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Trade the Bollonger Band Squeeze

Archive through May 26, 2010

Chart Forum » Hilarius' Hall Of Fame » Our Daily Bread » Archive through May 26, 2010

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peterloh
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Username: peterloh

Post Number: 3682
Registered: 03-2003

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Friday, May 21, 2010 - 03:21 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody,

It is said "one man's meat is another man's poison". How true it is in the context of what you said about a person's strategy and and to stick to the plan. I find that my trading strategies have changed so much over the years, it just keep on evolving because of changes in the market volatility, personal circumstances and experience in life.

Many years ago, I used to mention, we children were lucky because dad has accumulated some shares over 35 years for us, amongst them are many blue chips. His strategy of "buy and hold" worked well and the values of management of those days were so different from what we have now.A couple of the counters went off the cliff but over the years most did very well as he reinvested the dividends and had lots of bonus issues and rights issues along the way.

I have a close friend who also uses this strategy and he has done very well for himself. It would be a night mare to him if he was to leave the market now in view of Ody and Rudy's warning. The amount he has to pay in capital gain tax if he has to get out of the market would run into millions. He started young with a buy and hold strategy and he has shares like CSL, BHP, and many of the bank shares which he accumulated quite some time ago.

A few years back he came to my office and notice that I was
fiddling with some charts and was attracted to it.He came along for the ride on some of the shares I bought. It worked well in the beginning those days as I mainly used EW and Fibonacci. The problem was, he was so used to buy and hold, that he stayed on long after I sold out, that he had to give back a lot of what he made. Initially, he did better because the trend was still there, but I was not in the true blue, blue chips.I no longer use EW solely as snifter, a good trader at IC convinced me that I would do better to ride a trend.Thus today, I am more on trends and support and resistance levels than anything else. I have to to be mindful that we have a very small capitalised market, so small that the market capitalisation of any one of the twenty shares in DJIAA is bigger than our whole market. I do not do the shorts or cfds because the shares can change directions very quickly, unless we monitor it all the time and be nimble,we can make or lose quite as fast.Hershy rightly said many times, that I am no longer a trader but more an investor. I can no longer move in and out that easily any more, thus my trade are longer term.

A few years back at an IC local meeting, where I met Rudy
I met a guy who had a portfolio of blue chips. He told me, the Oct 21, 1987 caused him to rethink his strategy. Because of that he bought many exploration company shares.As he researched quite well, he did quite well for himself.I used to be adverse to mining shares, in 2008 and 2009, I adopted some of his strategy and bought a fair few mining shares when they were down. I reasoned that these mining company shares in production are even cheaper than the IPOs exploration companies. Towards the end of last year, I also bought a fair few LPT shares because they were very cheap. They haven't performed that well yet, they haven't loss that much in the recent downturn.
As the ozzie $ change direction, our exporters are benefiting. Companies that earned their income overseas will be rewarded.Resource companies will also benefit from a lower ozzie $.Many that missed out last year will have another chance to get on soon.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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peterloh
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Friday, May 21, 2010 - 03:33 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Our market capitalization, especially the "small stocks" are very small and the SP can changed very quick. Most fund managers except the hedge funds bought with a view for the longer term and can wait for their opportunity.
They have the strength to hold on as their cash inflow is consistent, they can add on when the opportunities arise.







-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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rdumas
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Friday, May 21, 2010 - 03:44 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Baysider/Bridog,

Sorry guys, have been away most of the day and not had a chance to follow things. I will be providing a comprehensive explanation of what I think is happening in my week end market wrap on Saturday.

The bottom line is that there are a myriad of possibilities from here about where the market will head. At this stage I would expect the market to head down closer to the 50% retracement level of the March 2009 rally once this bounce completes.

The obvious overhead resistance levels for the XJO are shown in the chart below.



If you look at the chart that I posted earlier today where I labeled wave 1 and 2 of a possible 12345 impulse pattern then the low of today was 79.8% of wave 1. This is close to the 78.6% Fib ratio so is a reasonably valid bounce level.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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bridog
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Friday, May 21, 2010 - 04:20 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Jaded, d'COK crows at dawn and a new ERA begins, ain't it GRR AND!


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ody
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Friday, May 21, 2010 - 04:23 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Peter Loh: different ways of investing

That was a very valuable and interesting post, Peter. Naturally I agree that there is by no means one superior way of succeeding as an investor: I have seen far too many people succeeding in different ways to believe that.

Also, I can imagine that for people with large profits in their portfolios it may be difficult to quit their stocks. It is certainly much easier to sell them if you don't pay tax, as is true for people like Rudy and me. But there are also counter arguments, even for someone who does pay capital gains tax.

Such a person would have to work out just how much capital gains would be paid, and whether or not it would be attractive to accept that amount rather than to lose more by staying put. Personally I remember - and I have mentioned this here before - one instance where my wife and I stayed in an investment for tax reasons and had reason to regret it. This happened around 2000 or a little before. I had suggested to my wife that she buy herself an IT fund. The investment went up astronomically. After it had reached a very high level someone suggested to her that she sell. She would, at that point, have had to pay nearly 50% in tax over the gain (the rules were different then). We decided - at my suggestion, I am afraid to say - that 50% was too much, and that surely she would never lose that much, in a "growth" field, if she kept the investment.

I must confess that I cannot remember the exact figures, but they were roughly of the following nature - and at any rate these figures will convey the point well enough.

Original investment was $70,000. High level at which we were advised to sell: $250,000 (the person suggesting the sale chose the point well). We rejected the proposal. Gain after tax would have been $180,000 : 2 = $90,000.

Actual sum made? The value of the fund slumped, and my wife sold at about the price she had paid. Thus the gain was $0.00 (more or less).

I think this was the worst decision I have ever taken as an investor. While there still was no loss in absolute terms (or none to speak of), there was a HUGE loss inasmuch as I failed to accept a $90,000 gain on a $70,000 investment.

This was certainly one major incident that taught me, as a general rule, that it is in principle best to take a good profit when you are in a position to make it, and not to be guided primarily by tax considerations. At the time that this happened my wife could actually also have used the loss as an off-set against future gains.

At this moment I am not "across" the tax rules any more, as we don't pay tax within our super fund, where we hold most of our capital. But I would think that the principle surely still holds, i.e. that it is wise not to let good gains slip through one's fingers as a result of a wish to avoid paying capital gains tax.


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ody
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Friday, May 21, 2010 - 04:24 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



bridog: excellent wordplay on "cock" and "ERA" (I presume you mean the stock?). AND on the code for two other stocks. Majestic.

Of course, the cock may also crow for a new era of darkness which would be far from grand ... Or indeed "grand" but not in the way desired.

(Message edited by Ody on May 21, 2010)


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ody
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Friday, May 21, 2010 - 05:25 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



I think some readers on ODB will find the following article from The Eureka Report highly instructive. It shows how Australia now looks from outside, and how wrong the people are who claim that the resources tax has not made a difference. And this is a view from London (or rather those attending a conference there) rather than the US ...
---------------------------------------------------------

London pulls up the drawbridge
By Tim Treadgold
May 21, 2010

PORTFOLIO POINT: It was long the primary supplier of finance for Australian mining, but the mooted RSPT has changed all that.


Beware small to medium mining shares for the next six months; they could be a serious wealth hazard because a major traditional supporter has just dropped out of the market, a place called London.

Even in the midst of an Asia-Pacific boom, London has retained its century-old role as a primary supplier of mining finance to Australian mining stocks. But all that might have come to an end because for the next three to six months, as the painful collapse of the grand European monetary and political experiment dominates the headlines, Australia will be forgotten – its nation status relegated to that of a faraway place with strange and exotic tax liabilities.

While that’s the bad news for miners with Australian operations, even with a substantial amount of the tax-discount already appearing to be in share prices, not everyone in the mining world dislikes our proposed resources super-profits tax, as Eureka Report discovered at an investment conference in London on Wednesday.

Small miners with assets in Europe and Africa are delighted by the development, and are using future Australian tax rates as a marketing tool. Speaker-after-speaker listed tax rates in the countries in which they operate as a reason to invest in their companies rather than in Australian companies.

They are usually small players in the mining business, but being able to point to a future tax rate half that likely to apply in Australia was well received by London-based investors. The message was also supported by investment bankers in the audience, who said the threat of a super-tax on profits was already causing capital to be allocated away from Australia.

Losing London as a supporter will weigh heavily on all Australian mining companies. Although big investment funds are unlikely to quit top stocks such as BHP Billiton and Rio Tinto, they have plenty of choice among medium and smaller stocks, especially in gold and base metals such as copper and zinc.

Ian Stalker, chief executive of Berkeley Resources, which has dual listings in Australia and London and its major assets in Spain, pointed to his expected European corporate tax rate of 30% versus a possible 57% in Australia.



David Nel, chief executive of London-listed but South African-focused coal miner Strategic Natural Resources, drew a similar comparison; while Nigel Forrester, chief executive of Australian-listed Mt Burgess Mining, which has its major assets in Botswana, said his future tax rate would be 25%.

According to Forrester, the tax gap is so large that for the first time in several years he has been receiving calls from other Australian exploration companies looking for ways to diversify out of Australia into Africa.

That claim was supported by a question from the audience of about 150 investors and analysts at the conference: was Forrester aware of “two delegations from Australia currently in Botswana looking to shift capital out of Australia”. Yes, he was, and he expected the level of inquiry to grow as the tax gap made Australia less attractive.

On the sidelines of the conference, views were put more forcefully. Laurie Beevers, a stockbroker with decades of experience in the Australian market through the firm WH Ireland, said there was no doubt clients were shifting their risk capital to other locations, such as South America or Canada.

David Hutchins, a seasoned London fund manager and investment banker, said the worst aspect of the new tax was the lack of consultation with the industry before changing the conditions under which mining companies operate. “Not talking to the miners was one of the stupidest things I have seen,” he said. “It will make raising capital for Australian projects extremely difficult.”

Sam Spring, of the investment bank OceanEquities, said the new tax had effectively made Australian mining shares a no-go area for the next six months. “The general view from the financial community here is that no one will be looking at the Australian natural resources sector until the uncertainty relating to the proposed tax is resolved,” he said.

“Basically, that means the sector is dead for the next six months. Not only has this changed the market’s view of natural resources but it has changed the sovereign risk profile for other sectors (of the market) as well. While the proposed tax changes certainly cannot be blamed for the major correction in the Australian equity market and the dollar, I think it has been a significant contributing factor to accelerate reducing exposure to Australia.”

Beevers said the preferred destination for risk capital earmarked for the resources sector from European investors was likely to be South America, or other equally attractive areas with low tax regimes and governments which encouraged exploration and mining.



Hutchins said the initial reaction of the London market had been one of shock, but that was now switching to disbelief because the damage being done to Australia’s reputation was so great that some people believed the new tax would be severely watered down.

“If there aren’t changes then it will be virtually impossible for Australian mining companies to raise capital overseas, and Australian investors will be looking for shift their funds into companies working overseas,” Hutchins said.

Over lunch after the formal presentations, the same message was being played on an endless loop. Australia is off the investment agenda until the tax debate is resolved, and if the proposed super-tax is retained in its current form the country could remain off the agenda for much longer.

Not everyone is as gloomy as those at the conference where Australia bashing was a favourite topic. A moderating voice was that of Bob Catto, investment director with the broking firm, Williams de Broe. Catto says he is on the sidelines for now but reckons Australia will work through its tax problems.

“You have scored a bit of an own goal with this tax proposal, but it really is so bad that I believe it will have to be fixed,” Catto said, (for more on this, see Strategies to beat the bear). “You’ll spend a time in the sin bin but Australia and Canada are perfectly positioned to supply raw materials into the global economy, especially the US and the Asia-Pacific.”

A career-long gold bug, Catto sees gold continuing its upward march, perhaps pausing for breath along the way (for more on this, see Why gold is booming). “In the long run we have very serious problems in Europe. A lot of people are losing faith in the euro, and that can only be good for gold. Once you get your tax issues sorted out, and there will have to be a sensible compromise, then Australia will resume its position as major beneficiary of the rapid growth we’re seeing in China and India.”

In summary, Catto is a voice of reason. But his logical assessment will take time to percolate up into the debate. For that reason, London is staying on the sidelines. It will return, when a more palatable tax regime is negotiated, or when prices fall low enough; or both.


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eblode
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Friday, May 21, 2010 - 05:57 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy,
If ever I needed a drink of your good whiskey it was this week.

Eugenio


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ody
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Friday, May 21, 2010 - 06:20 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Big sell-off on market today

There are times when just looking at e.g. the XAO graph does not actually tell one very much. Today, for example, the market seemed to stage a significant recovery in the afternoon.

Yet it was not a good day at all. Volume was very big, at 3,785,522,714. Down volume was a large 1,883,344,441, and up volume no more than 1,020,908,104. This discrepancy is distinctly bearish, showing a large outflow compared with the afternoon's inflow (that is how it happened: the sellers went for the exit in the morning, and were followed by the buyers in the afternoon).

Another quite distinct and exceptional sign of a falling market is that a mere 5 stocks reached a new high, but as many as 175 a new low.

Clearly the market (as happened to the dollar) was bought at what seemed to some bulls a low level, but the strength behind the buying is not nearly enough to avert a further decline. In the overall scheme of things this is likely to be a dead-cat bounce. That would remain so even if overseas markets (Europe and the US, notably) also show some "bargain hunting".

I do not wish to suggest that no profits at all could be made by going long, but one would have to be very careful and expect little. It is not likely to pay many people much. Yet, as I suggested yesterday, shorting also has its problems unless one gets one's timing very much right.

As always, there will be ups and downs, but the overall trend is typically that of a bear market.


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ken
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Friday, May 21, 2010 - 06:39 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody,

Those new lows were the bottom price of many shares that subsequently went back up. I bought Westpac and got 3.8% out of it, and also made money on JB HiFi, bought because it is well below intrinsic value according to Roger Montgomery.

One of my systems triggered today and I bought 7 stocks at the close - AQR,ARM,GNS,JPR,KZL,MAK,MDS.

I also covered my bases by putting in a couple of short CFD's on the index in case they go down. Her's hoping - you have to follow your systems.


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ody
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Saturday, May 22, 2010 - 12:54 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ken, - Congrats. It has always seemed to me that you are exceptionally well organised and disciplined to take advantage of an opportunity like this quickly and with excellent timing. Those qualities are really required, and for those who are not so well set up I would think the situation is harder, not least because today the turnaround did create some fast profits, and possibly someone waiting just a bit too long or choosing the wrong stocks would easily get "derailed" again if/when the market turns down. I think you are quite right to say that it is necessary to be highly systematic in these situations.


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baysider
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Saturday, May 22, 2010 - 02:35 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Rudy

Thanks for todays wrap. Two questions for you if possible:
The first is could Friday have been the start of the new multi month rally - a little earlier than you expected?
The second is at what level would this theory most likely be confirmed - a convincing rise above 4500?

I'm expecting 4500 to be very hard to cross as it was such strong support. Maybe a good place to put a short on the index?

Thanks


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rdumas
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Saturday, May 22, 2010 - 03:19 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Baysider,

Timing is always difficult to get accurate as you would have noticed with my timing in the past. Sometimes it's spot on and other times it can be even weeks out. I have a number of methodologies that have June as the most likely time for a significant turn date which is why I am sticking to that period at this time. Mind you perhaps that will be a top rather than a bottom but I don't think so.

I agree with you about that level being a strong overhead resistance.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Saturday, May 22, 2010 - 03:33 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Eugenio,

Knowing what a small drinker you are I'm sure you still had enough in the bottle to satisfy your mild discomfort last week.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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pjf000
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Friday, May 21, 2010 - 11:27 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Bulls & Bears, then Pigs, now Hawks and Doves (read: Korean Peninsula, Middle east, etc).
Best hedge is a ticket on board Noah's Ark!


Markets can remain irrational longer than you can remain solvent

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ody
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Sunday, May 23, 2010 - 02:38 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Resource super-profits tax plan a complete nonsense

* Terry McCrann
* From: The Australian
* May 22, 2010 12:00AM

TREASURY Secretary Ken Henry last week provided an elegant, utterly irrefutable theoretical explanation and justification of his -- I'm sorry, the government's -- resource super-profits tax. It was also complete nonsense.

It came in the context of his now regular post-budget speech. Quite what 10 pages of detailed, dense, explanation of the super-profits tax had to do with "Fiscal policy and the current environment" was one point of interest.

Sure, at a very long stretch you can claim that any specific fiscal initiative can be shoehorned into a discussion of fiscal policy. Even Henry, though, could barely stretch that far.

After posing his own rhetorical question: where did the super-profits tax fit in his big picture, he answered by claiming it would raise more revenue while still attracting more investment.

But, as he then immediately stated, that's tax reform. Hardly fiscal policy, as we have come to know it since "go hard, go early, go households".

The nub of his explanation-justification was the way the tax worked to split a resources investment into two assets. First, the 60 per cent share in a risky resource project. With the tax making the government effectively a 40 per cent partner, as it takes that percentage of the upside but also, crudely, refunds that share of the downside.

Second, a risk-free asset in the form of a tax credit, with a government-guaranteed present value of 40 per cent of the initial investment.

Those terms risky and risk-free are not pejorative but merely analytically descriptive, and they go to the heart of Henry's explanation.

Specifically, why the super-profits tax differs from the existing petroleum resources rent tax, and why the threshold has to be set at the long-term bond rate (the risk-free rate of return).

Again simply, if you applied a higher rate of return on this second risk-free asset, the business would want to keep it as long as possible. That is, it would delay as long as possible producing anything. The explanation is internally consistent and, as I say, theoretically elegant. But it is completely disconnected from the real world and in every business and financial context, complete nonsense.

Only somebody sitting in an ivory tower in Canberra who has never made a major investment decision risking both shareholder and borrowed money could believe it had any practical validity.

Under Henry's construction, BHP Billiton would look at a resources project as two investments. The normal investment -- the 60 per cent of the project which it made, and on which it would keep whatever it earned (subject only to normal company tax), whether that was 5 per cent on money invested or 50 per cent. Then there would be the rest of its investment, on which it had a government-guaranteed return at the bond rate.

Does anyone, on Henry's own arithmetic, beyond a radius of say 10km from Lake Burley Griffin believe that either BHP or the providers of capital -- its shareholders or its lenders -- want BHP to invest 40 per cent of its money in long-term government bonds? Because that is exactly what Henry so elegantly and so fatuously proposes. You spend $2 billion developing a new mine and only $1.2bn of that is actually at risk of the high returns you hope from it.

The other $800 million is compulsorily invested in the long-term bond. Yes it's (sort of) riskless. So in theory the blended risk-return ratio of the two assets should make no difference to the appeal of the project's financing -- undoubtedly in Henry's perspective it would make it more attractive.

And it utterly misses the dynamics of resources investment decision-making. Nobody invests with the expectation of losing money, nobody invests with the hope of getting a guaranteed long-term bond rate return, everybody understands that resources investment is extremely volatile.

So when shareholders and banks provide $2bn to BHP for a project, they expect -- hope -- it will generate a super-profit, knowing only too well that it could end up barely washing its face, or not even achieving that. They want all $2bn to be at risk. They do not seek to invest in long-term bonds via BHP.

There's a clinical sterility to Henry's explanation. It's as if you can make investment decisions in the resources industry with the same analytical surety as you feed data into Treasury models of the Australian economy.

It is also clearly founded on the assumption of a long-term -- Club of Rome-flavoured -- secular upward trend in commodity prices. Thanks to China and India, demand is ever rising, while supply is limited. There's only so much copper, etc. We must surely run out.

This is a merging of Henry's green tendencies with his intellectual faith in the purity and reliability of econometric modelling -- a blend most dramatically on view in the ludicrous Treasury modelling of the emissions trading scheme.

Henry implicitly rejects the view that non-fuel commodity prices are necessarily on a long-term secular down-trend -- as revealed in graphs of aluminium and copper prices through the 20th century. "Observed trends are sensitive to the commodity selected and the choice of time period," he notes. So a chart of the copper price over a shorter period, between 1930 and 1970, showed the price "trended quite sharply upward".

What he didn't do was reproduce the shorter time period graph for aluminium. I don't know why. It would have shown the exact opposite of the copper graph -- the aluminium price on a long and short down trend.

There is more to this than selective charting. The anti-Club-of-Rome perspective -- reality -- of mineral supply and demand is not compatible with the logic of the super-profits tax. There is no alternative to developing our resources, even if the government takes 40 per cent more of the profits.

More exquisite was the graph with which he started his presentation. Taken from the budget, it showed the difference between Treasury's GDP forecasts and projections in last year's budget, and the ones in this year's document.

What a very big difference a year makes. Henry is completely unable to see how Treasury's failure, and the failure of its models, to get even close to predicting the present.


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cat_lady
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hi ody

i read that article three times and am none the wiser as to the implications - probably my non economic background ! however, there's one bit which leapt out and should be framed for everybody to read and that's the last paragraph:

QUOTE:
More exquisite was the graph with which he started his presentation. Taken from the budget, it showed the difference between Treasury's GDP forecasts and projections in last year's budget, and the ones in this year's document.

What a very big difference a year makes. Henry is completely unable to see how Treasury's failure, and the failure of its models, to get even close to predicting the present.

END QUOTE

and that's the scariest bit of the whole thing.

cat lady


Without my morning coffee I might as well be a dog

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rdumas
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Hi Baysider,

Just to update you on your earlier question about whether this may be the June bounce coming earlier. As you know I believe that the bounce that we have seen the start of will fail in a few days and then we should see a new low around the 50% retrace level of the March 2009 rally. Andrew, one of the other musketeers has a slightly different view. He believes that we may not go lower and than we have already been. In EW terms if the bounce failed and started to go down again but did not make the previous low the it would be called a 'truncated 5th wave'.

I certainly don't have a problem with this view as the moves down so far have been very strong and could constitute a blowoff in the downward direction.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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baysider
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Thanks for the update Rudy. I'm heavily thinking of a spell on the sideline for the moment - it's all too volatile to call one way or the other. Basically anything could happen!
MM I assume you're still bearish and I think I can safely assume Ody is as nothing has really changed this weekend. Whilst a bounce for a few days seems inevitable Australia also now seems to be an unwanted place for foreign money so it will be interesting to see if early rallies get sold off in the afternoon as positions are sent to the exit door and cash repatriated to the US.


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ody
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Baysider ... I think you are right in your general reluctance to go back in because, as you say, the uncertainties are really quite major. One would, in playing this market, have to do it, I believe, in the way that Ken does, who seems to have sorted out extremely well what he should be doing to aim in a balanced way for just enough of a gain, and often and cautiously enough, not to get burned. I think your style, though you are very quick on your feet and have excellent intellectual capability, is less rigorous than Ken's and under circumstances like these that could prove a liability. I know you won't interpret this as personal criticism. It isn't, but it is just to observe - I hope correctly - that certain periods in the market are more suitable for some investors than others. You'd get many things right, even in this situation, but as you are not as systematic as Ken, you might just see the market, or an individual stock, turn against you with peculiar force.

As for the general reasons for staying aside, it is not just what is negative that I would argue to be important, but also that there aren't sufficient positives that would for any real length of time outweigh the negatives that are sure to prey further on people's minds. Quantitatively, I think there is in essence far more fear about now than there was while the market went up to its peak (as for the time being I think it will be); and confidence seems much reduced, though not gone (it would be unwise to underrate the bullishness still left). The very UNCERTAINTY of matters, in both directions, will to my mind make it very difficult for the market really to go up.

At some point it might well happen of course - in a variety of ways. We'd probably have to see yet more of a decline, so that a larger number of people might find the prices hard to resist. Also, some "fear factors" would have to be removed: mainly stability - of whatever kind - would have to be established in the case of Europe and that of the resources tax. So long as both of these difficulties continue to worry people and are not viewed as "solved", sentiment for many will not really be repaired. And BOTH matters need settling, I firmly believe, as even if one of them continued to be uncertain and alarming, markets would not really gain confidence and traction. Not in Australia, anyway.

In a changed market - which is what we are seeing - many matters that people are able to brush aside in a bull market come to look far more worrying to them. These are days when I think people realise that there is such a thing as a real economy, and that there are real problems, and they are not happy. I say this while nevertheless allowing for one or more dead cat bounces (as distinct from a "conviction" rally).


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ody
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Support for Rudd's new tax clearly weakening

[Note: I have twice eliminated, and used substitutes - in square brackets - for the word "hit", which the censor system on IC will not let through.]

Increasingly the government is standing all alone, together with some of the more aggressive unions, in its fight for the Resources "Super Profits" tax. And indeed, there are signs that the government itself is beginning to understand that its position is untenable and that the tax needs to be modified. If it does not do that, it will not win the battle which it so foolishly embarked on. At least two significant modifications are now being considered. The government is beginning to understand that its supposed 40% compensation for losses in exploration will not work in that it won't help businesses that cannot "make it" anyway (particularly if they cannot obtain funding) and is an absurd impost on the ordinary Australians which the tax is meant to help. Secondly, there is an emerging understanding of the fact that exempting the equivalent of a 6% bond rate from the tax is not sufficient, with a higher level (another 5 or 10% margin) before the tax kicks in now being considered. Eugenio may be right after all: a tax as amateurish and damaging as this government hoped to introduce eventually cannot really win over the country.

Importantly, the Fairfax press is now at last also becoming more and more critical, as is evident from material it has recently been publishing, even if not written by Fairfax staff. The Murdoch press has been far ahead in its understanding of the issues, but Fairfax is now changing course so as not to look ludicrous as the weight of opinion is shifting away from Rudd and Swan and even beginning to cause unrest in Labor ranks.

Meanwhile the following gives a good idea of the damage caused and should disabuse those who sincerely but incorrectly believe that this tax has not harmed both our share markets and our dollar. The facts are unequivocal. That will be another reason why the government will not be able to get its plan through without severe modification.

One of the government's main faults, now and in the past, is that it has far too much relied on Ken Henry, whose incompetence is becoming more obvious to more people every day. It is imperative that Labor dissociates itself properly from the out-of-touch, impractical and ideology-driven thinking of this bureaucrat for it to win any credibility.
-------------------------------------------
High price paid for resource tax's poor implementation
NEALE MUSTON
May 24, 2010

The idea of taxing the mining sector, especially one which has substantial foreign ownership, as it profits from non-renewable Australian resources seems a logical and just cause.

Unfortunately the government has fallen foul of ill-timed and poorly executed implementation, and that has cost all Australians far more than this tax will recoup for several years to come.

Much has been debated in the media about the Rudd government's resource super profits tax and yet there is still considerable confusion and misunderstanding about its definition, accounting standards and robustness when boom times pass.

The government's media release on the tax congratulates its own work as ''world class'', but the way in which the proposal has been delivered to the world has been particularly amateurish and global markets have responded with a swift and punitive judgment.

Total market capitalisation of Australia's 500 largest listed companies is $1.3 trillion. During May the All Ordinaries index slumped 10.4 per cent. In comparison, the Dow Jones lost 7.4 per cent, New Zealand's NZX50 7.1 per cent and the index for European Monetary Union stocks 8.6 per cent.

Australia's mining sector was [battered] even harder: Rio Tinto is down more than 14 per cent.

Furthermore, our dollar has suffered worse than the battered euro, notwithstanding protests, strikes, double-digit budget deficits and even claims of possible sovereign debt default in Europe.

Notwithstanding Rudd's rejection of such claims, there is little doubt the underperformance of Australian equities and currency this month is a direct result of the tax's implementation.

Word on the street from fund managers and foreign investors is that the lack of clarity and warning has resulted in investment allocations away from Australian equities, which subsequently also entails liquidation of the dollar.

Odd when one considers the enviable state of the Australian economy and the dollar-supportive interest rate structure.

The government needs to understand that while its intention to direct wealth back into the hands of all Australians is indeed noble (even though many will see it merely as a method to plug the budget deficit), its poor execution has caused proportionately more loss than it could hope to gain.

Just 1 per cent of market underperformance is equivalent to about $15 billion being wiped off the value of shares, which [harms] super funds and small investors.

You be the judge as to what the damage bill is running at.

While few people would argue with the ideology of a resource super profits tax, a period of further consultation with industry would pave the way for better communications, which invariably soothes the financial markets.

As we have seen, to ignore how markets will respond to new measures is arrogant and costly.

The government had been sitting on the Henry tax review report for many months yet popped out its response just in time to help boost the revenue side of the budget.

This comes following other poorly thought-out and wasteful schemes such as the home insulation and school hall initiatives.

There are several benefits to companies in the resource tax, yet their virtues have been overlooked by the negative headlines.

Opportunities have been lost in this process. Just as the GST replaced a myriad of dated wholesale taxes, the resource tax could have been used to abolish unfair state royalties and centralise resource taxation for the benefit of all Australians.

Why should the rich mineral reserves of one state benefit those inhabitants more than other Australians as that state government collects numerically higher rent taxes and ploughs these back into the local economy?

This, of course, would have led to another battle with the states, something the government probably chose to avoid after the recent health funding war with the premiers.

Malcolm Turnbull has reversed his decision to retire from federal politics and if the Abbott opposition is serious about rolling the government at the next election it would be wise to make use of some of Turnbull's considerable financial markets experience when formulating policy. The government lacks any equivalent experience.

The financial markets are being attacked by politicians globally and most people would agree that reform throughout is warranted. Yet they should not ignore or dismiss the importance of considering the response of global markets when implementing government policy.

Australia has weathered the global financial crisis largely due to the strength of Australia's mineral export performance (which, in turn, is tied in no small part to China's performance).

It would seem only fair to have offered a more widespread forum for something that will have a lasting impact for all Australians, not just the mining industry.

Neale Muston is the former managing director of fixed income at Morgan Stanley Australia. He runs a global markets trading business in Sydney.


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jaded
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ody,
it's not the word 'hit' that is barred but the use of the letter s at the end of the preceeding word,followed by hit.

so 'has struck ie hit' gets the censor programme 'agitated' to bar four letter words with a space between it.Very Nanny State,hey?

regards


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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baysider
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Monday, May 24, 2010 - 10:43 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Didn't take long for the sell off to start!
From +1% to 0.1% in 30 minutes.

No offense taken at all Ody, I agree with your summation of the market and whilst i don't know Ken he certainly seems well organised with his system. I do have a mechanical system available to me however i have lost some trust in it during this difficult market and have NOT traded it according to plan. I need some time out and I also have some new business ideas to develop that Eugenio has inspired me with which really needs my concentration. I hope to be able to tell you more about them when they're ready for market as it's a retail proposition Ody, your favourite!


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eblode
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Monday, May 24, 2010 - 11:07 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody,

You can see from Baysiders remarks that I'm not just a pretty face. lol,lol.

Eugenio


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ody
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Jaded: [s] h-t - how brilliant you are. This indeed explains what seemed to me inexplicable. Nanny state indeed, and a b-y (dare not spell that out) nuisance, as so many commentators tell you that something "was h-t by ...", etc. I had never realised that it was't "hit" by itself that causes the problem. How naive of me ...

Baysider: fascinating post. It is very interesting that you were actually using a system but had become disenchanted. I did not mean to suggest that without it you are certain to face a disaster, but that - as I know because I don't use any real system myself - it becomes very difficult to move in a market like this as too much comes to depend on ad hoc human judgement, instead of something that will produce more predictable results. Will be keen to learn more about the business proposition. You are right, I do in principle love retail businesses and tend to do well with them. But in this market ... everything seems to indicate that much retail buying has gone very "quiet". However, this does not apply universally. Will watch this space!

Eugenio: more and more intrigued by both you and Baysider in what you both seem to be referring to. I KNOW (don't tell me anything else, for I have seen you after all!) that you are BOTH a pretty face and a very experienced business man. Next time I am in Melbourne I am planning to try and meet both you and Baysider! I don't mean I want to be in on what both of you seem to be hatching, but just for the enjoyment of the contact.

(Message edited by Ody on May 24, 2010)


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eblode
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Ody,

Looking forward to it!

Eugenio


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ody
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Interesting behaviour on ASX 200 (XJO)

Later addition: if we look, as we should, at today's market in conjunction with what it did on Friday, then all in all we clearly seem to be seeing an upward retracement. And that is the more pronounced because on Friday the market went VERY low, so that an upward impulse is not in the least surprising.

Earlier material:
It currently seems that (as often with round numbers) some sort of "bottom marker" is provided by 4300. Interesting variations created (some sort of "struggle") by opposing bearish and bullish forces. Some bearish selling off alternating with bullish buying which (on a bearish move) led to a low of almost 4300, then strong buying pushing the market up in almost a straight line. The question now will nevertheless be how this will continue. It looks to me at present as though that bullish buying may be quite strong, but I would not count the bears out either. Often the time when things get really interesting is after lunch. However, a bullish rise from what is perceived to be a low level may well carry the day. We see exactly such expressions of uncertainty, or of opposing impulses, as we have been talking about. The general prognosis before this morning was that the market would go up, and that may well be the end result for today. If not, that will be very interesting indeed. Much more so than behaviour-according-to-pattern.

(Message edited by Ody on May 24, 2010)


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ody
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Monday, May 24, 2010 - 12:34 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Further breakdown:

Currently advancers are clearly outpacing decliners. Up volume is clearly ahead of down volume. Sectors: the all-important financials and materials sectors are performing strongly. There is no doubt that some eager buying of a bullish kind is occurring, with more confidence manifest than we have generally seen of late.

Interestingly there is only ONE new high for stocks, today, but 49 new lows, which suggests (lingeringly, perhaps) that all is not well. Even so, the strength in BOTH materials AND resources suggests some real buying appetite in these main sectors. But then, they had also been really savaged, so the interest in these sectors is not surprising.


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jaded
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Ody,just for the sake of chatter on the topic of 'naughty' words.

There's this TV Western Series called DeadWood.Set in a wide open Mining Town in America in the 19th Century.
They tried to make it completely realistic in the sets and characters etc BUT when they researched the Language of Miners at that time,it was found they used Blasphemy rather than scatalogical.Were disrespectful of God more than bodily functions perhaps performed by your Mother.

Anyhow,the writers didn't think Blasphemy would 'go over' with the modern audience as illustrating how rough'n'ready the characters were so they substituted every modern swear word instead as dialogue.This is a 10hour series,at least Ody and every sentence has foul language in it.Sometimes that's All the dialogue!!

Now it's a very good series especially if you're into historic westerns BUT the use of c,f,mf,s words detracts IMO and I also think that Real 19th Century cussing on the US Frontier would have brought those Yankee Moral Majority/Tea Party followers of that Palin dill right out on to this production,whereas the scat didn't.

It's blooming,bleeding interesting,hey ody?The ways of censorship.


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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peterloh
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Monday, May 24, 2010 - 12:55 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody,

The current state of the market is the play out of a game between speculator and investors. Speculators do not care whether they are benefiting from shorting the market or buying for a short term gain. They are merely speculating.

The investors are for the long term what ever vehicles they have elected to use, whether through superannuation funds, management investments or some other means such as managed account etc. It is in their interest that the investments selected go up and many continuously have an influx of money to invest for more.They are more concern that the shares they have selected are up to scratch. Though concern with the market in general,dips or corrections are opportunities for them to buy in.Many have 3 years time frame or longer, so although they have this short term discomfort, their weight of buying can change the the direction if they want to, at least temporarily.Thus we have "window dressing" near end of the month, quarter or half yearly or yearly.Longer term the intrinsic value of the share will stand. Short term, we always have over bought or oversold.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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rdumas
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Monday, May 24, 2010 - 01:18 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



XJO Price Action

Hi Folks,

Don't have much time but for those interested in EW I'll share with you some thoughts that I sent the other musketeers earlier this morning.

Firstly for the short term I see 2 scenarios. The first one is labelled as a 12345 impulse wave down from the top of the 15th April. On the same chart I have also labelled an alternate count of an ABC corrective pattern down from the top.



The red labelled impulse wave scenario is currently forming wave 4. It becomes invalidated if the market moves up to above 4427.3 because it would then be intruding into the price range of wave 1. I must admit that if it were extending (ie, forming a 1, 2 and 1, 2 pattern) then it would remain valid but let's not complicate things at this stage.

In the alternate corrective ABC pattern we have completed waves A and B and are in the midst of forming wave C with it's own subwaves a, b and c.

In the corrective ABC pattern the market could go above the 4427.3 level and in fact I suspect that is exactly what will happen. In this scenario the XJO is forming subwave b of larger wave C at this stage.

The following 5 minute chart which I sent out around 11am shows a wave equality scenario where the likely target would reach 4468. Sorry about yet another set of abc waves (labelled waves abc) but the one in the chart below is the 3 wave pattern that is in the middle of forming subwave b of larger wave C shown in the previous chart/diagram.




For those of you who are totally confused by the above EW stuff, what I am basically saying is that I expect a short duration rally which will probably last from 4 to 7 trading days but then we will get another leg down which will more than likely take out the current low of this pattern at 4175.7.

As I mentioned in my update to Baysider some of the musketeers believe that my expected bounce in June may have already occurred but I still stick to my original view about that at this stage.

At this stage I still believe that the entire correction will bottom out sometime in early to mid June and then we will enter a rally stage which will last for many weeks.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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market_mad
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Hi Rudy/Baysider,

Yes Baysider I'm still bearish and am targeting this current rally to get us to the 4450 area which incidentally is aroundabouts where Rudy sees it too. I then expect last weeks low to be taken out and for us to see 4000 - it gets ugly if that level doesnt hold and we'll see 3600.

Personally, I'm not buying into this for a possible 100 point rise or so on our market. I'll be looking to short around 4450 with stops placed at 4625 (if we go above there then I believe that the bottom is already in).

Cheers
MM


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peterloh
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Monday, May 24, 2010 - 02:21 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy,

The scenario you suggested is likely, as it also marks the closer to the end of the month this week. I am not surprise if we have an upweek.June is not that good a month for shares as it is the end of the financial year and it is this month that most of the tax loss selling occurs to off set for the year capital gain. I look forward to a second half of the year for recovery though. Hopefully Europe will untangle itself gradually and US continues to recover.By then I hope China will relax a bit with its credit policy.

Ody,
I have travelled to China several times in the last few years. Being an investor I am always interested in understanding how local investors think or what stimulate a local economy.Although I have mainly visited the southern states, I was told the thinking was similar for investors in the northern states too. In general, still many believed in residential real estates. Many bought for the longer term and do not bother about the yield. Thus we see many of the apartments are still empty , not being aware whether they have been sold. Many I understand have been bought off the plan.

In the Hainan Island, many of the apartments were bought by northerners who bought them to escape the cold and only likely to stay in the bought apartments a few weeks in a year.Hainan Island is the "Hawaii" of China. The Chinese as a whole save a lot more from what they earned. Many just accumulated enough so that they can buy a property for their child.They have not learned to travel yet and in general are frugal.They do not bother about yield as we do in australia. A similar story is, Japanese ,mainly save with the post offices where the interests are very low or negligible. They only trust the post offices.They, as a general rule, have not invested but mainly saved.

China is undergoing a structural change where many new cities will have to be build as many still live in primitive sorrounding.Many will emigrate to the cities still to fill up the empty apartments as soon as demand increases from their overseas customers. Factories will need labour to do the work.
I think the Australian government and our economists also anticipate that China will take a long time to compete their development programme as Japan took almost 30 years to complete their industrialization program. China being a larger country and with a bigger population will at least take the same time or longer to catch up.

Our reputation as a place to invest has been trashed by the RSPT. Untill it is reversed or watered down, it will take some time for our equity market to recover to what it was previously.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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rdumas
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Monday, May 24, 2010 - 02:39 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Peter,

In the last 2 trading days China has recovered about 7.4% after having dropped 28.4% from its high on the 4th August 2009. As can be seen it has broken up through a number of descending overhead trend lines in the process.

Looking at the chart it may find it a bit heavy going up to 2720 with quite heavy overhead resistance immediately above it at this time.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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peterloh
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The proposed RSPT is not legislated nor will it ever get near to that judging by response from the public and comments in the media. It is more the uncertainty or the threat of it being introduced which is causing the problem.

As it is part of the government's budget that they are dependent on the RSPT to raise the funds, I do not know how they propose to calm the market.THe US government has long recognised that the equity market is an integral part in the well being of the country as the nation's wealth is partly a reflection of it.I hope that in future the government will have this mind before they seek to introduce any new taxes or surprises that any big changes will either attract or drive investors away which the country needs.


-------------------------------------------------
Disclaimer: Please note that comments made in this column is mainly for the interpretation of charts in technical analysis. It is not made in my professional capacity and should not be taken as advice.In my professional capacity I am only allowed to give advice on certain managed funds authorised by my license dealer.Any share discuss is for general interest and should not be relied on to make an investment decision.It is likely that I may own the shares that we discussed as a trade or as an investment. Please consult your stock broker or financial adviser in regard to your personal situation.

The views expressed here contain information derived from public available sources that has not been independently verified.No representation or warranty is made as to the accuracy, completeness or reliability of the information.Any forward looking information in this representation has been prepared on the basis of a number of assumptions which may prove to be incorrect.It should not be relied upon as a recommendation or forecast by the writer.

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p3t3
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Monday, May 24, 2010 - 04:22 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)




peterloh wrote on Monday, May 24, 2010 - 02:21 pm:

.....as soon as demand increases from their overseas customers. Factories will need labour to do the work.



That bug in the equity markets rally "ointment" is the Euro zone demand "fly". Parts of Europe, perhaps including the UK, are heading into austerity measures required by prospective lenders. That will impact demand from Chinese production, though most Chinese production is at least concentrated at the value end of the pricing spectrum. Luxury goods manufacturing, concentrated in European hands, might be even more exposed to reduced demand.

More worrying is the comment by Andrew "Twiggy" Forest on Inside Business yesterday that...."We got a note from the Chinese consulate only half an hour ago and it said Australia's competitive advantage to China over Brazil, over India, over all these massive competitors Australia competes against, that competitive advantage we did have is now gone." http://www.abc.net.au/insidebusiness/content/2010/s2906872.htm

"Twiggy" has previously had few ideological differences with the ALP, and has been very close to the Chinese in developing the Fortescue (FMG) projects. His comments should be ringing alarm bells at the highest levels.


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rdumas
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Monday, May 24, 2010 - 04:23 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



XJO Turning Point Dates

Not sure if the following chart will have enough resolution for you to read the dates. Basically what it shows for the XJO is a base date period taken from the low of the 8th July 2009 to the high of the 11th January 2010. From that period we project out the 25%, 50%, 61.8% and the 75% periods of that base date period in calendar days.

By some huge coincidence (or otherwise) each of the first 3 of those dates picked an important low or high in the XJO. Note that the next date is the 1st of June 2010. This coincides with other timing methodologies that give a date of the 4th June. It would appear that we may get a turning point in that period.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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gdd3
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Monday, May 24, 2010 - 11:14 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Rudy...

Just for fun I thought I would 'throw-in' my Gannology observations/co-incidences?on the XJO; not that I'm trying to question your last post, Rudy,ok!. On the contrary, I have always liked the 186/187/188 CD timings on the XJO(both physical and futures), being the timing you have illustrated in your chart above.

However, one important timing you have neglected on your chart is the 100% timing date....10th of July I believe! Now its this timing that is of interest to me because it falls in the same week as my "pressure" week in the future calculated from the 120CD and 90CD 'cycles' as illustrated in my chart seen below. The start dates on my cycles are different to each other but one co-incides with your 8th July 09 low(the 120CD which I have started from the important 10th Mar.09 low...shown in yellow). The other cycle(90CD and shown in pink)starts at the 15th Oct.09 swing high and picks up the mid April swing high and yearly top so far(well two day's out). Projecting these two cycles forward provides us with a confluence of time cycles(including yours) from swing points coming in the week 4th-11th July.

Now the other 'co-incidence'(of interest to me also) is the 'squaring' of the range time from the 10th Mar.09 low to the 15th Oct.09 high(shown by blue lines). The time(218CD) appears of little significance until you realise that it 'squared-out' on last Friday. What is extraordinary is that 218CD's = 31.2weeks, in itself not too extraordinary, but remember the price level low on the 10th March09 was 3120.8 and, in addition, also remember that the XJO in its bull run from the March 2003 low to the Nov. 2007 high took....yep...312.2wks! Something to think about or merely some co-incidences!

However, as I've said to you B4 and know you agree, whilst I(also) occasionally enjoy 'finding' cycle relationships in markets I do not use such 'coincidences' as a sole trading tool but prefer to be aware of such 'pressure' time spots to help clarify some 'out of the ordinary' trading days(like last Friday). So I'll keep your 1st week in June in mind and my 2nd week in July also....just for kicks!



I'm sure there are others out there who can also find some other 'cycles' that may be worth submitting also; someone is going to right(Mr Market!).

Cheers
Dolphin

(Message edited by gdd3 on May 24, 2010)


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ody
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Tuesday, May 25, 2010 - 07:38 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



A BAD FALL IN THE US OVERNIGHT, AND THE FUTURES FOR OUR MARKET ARE WELL DOWN.


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bridog
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Tuesday, May 25, 2010 - 09:04 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

Thanks, I've noted that. There was strong volume buying on our market (somewhat bullish} on Friday followed by thin volume buying on a rising market yesterday (somewhat bearish).

With Wall St down overnight I know our market will struggle today, but my take is that if the low on Friday of around XAO 4200 from memory holds over the next few days, we may expect a relief rally, but if it is breached then the basement button in the lift is jammed on.

Rudy, your thoughts?


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market_mad
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Tuesday, May 25, 2010 - 09:11 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Yes Ody, and US futures down a further 0.4% in early morning trade.

Libor spiking up last night isn't helping matters;

The financial system is having another bout of nerves, as reflected in the latest sharp rise in U.S. dollar Libor rates. As during the subprime crisis, the latest spike in interbank-borrowing costs reflects fears that the euro-zone debt crisis is a solvency issue, not the liquidity problem that policy makers would have the markets believe. Moving credit risk around the system is no replacement for reducing it, meaning stress levels are set to stay high.

Three-month dollar Libor, set by a panel of 16 banks asked what they would expect to pay to borrow in the interbank market, rose above 0.5% on Monday for the first time since July 2009. That is up from 0.35% at the start of May and 0.29 percentage point above overnight indexed swap rates, which measure market expectations of official interest rates. True, the Libor-OIS spread is far from its credit-crunch peak of around 3.60 percentage points. But a continued rise could start to affect the real economy, given the widespread use of Libor rates in financial contracts.

Cheers
MM


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rdumas
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Tuesday, May 25, 2010 - 11:01 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Dolphin,

Hehehehehehe. Yes I did leave out the 100% date. I find that a lot of the stuff that I do like EW analysis and time cycles analysis such as the one that you mention in your post above causes the readers of the Daily Bread's eyes to glaze over with the detail. Hence whenever possible I will tend to focus on the step immediately in front of us.

You would know that my comment about coincidences was 'tongue in cheek' as we both know that these methodologies do give us "TIME" pressure points when the chances of a market turn increases dramatically.

Thanks for sharing your thoughts however as I always find them interesting. Like you, I don't use any single methodology to determine a likelihood of future market action (and hence trading opportunities). I like to see confluences between several methodologies to do that.

So far things are panning out pretty much as I expected. I now wait for my anticipated multi week (and possibly months) rally starting in June in spite of what appears to be overwhelming bearishness at this time.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Tuesday, May 25, 2010 - 11:41 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Bridog,

My timing analysis had a top for the small relief rally falling between the 24th and 27th May. As we have had a top on the 24th that timing "may have been satisfied". This is where timing can be difficult because there is nothing stopping a new top to be made in the next couple of days and still meet my timing model.

If the top is 'in' then it is a quite bearish sign. The following chart shows why.

First of all note that as the market went up the volumes went down and when the market went down the volumes went up. That is obviously not a positive.

Secondly, note that if the 'top' of this small rally is 'in' then it has finished under the red dashed line that marks the low of the first wave down. In EW terms that would mean that there is a strong possibility that an impulse wave is in play where the red dashed line market the end of wave 1, the bounce up from there marked the end of wave 2 and the move down to 4175.7 (on the XJO and 4194.4 on the XAO) was wave 3. The brief rally would then mark out wave 4 and we would now be in the midst of wave 5.



Carrying on with this thought process then as wave 3 was smaller than wave 1 it means that wave 5 cannot be larger than wave 3 as if it was it would invalidate the impulse wave scenario.

Now wave 3 had a range of 477.1 points and wave 4 topped out at 4395.4 hence wave 5 must terminate above 3918.3. I personally still think that the most likely termination level will be around the 4072.95 which is the 50% retracement level for the entire March 2009 rally that ended on April 15th 2010.

The worst part of an impulse wave down pattern for this correction is that it means one of two things because an impulse wave as a first wave in a pattern is never the last wave in the higher level pattern.

1) The impulse wave may be the first impulse wave down in a much larger 5 wave impulse pattern which is the Prechter scenario.

2) The impulse wave may be the wave A in an ABC corrective Zigzag which also implies that the current correction is far from over.

In spite of all of the above evidence my friend Andrew's TIME CYCLE ANALYSIS indicates that we still have another leg up in the multi-month rally that started in March 2009. The current extreme negativity in the market does not seem to support this view at this time however markets will usually behave in a manner that will surprise the most number of investors so anything is possible.

I never marry myself totally to any one view but Andrew's cycle analysis and another methodology that we use has in the past been so reliable that at this stage I still favour the view that we will indeed have one more leg up in the multi-month rally that started in March 2009. We will soon see because for our view to be correct then we will definitely need to commence a multi-month rally in early to mid June. That time is quickly approaching. If the anticipated bounce does not eventuate then it will bring into play the above two scenarios 1) and 2) mentioned above and would mean that the March 2009 low would be taken out this year.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Tuesday, May 25, 2010 - 01:23 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy - some further considerations as to where the market might be heading:

I think your comments about volumes are particularly to the point: "First of all note that as the market went up the volumes went down and when the market went down the volumes went up. That is obviously not a positive."

At the moment I think it is particularly important to base judgements not just on the moves of the XJO or XAO as indices, but also what further figures are available about such matters as volumes, how many stocks reach new highs (very few) and how many new lows (a great many), etc. The market's own figures show that the upward moves are not convincing.

In terms of sentiment, it seems to me that any upward movement - globally, really - is soon stymied by worries about the global situation at an economic level. The US, in addition to Europe (notably), is greatly concerned about the very real risk (indeed, the evidence) of contagion, not least as in Europe the debt crisis is very badly handled, and other countries than Greece are increasingly under pressure. There is clear evidence that, right now, markets are paying FAR more attention to fundamentals than some months ago (especially as they moved, here in Oz, to their - hitherto - rally peak). The US and others also worry about China, where matters are quite unstable and uncertain, though Europe is the first concern.

With the Australian market currently even further down than Wall Street, it is logical to believe that we, in addition to the main US worries about the global situation, have a special factor damaging our market and the A$, and as has by now been well-established, that is obviously the Resources "Super Profits" [sic] Tax. Although it looks as though the government will have to make concessions, and will, so far it seems as though it is still stubborn and not ready to go as far as it should. The ferocious battle around this has investors, not least those from abroad, greatly worried about Australia as a place to invest,and this still shows in what is happening to such investment, with large amounts remaining uninvested in our share market or dollar, and much money going abroad, including Australian money.

Under these circumstances, I would have thought it is not likely that the market could easily go up for several days running. For that to happen, at least ONE of the two major worries (the global situation and the miners' tax) would have to be removed - and probably BOTH sources of concern. This is not a time when many believe that fundamentals and market sentiment are not having an impact on the market, and that means that negative sentiment about what "others" will do is spreading.

So I must confess that I am at this moment sceptical about a significant rally unless the economic climate improves drastically enough to improve sentiment. If that did happen - and it might, at least temporarily - then I do think the markets could go up, as we see currently dejected sentiment which would then lift. So I am not excluding the prospect of a rising market - only indicating that I believe we shall not see it unless sentiment improves enormously.

It is a different matter again whether, if/when the markets go down further, we have to conclude that they will take out the March 2009 low. At this stage I do NOT see that happen, as I think there are still enough positives to prevent quite so bad a slide. However, if the GFC rot continues to bite, then we could well at some stage see the market rocked by truly big losses caused by debt problems of real magnitude, for example if e.g. Greece (and possibly other nations) defaulted - a prospect not at all unlikely. But I think for the market to really crash, as distinct from performing disappointingly, we'd need a big trigger of that sort. Our own market will, moreover, suffer for as long as the miners' tax has not been satisfactorily resolved. Meanwhile, my sense is that overall our market remains one to be bearish about until such time as when a real trigger emerges (which could, additional to those I have mentioned, also be - at least periodically - a truly substantial fall bringing out the bulls).


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bridog
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Tuesday, May 25, 2010 - 02:01 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy, many thanks for your detailed reply, it gave me a better understanding of the technicals . .


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bridog
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Tuesday, May 25, 2010 - 02:05 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



AUD now below 82c. I'm wondering how much the RBA is going to spend to support it . .


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rdumas
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Tuesday, May 25, 2010 - 03:46 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

You are talking fundamentals and I am talking technicals. You may recall during 2008/2009 when I was talking about a multi-month rally coming the fundamentals were not there to support that view at that time either........... it came none the less. Markets move in waves and perception of the fundamentals change to 'so called' cause bear market rallies. People's moods change and they focus on the positives and ignore the negatives during these times.

You will undoubtedly remember that all through the bear market rally from March 2009 to April 2010 you and I and a number of other posters said that none of the real fundamentals had changed.......the debt was still there and growing. Economies were being propped up by so called 'stimulis packages' once again increasing the debt and in fact delaying the eventual outcome. Investors refused to look at what we thought was rather obvious and only saw the market going up and company profits increasing. How many investors actually thought that we were in the beginnings of the next bull market.

Nothing changes in the market or in life. People will see what they want to see until it becomes so obvious that they have to change their mind. You don't see things being bad enough to breach the March 2009 lows. Just wait until the rest of the PIGS countries need bailing out and then comes Japan and finally the biggest debtor of all......the US. When that happens it will seem as though the world has changed forever.

I have consistently said that the worst is yet to come. The only difference between me and a large number of the EW analysts is that I believe there is a chance of a final leg up to complete the March 2009 rally. This may or may not turn out to be the case. The end result will be that global markets will eventually drop below the March 2009 lows. It is not 'if' but 'when'. My preferred scenario at this stage just delays the final event.

This will not be over until global economies have 'paid in full' for living on 'borrowed money'. I cannot see how that fact can be escaped.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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eblode
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Tuesday, May 25, 2010 - 06:00 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



RUDY,
In spite of my vow of chasity in not touching the market for the next few weeks I couldn't resist picking up OKN when I saw it bounce off it's support level and some bloke bought 787,000 shares late this afternoon (at 4.40PM). I bought it prior to this sale as I couldnt understand the shares going against the tide and rising all day from a low of 2.58 to finish up at 2.64. If tomorrow it doesnt jump hurdles then I would have to repent and join a real monastery.

Eugenio


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ody
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Tuesday, May 25, 2010 - 09:54 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy: markets and sentiment

I think there are distinctions to be made between times when a significant number of "players" on the market are out of touch with economic reality and when they actually are reasonably close to seeing that for what it is.

Personally I would describe the ability of average market participants to see WHAT IS GOING TO HAPPEN as very, very low indeed during periods when matters are rather too complex for them, and particularly when they can at all talk themselves into feeling comfortable and optimistic.

This is what happened, for example, all through 2007, although several of the best-known and most qualified economic commentators had already been warning for quite some time that the market would fall very badly as a result of excessive, unaffordable, and poisonous debt, referring in essence to the sub-prime crisis. People who, like me, take an abnornmally strong interest in what happens in economies as ultimately bound to steer where markets go - whether upwards or downwards - were really lagging behind the time if they did not know about the forthcoming crisis by the end of 2006 at the latest.

Hence I already took some money out in February of 2007, and a great deal more during the July/early August period of that year. Most investors were frightened a little for a short while, but then, after a fall of 15%, went on investing as though prospects were good. I remember exchanges of posts around the end of July on this thread in which I predicted a severe fall to come, and others accusing me of being influenced by the press or being far too pessimistic. The second half of the year was a period during which a minority to which I belonged knew what was going to happen, even if we invested (as I did, with less money than earlier), while the majority did not understand what economic factors would bring the market down. Indeed, a majority still did not understand events even during most of 2008.

The events I describe here confirm that it would be possible for someone like myself to see what is coming, while most people in the market are not in touch with the events that will bring the fall about. It also happens in the opposite direction: I was investing early in 2003 while most were still very pessimistic about the market.

So, yes, I would have to agree that during much of the time many investors are out of touch with economic events, and simply go on investing regardless. During such periods people like me may well cry wolf or hooray quite some time before the events happen which ultimately "vindicate" our claims of what's ahead.

However, the fact that all this happens much of the time is not to say that investors are ALWAYS out of touch. You are right to say that during 2009 most investors were again unaware of the deeper economic realities which would eventually undermine the market, although you would no doubt grant that later in 2009 most grew very optimistic (lulled by a false sense of security). I confess that I have in fact felt all along, since the end of 2007, that we were in a bear market. I nevertheless invested as from the end of 2008, because I don't INVEST purely on fundamentals. I thought the market at the end of 2008 was too low, and that it would go up, which is why I took part until October 2009.

It would be right to say, I think, that most investors during the period when, in late 2009 and later, the market continued to go up, DID misread it fundamentally, and had no idea - often still have no idea - of the enormous dangers that financially and economically continue to survive.

But it is even so not the case that investors are ALWAYS out of touch. At this juncture, I think there is FAR more deep worry than we have seen since the period during 2008 when the market (indeed share markets generally) actually DID realise that matters were deeply worrying, and exited accordingly, taking the market down to a very low level as a result.

Inasmuch as you yourself think that at some point markets will revisit the March 2009 low - and I don't disagree that this may very well happen - you would, in my view, very probably, whether consciously or not, be influenced in part by the knowledge that economic forces are likely to exert a far more powerful assault on the general sensibility of investors than most, even now, would concede. In other words you are, I think, foreseeing that the bad forces which are in play will at some stage gain the upper hand in investors' minds. I realise that you see that period as coming as a result of EW readings, but by now I think I have seen enough of what EW readings indicate to realise that usually more than one scenario can be interpreted as forthcoming. And in any case, even if it truly and purely is EW only which is driving your readings, that still does not mean that I am wrong if I say that I can foresee this on economical/psychological grounds, while you see it on an EW basis. I am not as certain as you of the March 2009 being revisited, but still pessimistic. I don't think we shall be seeing it at once, and I am not sure that a very bad fall, when that does come - perhaps during the later part of this year or 2011- will necessarily take us THAT low. But ... I can see e.g. 3900 or so not far off, and even 3500 some time this year would not really astonish me. It will depend above all, I think, on the crisis in Europe and its impact, but also how events play out in China, and the US. And some of the forces at work are in contradiction to each other, which makes a definite forecast the harder, to someone like myself.

With respect to the prospect of a multi-months rally, I do think it significant that a large number of EW analysts do not agree with you that that is likely to come soon, and I believe that although you were right to see a rally coming in 2009, you may be wrong this time. Although I was less optimistic than you in 2009, the fact that I started investing in late 2008 shows that I certainly considered a rally possible, and if I had had no faith in that prospect I would not have invested for some 10 months. However, when I left the market in October 2009, that was on the basis of the belief that, even if the market had higher to go, I didn't want to be there as I believed risk had increased, and since that time I have only continued to believe that it grew larger and larger. I would infer from what I see that considerable numbers of people believe this NOW, and that their sentiment is not unlike that which we saw during the second half of 2008.

For a rally to occur soon, I think I would need to believe that in fact for the most part people are still optimistic, and that they do not greatly worry about such matters as sovereign risk in Europe and how this is affecting banks worldwide, and about the Resources Tax. To my mind, people will not produce such a rally while these matters prey on their minds. In other words, I see the market having as much the same SENTIMENT as in 2008, currently, and I believe that most likely it will go down further. For a new rally to start I imagine we would need a situation like that in March 2009, when prices had gone so low, and so much monetary and fiscal stimulus had been provided, that the market could hardly not go up.

In other words, I do not see that AS YET we are in anything like that situation, so that, until we have something comparable on hand, I do not actually believe in a rally, and am inclined to agree with those EW analysts who read the market more pessimistically than you do. I think that, currently, anyway, the market IS reasonably in tune with the "real" economic outlook, and that it would need quite a bit of persuasion to change its mind. I don't see the mood as similar to that of March-May 2009, for example, when most contrarian/early investors were beginning to believe the market was really worth a go. It had sunk to a really low level, and it had received some real impetus.

At the moment I am continuing to be bearish. However, certain events could lead me very quickly to change my mind about MARKET SENTIMENT, even if not necessarily ECONOMIC REALITY. In such a case, even though I might remain pessimistic about the economy, I would readily become more optimistic about what the MARKET will do, and then I might join you in arguing pro the rally which you see coming.

I add to this that I certainly don't RULE OUT that you might be right in your reading. It could well be that - and purely in EW terms - you are correctly foreseeing a turnaround, positively, that I at the moment do not see. That would then mean that I would only see it coming when to me the psychological mood is turning, or most likely will do so soon after I perceive the first signs. I would in particular look for a big fall which makes people greedy rather than fearful, and where very likely they would tell themselves that some of the worrying matters they now fret about won't cause further mischief. In other words, something like what happened in March 2009 and shortly after.







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ody
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Wednesday, May 26, 2010 - 12:20 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



So far, today (Tuesday) and tonight (it's near midnight Adelaide time), stock markets have been extremely bearish, including Wall Street, which however is not - though it is early days there - as far down as most other markets have been or are.

The following URL helps to get hold of and understand SOME of the reasons for the near-panic: http://www.bloomberg.com/apps/news?pid=20601087&sid=a.BKPm_rx3G0&pos=1.

(Message edited by Ody on May 26, 2010)

 
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