Trading Houston 4

We may have a problem....

XJO broke down a double bottom at 4758 (bad news).
There is a possibility that 4280 level may be hit at one stage.
Just in case....have a nice trip.

 

"double bottom"? Is that like a double chin...i.e. the result of gorging oneself on cheap debt?

Don't tease Tropo - post a chart please!

 

Thats what I thought might happen , I pulled out of my managed funds 7 weeks ago when it was 5050. The 61.8% fib is around the 4280 mark the way I see it too, so that could be next level.
But I dont understand why it only finished down around 1.4% , currently at 4755.
Will be interesting to see what USA down tonight , looks like its around 90 points down in pre market.

 

Nigel,

You are giving me a hard time...
O.K.
Below is a weekly XJO (daily is compressed too much so it is a bit messy).
Today’s action is not on charts as yet (16h delayed).
On June 14. 2006 low on XJO = 4758.3
On Aug 08. 2008 low on XJO = 4758.5
Some time ago I calculated support at 4757 – so on Aug 08 2008 I missed by 1.5 points (XJO reversed a bit up at 4758.5).
As you know today XJO broke 4758/57 down and closed approx. 7 points below 4757 (hmmm...)
Long horizontal line on the chart below is touching both lows mentioned above (4758.3/4758.5) – so both lows represent a double bottom (IMHO).
Shorter horizontal line below represents possible next target 4280.

 

Perky,

We may get a short term divergence in relation to US market. Even if US is down tomorrow it does not mean that we’ll be down...
It is anybody’s guess why XJO closed at 4750.8 (down only 1.4%)!
I am not saying that we hit 4280, but as you know, nothing is impossible in the market.
Happy Trading !

 

I guess anything could happen in the days and weeks ahead but the current DOW Premarket certainly isn't looking too worried. Down about 4 I think.

Funny how humans respond.

If this keeps up, the average punter reaction to a bank falling over may go from to 'Ho hum......so what, that happens every now again'. A bit like a NSW Government Minister resigning. Unusual one week, commonplace the next.

Will more US Banks fall over? Could do.....maybe even probably. More importantly though I think the US has reached(past!) a point where if it is to stand any chance of remaining a 'world power' it really needs to make some BIG and fundamental changes to its economy. Being a huge world consumer can be a lot of fun for a time, but not if you are putting it all the credit card while selling your assets.

We're certainly seeing some history in the making and it will be interesting to see how the story ends. I'm really not sure, but I think they have stacked the odds firmly against themselves.

 

“....... I pulled out of my managed funds 7 weeks ago when it was 5050".

Perky,
It was a smart move!!.
It seems, XJO may well be on the way to 4280 after all...
Have a good one!!.

 

It certainly is interesting these times.


Its amazing how much some of these companies have gone down in the last 12 months - esp the small caps.
Take PEM and CBH for example - PEM has gone from $4.25 to .25 in the last 12 months and CBH from 60c to 5.2c. Both of these have been hammered after zinc prices have gone down and bad investments with cash was made.
Then look at BMN - a Uranium stock. Its fundamentals have not changed at all in the last 6 months - but its price has gone from around $4 to 54c.

Anybodys guess when we might see a bottom?
I am guessing mid to late October...anyway time will tell.

 

If we're going to invest in the sharemarket in any sizeable way, I think there's at least one very useful thing we need to do.

We need to educate ourselves on how much the market has historically fallen in the past and structure ourselves accordingly!

To start with, get a list of the 10 Worst Stock Market Crashes in the last 100 years and keep the information stuck up somewhere.

Realise that the Top Ten falls range from about 37% to 86%. Falls like this shouldn't come as some type of shock(although disappointing ) because it's happened on a number of occasions and will definitely happen again.

(As a side note, the current market fall is probably about 32.7% which so far wouldn't even put it in the infamous 'Top Ten').

How do we structure ourselves? IMHO, make sure at all times we can handle a market fall of 35-40% without having to crystalise losses and if the market is at historic highs, maybe even allow for larger falls.

Easier said than done I know when the market is looking so profitable, but this is one of the lessons I'll try and remember forever.

 

I guess the big question is, is it possible for the news out of the USA to get any worse that it has been this week?
From everything I've read the problem in relation to the Aussie market is one of a lack of confidence rather than anything else.
If the torrent of bad news starts to abate, we could be looking back at the last couple of days as being the bottom.
We are starting to see some M&A activity already and that could increase over the coming weeks giving a boost to the markets.
The new short selling rules to be implemented tonight in the US could also help to stabilise the US market. What we need is a few days of stability at the moment.

 

Interestingly Alan that's almost exactly the process I adoped to set our equities gearing strategy...

hence I'm in furious agreement with you on it being a very sensible approach!

 

Alan

I have to agree - exactly what I have done, takes all the fear out when you adjust your strategy accordingly.

BTW Folks, all of this info is available from the last few "Oliver's Insights" at AMP, they are available from:

AMP Capital Investors - Oliver's Insights

Timbo

 

Yes......totally agree Sim.

I was making the assumption(as with my own personal situation) that the person was holding a wide range of ASX200 type stocks.

If I had a single stock, a collection of Small Caps or indeed other types of products, outcomes could be quite different and I'd really need to know how I would respond financially to that event. If my answer is I'd have to sell almost everything at the bottom, then I need to think again about what I'm doing.

Having said that, life is life and we can't account for every possible combination of events that may occur or we'd never get out of bed in the morning or invest in anything.

Life has some risk. Investing has some risk. We should invest sensibly within our OWN risk profile and don't go and continually compare our own investments to everyone elses or we'll start to make investments for which 'lack of sleep at night' becomes a big an unnecessary factor in our lives.

The main thing that changes Risk Profile is Education and to be honest there are times in our lives when we simply don't have the time to make big, dramatic leaps with our Financial Education. If so, that's fine, I think we should then just continue to operate within our OWN personal risk profile and make changes to our investments as our education allows.

 

"hence I'm in furious agreement with you on it being a very sensible approach!"


Nigel,
You are correct.
It is a very bad approach !!

 

Tropo, you seem to have had a reasonable insight into the bear market to date, do you think we are in for further lows (beyond 4602 on the ASX), or do you think this has been the third and final low in the current bear market?

And are you serious in above when you say this is a very bad approach??

Cheers

Tim

 

Tim,

I draw a conclusion simply by analysing few charts. There is nothing special or bizarre about it (you can call it insight).
It does not mean that I am always correct...(I wish !!). But most of the time I am quite happy with my analysis.
I can comment only on XJO because I do not follow Stock Market as I did in the past (for the last few years I trade different market).
My current level on XJO is 4280 (it’s not the last one unfortunately).
Nobody can tell you what will happen......What other people think is totally irrelevant. Just follow the market !!!!
Personally I do not think that bear run is over....Market may rebound for a while, and with time may go down or move sideways.
At one stage of the game market will hit the bottom. Problem is – how long it will take to get back to all time high (6851.5 on XJO)? Nobody knows!

Yes....I am serious...It is a bad approach.
Do you think that sitting on the loss of say 30% for a few years is a good idea?

 

Tropo,

OK thanks for your comments.

Well, no obviously don't think sitting on a loss of 30% for a few years is a good idea, however to assume you wouldn’t do this seems to define some other strategy that doesn’t involve buy and hold (so trading, or cutting losses and moving asset sectors). But it seems this necessarily means that for example you wouldn’t keep a house if you had owned it for a while but then a property slump occurred. This means further that you would incur transaction costs of selling and re-buying later and maybe or maybe getting your timing right.

Also with shares, if you do buy and hold (in say an index fund), then the long term average is going to be 10-12% roughly, which is not a bad return for being completely passive, you could possible improve on this return if you simply abstained from major bear markets until the market reached a reasonable low point (like now).

So to avoid sitting on a 30% loss, what would you suggest can be done as a strategy that would not see this happen.

Just say you had invested back in Nov07, you are now going to sit on a 30% loss for one year or so, maybe less who knows, what could you possible do now that would mean you don’t sit on a loss?

I don’t think it is that easy – unless you are a successful trader, with a strategy, plan, trading software, skills and knowledge, to me the only other option is to buy and hold an index fund, and only buy and sell on major, easily identifiable trends (or not at all).

I would be interested in your feedback on this though Tropo.

Thanks,

Tim

 

Tim,

Problem is that a lot of people classify property and shares as the same asset class. Always compare apples with apples.
I would not use the same approach/strategy with property and shares.
Very popular passive asset class (IMHO) is a real estate (also art, antiques etc).
How long are you willing to wait to get 10%-12% return?
If you are down say 30% now – do you believe that you will get average you are talking about in 1-2 years?
You see, time is working against you...unless you are quite happy with 12% average in 10-15-20 years time (do not forget to subtract inflation and other costs from your return.).

Not having a basic strategy in place is a recipe for disaster.
It does not mean that you should become a trader... But without more active approach you may be a very disappointed one day.
The easiest way to avoid a loss is to have an exit strategy in place (stop loss). Even if you have bought at the wrong time, but having stop loss in place you could lose say maybe 5%-8% and the rest invested elsewhere.
It’s up to you what you are going to do with a 30% loss. I would run... You may think otherwise...It’s your money after all.

One more – you do not need a special software, high skill etc...Only a bit of knowledge and desire to do something about it.
If you are able to identify a trend (as you said above) – you should be out of trouble a long time ago.