obama spoke, then righted itself to close nearits best levels of the day. Hank Smith, chief investment officer at Haverford Investments said themarket's turns aren't a surprise. "I think it's absolutely part of the bottoming process," Smith said. "TheOct. 10 low has been tested again a number of times." The blue chips hit anintraday low of 7,882.51 on Oct. 10. Friday's economic and corporate news reminded the market that the countrycould be in for a deep and protracted recession. The Labor Department said the nation's employers cut 240,000 jobs inOctober, hurtling the U.S. unemployment rate to a 14-year high of 6.5 percent.The market had expected employers to cut 200,000 jobs and for the unemploymentrate to rise 6.3 percent. Meanwhile, Ford Motor Co. reported a $129 million third-quarter loss andannounced plans to cut more than 2,000 additional white-collar jobs. GeneralMotors Corp. said it lost $2.5 billion in the quarter and warned it could runout of cash in 2009. The struggling automaker also said it has suspended talksto acquire Chrysler. Although the day's news was on its face worse than expected, investors weredrawn by prices beaten down the past two sessions and some relief that thereports weren't more grim. "We're coming off of a very oversold market that had already braced itselffor bad news out of Detroit and certainly bad economic data in terms of thelabor report," said Peter Cardillo, chief market economist at Avalon Partners. The market is following the pattern of volatility that analysts warned wouldprevail for some time to come. Obama's election was preceded by a big rally, during which the benchmarkStandard & Poor's 500 index surged 18.3 percent in six sessions up throughTuesday. This was followed by a two-day loss of about 10 percent in the majorindexes, including a 929-point drop in the Dow, as investors turned their focusonce more to the economy's woes. "There are three factors that are driving this market: psychological,fundamental and technical," Smith said. "The psychological is fear and panic.We've certainly seen that." The fundamental factor is investors don't know exactly how the currentcredit crisis is going to affect the economy. And the technical factor that isplaying in to the market is the forced selling from hedge funds and mutual fundsthat have to raise cash for redemptions, Smith said. Nov. 15 is the cutoff for shareholders to notify fund managers of theirintent to cash out investments before year-end, which means a sudden influx of"sell" orders could force funds into dumping more investments. Analysts expectthis to continue to add to the volatility in the market. The Dow rose 248.02, or 2.85 percent, to 8,943.81. The broader S&P 500 index added 26.11, or 2.89 percent, to 930.99, and theNasdaq composite index rose 38.70, or 2.41 percent, to 1,647.40. The Russell 2000 index of smaller companies rose 9.95, or 2.01 percent, to505.79. Advancing issues outnumbered decliners by more than 2 to 1 on the New YorkStock Exchange, where consolidated volume came to a light 4.80 billion shares,compared with 5.96 billion shares traded Thursday. For the week, the Dow fell 4.1 percent, the S&P 500 index lose 3.9 percent,the Nasdaq slid 4.3 percent and the Russell fell 5.9 percent. Paper losses for the week in U.S. stocks came to $500 billion, according tothe Dow Jones Wilshire 5000 Composite Index, which reflects nearly all stockstraded in America. Despite the gains Friday, investors have not lost sight of the potential fora deep and protracted recession. Obama will inherit an economy marred by ahousing collapse, mounting unemployment, hard-to-get credit and financial marketupheaval when he assumes office early next year. Investors are watching closely for whom Obama selects as the next Treasurysecretary, as well as whom he appoints to key Cabinet positions. Additionally,investors are mindful of how the government's $700 billion financial rescuepackage will be further implemented under a new administration. Obama met Fridaywith economic experts ahead of his press conference to discuss steps aimed atrepairing the economy. To provide fresh relief, House Speaker Nancy Pelosi said Democrats will pushfor another round of economic stimulus later this month. The weak economic data on Friday reflect the freeze in the credit marketsthat began in mid-September following the bankruptcy of investment bank LehmanBrothers Holdings Inc., and the subsequent pullback in spending among fearfulconsumers. This has forced companies to cut jobs, said Michael Sheldon, chiefmarket strategist at RDM Financial Group. "Comments that we're hearing from CEOs when they report their earningsindicate that economic activity fell off the cliff," he said. In other corporate earnings news, Sprint Nextel Corp. reported a loss of$326 million in the third quarter as it continued to lose customers. Thenation's third-largest wireless provided had posted a profit in the year-agoperiod. Sprint dropped 31 cents, or 8.4 percent, to $3.37. Investors fled General Motors following its quarterly reports but Fordadvanced. GM tumbled 44 cents, or 9.2 percent, to $4.36, while Ford rose 4cents, or 2 percent, to $2.02. The dollar fell against most other major currencies, while gold prices rose.Light, sweet crude rose 27 cents to settle at $61.04 a barrel on the New YorkMercantile Exchange after falling sharply during the week. The three-month Treasury bill's yield slipped to 0.28 percent from 0.30percent late Thursday. A lower yield indicates increased demand. The yield onthe benchmark 10-year Treasury note rose to 3.79 percent from 3.69 percent lateThursday. Bank-to-bank lending rates fell again, though, suggesting that banks aremore willing to lend to one another -- a positive signal for the tight creditmarkets. The London interbank offered rate, or Libor, for three-month loans indollars dropped for the 20th straight day by 0.10 percent to 2.29 percent, thelowest level since November 2004. Overseas, Japan's Nikkei index fell 3.55 percent, and Hong Kong's Hang SengIndex rose 3.29 percent. Britain's FTS
Friday, November 07, 2008
8:55 am - FKLI gap down due to DJIA almost 5 pct loss
Trading is difficult leaving market congesting !
Thursday, November 06, 2008
6:14 pm - The Crash of 2008... Education...
The Crash of 2008... Education...
From: Robert Dijkstra (info.robertdijkstra@gmail.com)
Sent: Wed 10/29/08 10:05 AM
To: Robert (info.robertdijkstra@gmail.com)
The Crash of 2008... Education...
By Dr.Alexander Elder
Dear Trader,
We live in extraordinary times. The world stock markets have crashed, and their volatility is unprecedented. Back in the 1970s, when I first entered the markets, the 1,000 level of the Dow was called 'the graveyard in the sky' - any time the market went up to that level, it turned and entered a bear market that would go down 200 or even 300 points within the next year or two. Now the Dow can leap almost a thousand points in a single day, and a 200 point range feels almost like a quiet day.
We have seen severe damage to the price structures of major market indexes worldwide. On some days, as I listen to investors and traders, the feeling of fear is almost palpable. It pays to keep in mind that a savvy trader plans ahead, while a poor beginner jumps in response to emotions - he or she buys amidst the optimism of market tops and dumps shares in fear at market bottoms.
Let us review the current market situation, try to look ahead, and plan for the future. We also must begin thinking about the lessons this crash can teach us. This will take a long time and we will not accomplish everything in a single letter, but there are several points worth discussing today.
To find a parallel to today's state of the world's stock markets and global economy one must go back to 1929 and its aftermath. Those times seem like ancient history to most people, but when I first entered the markets I met guys who traded in 1929 and during the bear market that followed the crash. I eagerly listened to those old-timers and learned from them.
The Crash of 1929 rolled over into a Depression due to two severe mistakes by the Republican administration of that day. First, it focused on defending the US Dollar by jacking up interest rates which dealt a body blow to the real economy. Second, a misguided Congress tried to 'protect American industry' by erecting high tariff walls. It never occurred to those gentlemen to ask how we can expect the world to buy our goods if they cannot make money by selling their goods to us.
The current government is acting quite differently. It reminds me of Sigmund Freud's famous quote: 'the voice of reason is quiet but persistent.' Simply put, I think that the current administration has learned from those old mistakes and is handling the crisis much better. They are pumping money into the markets, supporting the banks, and not allowing the system to seize up. Sure, it feels disgusting that taxpayer money is going into the pockets of those who got us into this mess, but the key point is that trust must be restored so that the system can continue to function. Furthermore, instead of building self-defeating protectionist walls, today there is a remarkable degree of cooperation among finance officials around the globe. We are living through the worst worldwide financial crisis since 1929, but the signs are that we will muddle through a lot better now than our forefathers did back then. We do not expect to see what was a sad norm in the 1930's: a 25% unemployment rate, massive repossessions of busted out farms, and other such Grapes of Wrath stuff.
At the same time, I think we have not yet seen the bottom of this decline. Markets rarely if ever trace out V-bottoms. Individual stocks can do it occasionally, but it would be highly unlikely for the entire stock market to turn on a dime. A violent bottom, like the one we just saw, is likely to be retested a few months later on lower volume. Or rather - we hope it gets retested and then the market reverses, but there is no guarantee that the current lows will hold.
Let us look at a few numbers. The average length of a US bear market is about 18 months. This bear is just one year old, meaning it is reasonable to expect this weakness to last into Spring 2009. And what about the real economy? The stock market tends to lead the economy by about 9 months, although this lead may have shortened a bit, as the pace of life has speeded up. This would seem to indicate another year of continued weakness in the economy. When things get ugly in the economy, interest rates decline further, and almost everyone forgets what a bull market looks like, but that's when the first stage of the new bull market can begin - possibly some time in 2009.
Keep in mind that bear market bottoms present fantastic buying opportunities. Prepare yourself to think of incredible bargains you will be able to scoop up. This is a very important topic that we will be tracking in the months ahead.
And what about the lessons we should learn from this crash? The very first one is that every position deserves what I call 'a catastrophic stop'. An experienced trader may manage a short-term trade with only a mental stop, but every position you plan to hold for any length if time deserves a real stop at a level that one hopes never to see. Two friends of mine bought a stock at $20 that they thought was a bargain, but now it trades at 20 cents. One bailed out at $18, the other still holds it today. At the time he bought he should have asked himself, what level he never expected to see - $15? $12? Whatever it was, that's where he should have put his 'catastrophic stop!'
Most traders have very short memories. They look at recent events and extrapolate them into the future. They feel bullish at the tops and bearish at the bottoms. Long-term successful people possess a knowledge of history and a memory of how things work. They need it in order to do the counter-intuitive thing - sell at the tops and buy near the bottoms.
Make no mistake about it - there are fantastic buying opportunities ahead of us on the horizon. It is our goal to learn to recognize them, time them reasonably well, and have the intestinal fortitude to buy. These are the tasks on which we will be focusing.
PS - one day before this email was to be sent out, a message arrived from one of our clients. I reprint it here, with writer's permission, to show how a serious person takes steps to protect himself in a decline and even to profit in it:
"Dr. Elder,
In the last Bear market, I watched my 401k plummet and didn't know who to believe or trust.
After reading your books, attending your webinars and live seminars I began trading. Not successfully at first, but eventually producing consistent results.
Now, I am trading independently and trusting my own analysis of the chart patterns. This year has been incredible for my trading!
Thank you for sharing your lessons and wisdom. Without it, I certainly would be experiencing the same despair as in 2002.
Kyle Richardson"
From: Robert Dijkstra (info.robertdijkstra@gmail.com)
Sent: Wed 10/29/08 10:05 AM
To: Robert (info.robertdijkstra@gmail.com)
The Crash of 2008... Education...
By Dr.Alexander Elder
Dear Trader,
We live in extraordinary times. The world stock markets have crashed, and their volatility is unprecedented. Back in the 1970s, when I first entered the markets, the 1,000 level of the Dow was called 'the graveyard in the sky' - any time the market went up to that level, it turned and entered a bear market that would go down 200 or even 300 points within the next year or two. Now the Dow can leap almost a thousand points in a single day, and a 200 point range feels almost like a quiet day.
We have seen severe damage to the price structures of major market indexes worldwide. On some days, as I listen to investors and traders, the feeling of fear is almost palpable. It pays to keep in mind that a savvy trader plans ahead, while a poor beginner jumps in response to emotions - he or she buys amidst the optimism of market tops and dumps shares in fear at market bottoms.
Let us review the current market situation, try to look ahead, and plan for the future. We also must begin thinking about the lessons this crash can teach us. This will take a long time and we will not accomplish everything in a single letter, but there are several points worth discussing today.
To find a parallel to today's state of the world's stock markets and global economy one must go back to 1929 and its aftermath. Those times seem like ancient history to most people, but when I first entered the markets I met guys who traded in 1929 and during the bear market that followed the crash. I eagerly listened to those old-timers and learned from them.
The Crash of 1929 rolled over into a Depression due to two severe mistakes by the Republican administration of that day. First, it focused on defending the US Dollar by jacking up interest rates which dealt a body blow to the real economy. Second, a misguided Congress tried to 'protect American industry' by erecting high tariff walls. It never occurred to those gentlemen to ask how we can expect the world to buy our goods if they cannot make money by selling their goods to us.
The current government is acting quite differently. It reminds me of Sigmund Freud's famous quote: 'the voice of reason is quiet but persistent.' Simply put, I think that the current administration has learned from those old mistakes and is handling the crisis much better. They are pumping money into the markets, supporting the banks, and not allowing the system to seize up. Sure, it feels disgusting that taxpayer money is going into the pockets of those who got us into this mess, but the key point is that trust must be restored so that the system can continue to function. Furthermore, instead of building self-defeating protectionist walls, today there is a remarkable degree of cooperation among finance officials around the globe. We are living through the worst worldwide financial crisis since 1929, but the signs are that we will muddle through a lot better now than our forefathers did back then. We do not expect to see what was a sad norm in the 1930's: a 25% unemployment rate, massive repossessions of busted out farms, and other such Grapes of Wrath stuff.
At the same time, I think we have not yet seen the bottom of this decline. Markets rarely if ever trace out V-bottoms. Individual stocks can do it occasionally, but it would be highly unlikely for the entire stock market to turn on a dime. A violent bottom, like the one we just saw, is likely to be retested a few months later on lower volume. Or rather - we hope it gets retested and then the market reverses, but there is no guarantee that the current lows will hold.
Let us look at a few numbers. The average length of a US bear market is about 18 months. This bear is just one year old, meaning it is reasonable to expect this weakness to last into Spring 2009. And what about the real economy? The stock market tends to lead the economy by about 9 months, although this lead may have shortened a bit, as the pace of life has speeded up. This would seem to indicate another year of continued weakness in the economy. When things get ugly in the economy, interest rates decline further, and almost everyone forgets what a bull market looks like, but that's when the first stage of the new bull market can begin - possibly some time in 2009.
Keep in mind that bear market bottoms present fantastic buying opportunities. Prepare yourself to think of incredible bargains you will be able to scoop up. This is a very important topic that we will be tracking in the months ahead.
And what about the lessons we should learn from this crash? The very first one is that every position deserves what I call 'a catastrophic stop'. An experienced trader may manage a short-term trade with only a mental stop, but every position you plan to hold for any length if time deserves a real stop at a level that one hopes never to see. Two friends of mine bought a stock at $20 that they thought was a bargain, but now it trades at 20 cents. One bailed out at $18, the other still holds it today. At the time he bought he should have asked himself, what level he never expected to see - $15? $12? Whatever it was, that's where he should have put his 'catastrophic stop!'
Most traders have very short memories. They look at recent events and extrapolate them into the future. They feel bullish at the tops and bearish at the bottoms. Long-term successful people possess a knowledge of history and a memory of how things work. They need it in order to do the counter-intuitive thing - sell at the tops and buy near the bottoms.
Make no mistake about it - there are fantastic buying opportunities ahead of us on the horizon. It is our goal to learn to recognize them, time them reasonably well, and have the intestinal fortitude to buy. These are the tasks on which we will be focusing.
PS - one day before this email was to be sent out, a message arrived from one of our clients. I reprint it here, with writer's permission, to show how a serious person takes steps to protect himself in a decline and even to profit in it:
"Dr. Elder,
In the last Bear market, I watched my 401k plummet and didn't know who to believe or trust.
After reading your books, attending your webinars and live seminars I began trading. Not successfully at first, but eventually producing consistent results.
Now, I am trading independently and trusting my own analysis of the chart patterns. This year has been incredible for my trading!
Thank you for sharing your lessons and wisdom. Without it, I certainly would be experiencing the same despair as in 2002.
Kyle Richardson"
Wednesday, November 05, 2008
Tuesday, November 04, 2008
Monday, November 03, 2008
12:19 noon - Market Outlook from Bill Wermine
Dear Traders.
A week ago, the rush to find US Dollars to repay hugh USD debt was in full force, along with huge flows into US T Bills and notes. Now the river has entered a lake of liquidity dug by the world's central banks, with the US Fed leading the charge with help from Brazil, Mexico, S Korea and Singapore. The result has been a 10 % gain in many world markets including a 6 % gain in the KLSE.
There is a good chance we are looking at a sentiment extreme and prices for the battered victims of the financial markets.
America has awesome twin deficits that make the USD vulnerable and positive for commodities including CPO.
I ran TAVA MetaStock filter today and found several beaten down KLSE blue chip shares with good volume coming in. Could this be the turn ?
The AUD is also turning and should be positive for commodities and our Man Fund AUD investments.
Daily AUD Futures chart showing support coming in and a 776 pip rally.
A week ago, the rush to find US Dollars to repay hugh USD debt was in full force, along with huge flows into US T Bills and notes. Now the river has entered a lake of liquidity dug by the world's central banks, with the US Fed leading the charge with help from Brazil, Mexico, S Korea and Singapore. The result has been a 10 % gain in many world markets including a 6 % gain in the KLSE.
There is a good chance we are looking at a sentiment extreme and prices for the battered victims of the financial markets.
America has awesome twin deficits that make the USD vulnerable and positive for commodities including CPO.
I ran TAVA MetaStock filter today and found several beaten down KLSE blue chip shares with good volume coming in. Could this be the turn ?
The AUD is also turning and should be positive for commodities and our Man Fund AUD investments.
Daily AUD Futures chart showing support coming in and a 776 pip rally.
WE are holding a 10 point CPE course approved by the Securities Commission on 10 November at the Phillip Training room. We start at 10 AM. The subject will be Price and Volume trading. I and Martin intend to make some trades in the CPO and CI Futures markets to demonstrate the power of volume spread analysis as well as some share trades. Cost of the one day course is RM 198. Seats are very limited. FOC to main course grads.
This is a practical course about making money with a very limited amount of theory. Please call Wai Kiat of Phillip Data service 03 398 9522 or 012 398 9522 if you wish to register as he is the organizer.
Risk is low now because of the fear, panic,doom and gloom sentiments of most players.
Have a good week
Bill
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