Investing strategies and secular bear markets

[Hoop]

From my 13 stocks in my portfolio just a couple of months ago I now have 5.

Many commentators(mostly chartists) have (the last few days) publically come out now announcing warnings. I did this on the 8th November. The fundamentists are still bullish believing the PE Ratios profits, etc, etc are at levels which would soften any downturn, if any,and the correctin will quickly turn around.
Personally PE Ratios mean "diddly squat" when people start talking about severe corrections and crashes. As history repeats itself I remind people that the Dow average PE Ratio has been as low as 4 and high as 42. It is at about 14 now and isn't far from its so called norm of 11 but you can't judge the norm as being normal when basing on buy/sell decisions by spooked investors. In times of high growth and optimism a PE of 20 looks cheap and in times of deep recession and gloom 10 may look expensive.

On Friday we saw the DOW rise on very low turnover (1/2 day of trade) I don't know the correct phrase but noticing the sell signals I would tend to believe that this is the sucker rally before the drop.

Commentators with very good facts and figures are showing up now, so it's best to see those numbers Phaedrus and Colin Twiggs are presenting. These two chartists should be listened to closely as I find they are correct most of the time in what they say, and at the moment they are singing the same tune.

It seems more certain the DOW will fall below it's primary support of 12800. If it happens a double top is formed and this is bearish, the next major support is then at 12000 (-7%).
Also the TA self fillfulling prophecy will kick in if the double top is formed + 12800 support is broken, from history when this activity happens it has resulted in sudden falls.

These sell signals have been firing for nearly 3 weeks, so all the major markets have been kind to us investors, giving us who believe in the signals an orderly exit within each little rally. However I think time is running out.

I think it is time to dust off the text books on investing in a bear market....the title of this thread.

Warning this present correction may get worse... if so the bull is dead.

[Hoop]

The bull market in USA is over for an indeterminate time.

There maybe a flow on effect into other equitiy markets such as NZX.
If so there is a better than average chance, there will be a sharp fall before the rally at the end of wave 1.

As the DOW and other USA markets are more than likely a bear market now, I will begin to polish up the Principals of Wave theory (wave 1 to 3) and how to best to invest and maximise profits within this new environment. I have forgotten a lot as it has been a long time, except I remember the notorious wave 3 killer.

For the present period (hopefully a week or two, not many weeks or months) I won't buy until the fall has been executed, unless a shinning star stock emerges with exceptional news. All my stops are very tight and will cull my remaining 4 stocks without emotion.
During the next phase a good knowledge of TA is required, so I will try to learn more in this area
I will resist buying into shares that look "cheap" such as RAK, FPH, DFH, NPX etc until the (wave1) fall has halted.
Short to short/medium term hold strategy are my focus in this possible incoming Bear market phase.
Long term hold strategy on any stock during a Bear market is too dangerous for me, and will be abandoned until after wave 3.


Very little chance that the American markets showed a false support break, so I won't get optimistic about that yet. Also note that NZX is not yet a bear market.

My portfolio:..Cash nearly 80%

A bit of interesting historical trivia + graphs from Des2 28th June 2007
Quote...
coincidentally some of the worst falls have been in 1907 (-48.5 %), 1917 (-40.1 %), 1937 (41.5 %), 1987 (-48.6 %) and 1997 (-17.9 %). to avoid being selective it should be noted that 1929 (-47.9 %), 1932 (-86.0 %) and 2001 (-37.8 %) were also bad years.

wonder whether the rule of sevens will apply in 2007?

and..

...One interesting note is that most market crashes are long (lasting over a year) and 6 out of the top 11 crashes started in either September or November.

Note The majority of these falls have been rather large. Some of the large falls are close to those famous crashes of 1929 and 1987.

[Hoop]

How do you go about shorting an international index? I'm in Australia and use ComSec - anyone know how I would do this?[/quote]

Hi KW
Not my area of expertise ...yet!!. Shorting stocks could be good way to invest in a bear market Indices??
Try xxamr-corpxx thread http://www.sharetrader.co.nz/showthread.php?t=5463, or go manually to it under investment strategies section "Dissect my CFD index trading system". Give these people an email through sharetrader link, very good possibility they will help you.

Failing that check out the Incredible Charts Forum, there are heaps of day traders here, go into the forum and register and do likewise email through the forum or create your own post with your question

cheers
Hoop

[AMR]

How do you go about shorting an international index? I'm in Australia and use ComSec - anyone know how I would do this?

I use CMC Markets and they offer an artificial market based on the futures of each index. They offer most indexes around the world. I believe Comsec might provide CFDs for you to short indexes with. Beware though, some indexes are incredibly volatile and due to the amount of gearing required (this cannot be changed) this is quite high risk. I just had my **** handed to me by the Hang Seng...will not touch that thing again for a while until I get my head around trading psychology.

The best way is to approach a futures broker and short the futures. They are generally cheaper than CFD providers but capital requirements are significantly greater.

[Hoop]

That very little chance of a false breakout below 12800 just got bigger with the Dow jumping up over it to close at 13289, just shy of the 13300 mark which becoming more of an important mark. I will not get excited until the 13500 is penetrated.
The Bulls and bears are fighting it out on the DOW and I will stay out of NZX until a clear trend materialises.
Warning still in place

[Hoop]

Colin Twiggs has indicated that the Dow Jones industrial averages signal a bear market risk using the DOW theory.

If there is a Bear Market, how long will it last?...who knows??
History can point one's investment stategy in the right direction though.

There are doubters at the moment after seeing the Dow Jones having one of it's best weekly rallies for the year....however the situation has remained that there is going to be a false break occuring somewhere but which way? up or down? American Commentators are divided on the issue.

On Colin Twiggs site under the DOW Theory page is an example graph of the 1998 bull to bear.
Using the 1998 example the bear market was only 6 months long and using hindsight strategy money in the bank for that 6 months would have been an excellent option. Also note the similarity with the break (2) and the little rally above the support again before the large fall.

If this present rally is true and it signals a resumption of the Bull market, there is plenty of time to buy back in. So being cashed up during this doubtful time, I believe is by far the safer option.

Also the ASX seems a lot stronger.... so if the DOW falls signaling the typical Bear market will the ASX follow? or will it uncouple? How will the ASX affect the NZX? These are uncertain times.

Warning still in place

Equity 29% Cash 71%

[Hoop]

Good rise on the DOW last night the market hasn't closed but there is a positive mood evolving. The risk of the DOW going Bear is lessening.
DOW is over the 13300 at the time of this posting 13392. (+1.08%)
With this feel good factor the overseas markets have bounced and today I assume it will spread to the ASX & NZX.
Normally I would be in buying, but I will wait until the DOW goes above the 13500 resistence line signalling the end of the secondary correction.

Even if the DOW goes above 13500 I will be watching closely as many strange actions have materialised.
The DOW is defying the TA odds not just once but a few times now..conincidence??? maybe??... Can a rise above the 13500 resistence be trusted??

My little venture into DPC seemed to have paid off bought 84c last friday now 91-95c. The NZ small finance company sector is at Bear phase 3 of the cycle. The destructive wave 3 I think has past (hopefully). Bear (3) market phase can be identified by doom and gloom and low volume trading, good strong companies are tarred with the same brush as the weak failing companies, PE ratios are below the norm. Good profits and yields are ignored by the investor, as perceived risk outweighs the benefits. There is no timeframe as to how long this bear (3) will last for.

In times of bear buy into and sell out of the short rallies.

Disc:
unfortunately sold out the rest of DFH a week or so before its 10% rise yesterday. :o

Good news for me was I had my best week of the year last week....right in the middle of a potentially damaging correction phase under my own warning...and mostly cashed up to boot ...how ironic is that.

Warning still in place
Equities 29% cash 71%
NZO. PRC. some DPC

[Hoop]

The DOW Bull has survived against the odds...for now.

DOW is at 13620...broken back through the 13500 so the BULL MARKET is still intact.
So it seems the DOW did a false break. The chances of that happening is low (20-25%??).....So the DOW bull has sort of recovered back from the point of death. Now what? Will the DOW test it's all time high with all the negative data floating around it?

It didn't turn out the be a bear market but the prediction of the correction I issued early Nov proved correct which gives me confidence that I can invest with lesser risk in this uneven parnoid market.

It seems TA wise the warning can be lifted..... but why am I still uneasy???.

I invest mainly on the NZX which has temporarily decoupled from the rest of the markets due to local economic news and the much higher NZ$. So the bargains are hard to find, which will keep my portfolio cash heavy.

Secondary correction ended on the DJI S&P.....
False breaks have happened lately so may be prudent to be cautious

[winner69]

Well the market didn't like that 0.25% points rate cut ...... maybe reality is coming home to roost

The next few days could be interesting

Hoop - whats your read of the situation?

[Hoop]

You are uneasy, I am uneasy ...
Its because when the charts start warning of a downturn, it is at least expected, and things "correct" in a nice orderly manner (ie. Jul-Aug 07). Followers of TA know when to buy and sell, and FA investors happily cash up and wait on the sidelines until the see value re-emerge.
When the charts dont show any trend, and the indexes start bouncing all over the place with no clear direction, then we know that any downturn will probably happen as a "crash" and take us all by surprise with no time to get out :-(

Yep very true KW.. 1987 a pure example ..however this bouncing around at the moment would have the TA people on alert, as it is stuffing up their probabilties of it happening percentages with all this false breaking going on. Many FA thinkers think that with the DOW Av PE Ratio at around 16 the crash or a severe correction won't happen..so there is a polarity in thinking happening in the USA between the two disciplines. When they both agree it is on the subject that "if"
it happens it will be brief. However all a FA minded person has to do is to add another dimension and look back through history, analyse the still valid ancient theories like those of DOW and Elliott Wave principles and they will see the warning signs are there for the FA people as well as for the TA.

The last 2 hours on the DOW was not pretty..ended 299 points down to 13428.
This is below the magical 13500 again so we are back to the warning status again. I think it is safe to say now that the TA commentators will affirm that the DOW is in a bear market (dipping briefly below 12800 may with this present DOW falter now being not seen as a false break).

With the latest decoupling of the NZSX50 from the rest, the index number for us in NZ to watch for is 3900. If it goes below this figure it signals the beginning of a bear market cycle here in NZ. (At the time of writing the index is not far from that mark ... 3987 down 40 points).

Many of us know our 3R's in education....Reading writing arithmetic

The modern fad have the 3R's as reduce reuse and recycle.

A good one from a poster (Trader888) excising the 3R's rule in times of market turmoil is to cash up and......rest relaxation and recreation.