Archive through June 22, 2008

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ody

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Post Number: 2537
Registered: 10-2006

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Wednesday, June 18, 2008 - 01:18 pm:

Apologies, please ...

Sorry not to be reacting to ANY post at the moment, or making any comment on anything to do with the market - absolutely snowed under with another matter.

Please don't take this as a lack of interest or any other negative sign. And many thanks to anyone who has been kind enough to enquire whether I am OK - much appreciated!

rdumas

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Post Number: 1473
Registered: 11-2006

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Wednesday, June 18, 2008 - 03:04 pm:

WATCH YOUR HEAD

What a great day if you are invested in the resource and related sectors. We are quickly working up to the descending trend line that has been in operation since the 19th May.

I suspect that we continue our trend down tomorrow assuming that the descending trend line continues its negative influence.

In the meantime the Materials Sector having broken up through its descending trend line is having its affect on our market today.

The Financial Sector (excl. LPTs) however is having severe difficulties breaking up above the previous support level (now resistance level) shown by the orange line.

There is no prises for guessing which sector will drag us down in the short term.

deanrosario

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Post Number: 1432
Registered: 11-2002

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Votes: 0


Wednesday, June 18, 2008 - 03:15 pm:

XJO Options and XJO Futures expire at noon tomorrow and, from my observation, this often produces "unusual movements" in major stocks that comprise the Index on the days leading up to expiration as traders unwind and/or roll over their positions.

Expect large pre-open volumes tomorrow and, already I'm noticing added volatility in the last hour of trading today.

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

mads

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Post Number: 89
Registered: 12-2004

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Wednesday, June 18, 2008 - 04:15 pm:

Dean

OZ Options expire Next Thursday 26th June. Another week of agony yet.

Mads

rdumas

Member

Post Number: 1474
Registered: 11-2006

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Votes: 0


Wednesday, June 18, 2008 - 04:17 pm:

IT IS DIFFERENT THIS TIME

Following is an extract from a letter sent to clients of Brian McAuley, the Chief Investment Officer of Sitka Pacific Capital Management last month. The complete letter can be found at http://www.sitkapacific.com/files/Sitka_Pacific_Capital_Management_May_2008_Letter.pdf

I found it an interesting read.

==============================================================

Another major issue that is and will continue to impact our economy in the coming years is the rise of commodity prices. This is one of the rare times in which we can truthfully say that it has been different this time. As you can see on the chart above, commodity prices have in the past 25 years generally gone up and down with economic growth and short-term interest rates in the US: as our economy slowed, demand for commodities fell and so did prices.

However, over the past year we have seen commodity prices continue higher even while our economy slowed and interest rates fell. It’s important to recognize that this is an entirely different reaction than we have seen over the past two decades.

Over the past year we have talked about some of the long-term drivers behind the rising prices of commodities. The falling US dollar and the return to negative real interest rates as the Fed counters the economic downturn are both influential forces at work. However, the main reason commodities keep rising is quite simple: global demand is rising relative to supply.

The fact is that although demand for commodities in the US has slackened, increasing demand in other parts of the world has more than made up the difference. For example, it is projected that China, India, Russia and the Middle East will for the first time consume more oil that the US this year. Even though the average person in China uses only 20% as much energy as the average American, their collective increase in energy use is dominating the market.

This increasing global demand is the biggest reason why commodity prices have thrown off their past correlations with our economy and taken off on their own track. The there are several billion people around the globe whose living standards are rising and they have begun to enter the “consumption economy.” This is a trend that is still in its early phases, and it is a very different situation from the 1970’s, when money supply growth in the US drove commodity prices higher.

The negative side of this new reality is that prices for things like food and gasoline are continuing to rise even though people here in the US are losing their jobs and seeing their homes lose value. The positive side is that, as investors, we are given the opportunity to invest in specific sectors and markets around the world that will not be affected by the slowdown in our own economy. This is a far better situation to be in than if everything were correlated to our markets and our only option to preserve capital was to sit in money market funds earning less in interest than inflation.

• * *

It’s during times like the last six months when we see how important it is to focus on capital preservation when the market is full of risk. Even with the recent rally, the major stock indexes are still below where they began 2008, and far below where they spent most of last year. And it appears additional declines this year are likely.

There are many reasons to suspect that this bear market could be something different from the average post-war bear market. Last year we talked about the ongoing valuation contraction that has been steadily brining down the P/E ratio of the market since 2001. In the past, the market has always declined to a P/E ratio well below 10 before another major long-term bull market began.

Valuations have come down a long way since 2001, but they still have a long way to go.
Perhaps with the bursting of the housing bubble, our future demographic aging, and the continued rise in commodities we are getting a glimpse of how the market is going to make the final journey to becoming “cheap.” That will be a great time for investors, but only for those who get there in good enough financial shape to take advantage of it.
So far this has been a year of great opportunity and also great loss, and we doing what we can to both preserve and grow your assets in spite of the turmoil various sectors of the economy and markets. If you have any questions about your account or issues raised in this letter, just let us know – we would be happy to hear from you.

Sincerely,

Brian McAuley
Chief Investment Officer
Sitka Pacific Capital Management, LLC

==============================================================

deanrosario

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Post Number: 1433
Registered: 11-2002

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Wednesday, June 18, 2008 - 05:52 pm:

Hi Mads you are absolutely right in saying stock options expire on Thursday 26 June, however, I was actually referring to options on the actual index, which - according to the SFE calendar - should expire tomorrow at noon.

Good luck, regardless!
Dean

rdumas

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Post Number: 1476
Registered: 11-2006

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Thursday, June 19, 2008 - 09:03 am:

MARKET WRAP

As I mentioned yesterday our action on the ASX200 took us to within a whisker of a strong descending trendline which should push our market down today.

Last night the S&P500 closed down 0.97% at 1337.8 after being down as much as 1.26%. It bounced off a level near the orange support line at 1328. As usual, whilst waiting for my software to load the latest data I have drawn last night's action on yesterday's chart.

As can be seen from the chart below, the XJO yesterday closed on the descending trendline. Our market ignored the lead from the US market yesterday but I very much doubt that it will do it again today. My guess is that it will head down towards the orange support line down at 5329 which is 114 points below our close yesterday.

It will be interesting to see just how strong that support line is when our market gets there. A break through that level will take us down to the March low as a next step which is where I personally believe we will end up by the end of the month.

ken

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Post Number: 509
Registered: 04-2003

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Votes: 0


Thursday, June 19, 2008 - 09:10 am:

Dean,

As I write the ASX200 stocks in my watchlist are matching at 30% up from the close yesterday.

Do you expect the market to get back to normal by the close, or will that be affected as well?

Ken

deanrosario

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Post Number: 1434
Registered: 11-2002

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Votes: 0


Thursday, June 19, 2008 - 09:45 am:

Hi Ken

If you are referring to "pre-open volumes & price matching" then you may find really unusual behaviour right up to the opening bell.

Dean

hilarius

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Post Number: 3655
Registered: 04-2004

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Votes: 1


Thursday, June 19, 2008 - 10:40 am:

WEINSTEIN SURVEY

(1) On Page 75 of his book Weinstein asks "What's the trend of the market? If it's negative, you'll want to do very little if any buying, even if you see some stocks breaking out. Your probabilities of success are quite low when the market trend is going against you."

Do you agree with this statement ? What time frame do you look at in deciding whether the market is rising or falling ? If you disagree what is your evidence ?

(2) On the same page Weinstein says "Which few groups look the very best technically" [He ought also to have asked which look worst, in a falling market?]
He goes on to say "The importance of this question can't be over-emphasised since my studies show that two equally bullish charts will perform far differently if one is from a bullish sector while the other breakout is in a bearish group. The favourable chart in the bullish group will often quickly advance 50 to 75 per cent while the equally bullish chart in a bearish group may struggle to a 5 to 10 per cent gain."

Do you agree with this statement ? If you disagree what is your evidence ?

(3) In measuring whether the market or a sector is rising or falling Weinstein says he counts the number of stocks in each Weinstein Stage. On Page 77 of his book he shows a chart where the number of Stage 1 and 2 stocks is rising while the market index was falling. This is shown as preceding a dramatic upturn in the index.

Do you agree with this methodology? If so how do you operate it? If not do you have another way of determining the real market or sector trend ?
Do you agree that underlying signals may give an early indication of an impending market, sector or stock change of direction ?

(4) What is your definition of the best or worst stocks in a given sector ?

(5) Do you confine yourself to the best sectors in a rising market and the worst sectors in a falling market ?

(6) What is your current reading of the market trend and the 2 best and/or the 2 worst sectors ? Charts of best or worst sectors or stocks earn brownie points

Good replies may earn you a fast promotion from Friar to Abbot :-)

With Best Wishes

Still a Confused and Humble Friar

Hilarius

hil

I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

deanrosario

Member

Post Number: 1436
Registered: 11-2002

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Votes: 0


Thursday, June 19, 2008 - 02:00 pm:

After this morning's fall, the XJO has recovered to the 5400ish level.

This level has provided support and then resistance in recent days so:

a) if the XJO can break & stay above 5400 in the next hour we could see a further move up to 5430ish;
however,
b) if the XJO fails at 5400 I can't see anything to stop a swift move back to 5380ish and, if this breaks, a further move to 5350ish.

deanrosario

Member

Post Number: 1437
Registered: 11-2002

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Votes: 0


Friday, June 20, 2008 - 02:22 pm:

XJO is starting to head back towards, what I consider to be, an important level at 5290.

If we don't get a bounce at this level there may be a bit of panic selling that sends the XJO as far as 5250 today as traders who want to avoid sleepless nights and "week-end risk" start minimising their long positions.

However, if we get a bounce at 5290ish I reckon we'll head back 5330 by day's end.

ody

Member

Post Number: 2538
Registered: 10-2006

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Votes: 2


Friday, June 20, 2008 - 06:39 pm:

Joining in again, but ...

IN A DISCOURAGING WAY

I have now finally rid myself of the task which has for so many months prevented me from having a decent look at the market, and which in recent days has made it impossible for me even to keep up in any responsible way at all. I have now begun to look seriously at what appears to be happening, and must admit I see very little, if anything, to cheer me up from an investment viewpoint. It is really amazing, but just about ALL news is negative at the moment, and it is not surprising that the market is in general solidly bearish: it has every reason to be. It's a truly bad, bearish scene, at first sight, and I can actually see little point in investing at all, except, of course, in term deposits or what may be the odd isolated exception.

If, for example, I now turned to the market to find stocks I'd be really keen to buy I think that in general the negatives would in my mind win out against the positives. I am giving serious thought to quitting altogether, and going back to my former position (the one I held earlier this year), viz. that a bear market is not something to invest in. There are two major drawbacks attached to doing so:

1. Phoney hopeful rallies which give one the sense that "the worst is behind us", and which are then followed by significant declines. This is particularly the case if selling in the market results not only from sentiment, but largely from truly negative news, which is the current situation. To put it bluntly: the rally we had before was a typical bear market rally of a superficially bullish nature but in fact a notorious "fools' rally" such as tends to occur in ANY true bear market, like the one that we are well and truly in. And I add here that it is quite frequent for bear markets to witness SEVERAL such rallies, followed inevitably by SEVERAL such declines. Indeed, SOMETHING like such a pattern is exactly what makes a market bearish - it is a distinguishing feature of a PERIOD which is very different from that of a bull market. Usually bear markets do not last as long as a bull market - but it would not be at all surprising, under conditions like the present ones - if we did not see a return to a bull market for any period between one and three (i.e. 1-3) years.

2. Bear markets offer the temptation to "move in" when prices are low at "never to be repeated value levels" etc. The problem with this line of reasoning is (a) that bear markets tend to last far longer (especially serious ones) than most people think, so that in fact prices can stay low for very long, and indeed can continue to go down for quite a lot longer (and more steeply) than most people tend to imagine. I think this scenario is a very strong possibility just now.

Furthermore, not only is buying at such times (like e.g. the present moment) subject to this type of delusion about likely developments in prices, but it also proceeds from the sense that the "unique value" obtainable will automatically be rewarded with sharp reversals upwards. There is a DEGREE of truth in this, but usually much of such hope turns out to be mistaken. Very often even very promising or intrinsically good stocks get so badly affected by bear mar