Investing strategies and secular bear markets

[Hoop]

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?

Hi Winner
For some quirkey reason your post seemed to have appeared after my posting today, or I didn't notice it this morning.

If it was due to my inattentiveness then apologies to you is in order when I only responded to KW.

In answer to your question I honestly don't know.

Sorry... here comes the waffle...
I often refer back to history because the markets have a bad habit of repeating itself. As an example the DOW from 1999 to 2001 jumped all around the place (as it is doing now) for just over 2 years before the big one came (big correction or crash take your pick) late 2001 then the bear exited in 2003.
Even looking back in hindsight it is not easy to pick when that bear cycle actually begun as there were 4 corrections before the big one but I think it was the 4th one in 2001, however some might say it was the second one in 2000 followed by an extended period between Bull market (3) and wave A.
It is difficult to detect the end of bullmarket as each correction is followed by a rally and without hindsight one does not know if the bullmarket cycle has ended when each rally reaches a similar top point and each correction sort of respects the previous support or just breaks it and then moves up again (as the DOW is doing now). However analysts can read behaviour, double triple or even quadruple tops are bearish signs as it signifies volatility.
Bull market/bear markets wave theory illustrated in text books is easy to see and it is displays a sort of uniformly in a nice wave pattern, however in real life all sorts of patterns and durations may emerge and to complicate things even more it is not impossible to go from bullmarket(3) miss out the bear market(or a very very short bear duration) and wave straight back into Bull market(1)

This time around I think a bear will emerge if not all ready as the economy in America is going pear shaped.
The $64 question is will NZX see the bears... from recent history we escaped most of the dot com damage but at that time the NZ market was not in tandem with the DOW, this time we and the other major exchanges are.

Yes I will be watching the Dow with interest tomorrow morning.
I wouldn't be surprised if we are still experiencing the same scenario in several months time....equally I wouldn't be surprised if the guts fell out of the DOW tonight

I probably haven't answered your question Winner have I ??

Cheers Hoop

[Hoop]

Attachment 291

Quote from KW ....If you read the Intelligent Investor by Ben Graham it analyses the US market since it began, and it has spent periods where the average P/E is around 8. So it could halve if the US sinks into a long recession and pessimism takes over....

Historic PE Ratios up to 2004
About 15 at the moment I think


First success at a gif..attachment since swapping to Vista ))

[Yossarian]

would be interesting to know what would happen to the DOW if you took out its top 20 - probably not as dramatic but still a substantial effect I reckon.

It's like if you take out the 5 or 10 best index rises of the year, you usually end up with a bad year!

[winner69]

would be interesting to know what would happen to the DOW if you took out its top 20 - probably not as dramatic but still a substantial effect I reckon.

..... that will leave the bottom 10 stocks then

Will look it up for you

[Hoop]

Dow ended the day on its major support line of 12800. (down 2.0%)

My Warning been in place for nearly 2 months now. Do not assume the ASX or NZX is exempt. The market over the last 4 months has given the astute investors plenty of time and opportunities to create their necessary defense and quick exits strategies.

[winner69]

That was a nasty last hour on the US markets

S&P500 under 1400 pretty ominous

What you think happen now Hoop

[Hoop]

That was a nasty last hour on the US markets

S&P500 under 1400 pretty ominous

What you think happen now Hoop

Winner ...Gee that was a lot of ugly news surfacing out from the States this morning (our time).Rumours about Countrywide has put the skids under the Equity markets.

Well the Dow has broken the magical 12800 resistence big time today. I hope this thread will draw in some TA experts now, but from a part-time TA novice point of view, it kind of looks like the major support of 12000 is under threat now.

I watched with my brother in Law this morning, the death of the DOW Bull, it is beyond all doubt now..it is definitely a bear market.

NZX is my next focus point as it has this morning broken down through the 3900 mark marking a strong possiblity of a secondary correction.

Must go, I have a 11.30am appointment on the other side of town, will be in touch
Hoop

[Lizard]

NZX - If we are playing "guess the bottom" I have a level at the mid 3700's as next in line to provide an decent reversal. There is a more scary scenario which sees 3120 ish for the low - funny, that seems hard to imagine, but still less than a 30% fall off the high.

[Hoop]

Received Colin Twiggs trading Diary email 2 hours ago confirming that the DOW and S&P 500 are both in the Bear market phase.

You can see his TA charts here

The NZX respected the 3900 support line today on low turmover however telecom gaining 3 cents today and with a high rating within the NZX index has produced a moderating influence.

Winner your thoughts...from your readings..I must admit I have not had time to read anything lately..so the sharemarket drop today has caught me out somewhat.

Liz good to hear from you. Did you notice there seems to be a support level at approx 3450 as well...if it breaks 3900 its between your mid 3700 support level and 3120.


The newTarget index for the break of the 3900 support (if it happens) would be (in round figures) 3900 - (4330 - 3900) = 3470

Thats spooky... as there is a support level around that 3450 - 3470 index level.

If the NZX respects the 3900 support line (a high chance that it won't).. I will not feel happy until the index breaks above 4200.

Hope you guys are holding lots of cash or gold

[Hoop]

Today confirms that the NZX50 is a bear market
a close of 3824 shows a lower low and breaks the support of 3880/3900

Investors should now be looking at Bear market investment strategies for 2008.

A poll on the ASX thread shows at least 49.30% of the 71 investors polled are not using a bear market strategy yet, (maybe some bargain hunters should be included as well) obviously these people assume a return to better times within the short term.
The breakdown;
Bargain Hunters mode 32.39%
Happy Long term/ doing nothing 49.30%



Simple basic fundamentals ....copied from Investopedia

Where to Invest in Bear Country (Strategies)

There are a number of things you can do to protect yourself from bears - and maybe even eke out some gains. Let's take a look:

1. Play Dead - Stay on the Sidelines
   During a bear market, the bears rule and bulls don't stand a chance. There's an old saying that the best thing to do during a bear market is to play dead - it's the same protocol as if you meet a real grizzly in the woods. Fighting back would be very dangerous. By staying calm and not making any sudden moves, you'll save yourself from becoming a bear's lunch.
   
   Playing dead in financial terms means putting a larger portion of your portfolio on the sidelines in the form of money market securities. In a bull market, it is detrimental to have uninvested cash around because it isn't working to get the best potential return. This isn't true in a bear market because cash will hold its value (and earn at least some interest) when stocks head south. When the right buying opportunity comes along, you'll have the flexibility to go for it. Of course, this means you have to be timing the market to some extent, a task that is tough, if not impossible, to do precisely. However, the point is that during a bear market, even if you take some cash out of the market later rather than sooner, this may still prove to be a good decision if the bears rule for a sustained period.
2. Value Stocks
   Bear markets can provide great opportunities for investors. The trick is to know what you are looking for. Beaten up, battered, underpriced: these are all descriptions of stocks during a bear market. Value investors often view a bear market as a buying opportunity because the valuations of good companies get hammered down along with the poor companies and sit at very attractive valuations. However, value investing is an art; not every stock in a bear market is a bargain, but this is a time when some real bargains can definitely arise. Take Warren Buffett, for example. He often builds up his position in some of his favorite stocks during less than cheery times in the market because he knows that the market's manic-depressive nature can punish even good companies more than warranted. (To learn more about the art of value investing check out our Guide To Stock Picking Strategies.)
3. Short Selling
   Another approach to a bear market is to adopt a more aggressive strategy. A short position allows an investor to profit as the stock heads downward. Keep in mind that the ability to profit on the other side of a stock is accompanied by substantial risks, mainly the fact that, in theory, you could lose a lot more that 100% of your initial investment by taking a short position in a company. (To learn more about short selling check out our Short Selling Tutorial.)
4. Bonds and Asset Allocation
   Asset allocation proves itself during times of stock market underperformance. During economic boom times, investors are kicking themselves for not being all in equities. The exact opposite is true during times of economic hardship and stock market downturns. Having a percentage of your portfolio spread among stocks, bonds, cash and alternative assets is the core of diversification. How you slice up your portfolio depends on your risk tolerance, time horizon, goals, etc. Every investor's situation is different. (For more on this subject see the following article: Portfolio Protection In Diversification And Discipline.)
5. Defensive Industries
   There are equity securities that generally perform better than the overall market during bad times. These industries have become known as defensive industries, or non-cyclical industries, because they refer to the defense they provide your portfolio in times when the stock market plummets. Here we are talking about the companies that reside within the industries that provide goods and services that consumers, governments and the economy as a whole will need come rain or shine.
   
   A simple example would be household non-durables (things that get used up quickly) like toothpaste, shampoo, shaving cream, etc. Regardless of whether the economy is booming, people will still need to brush their teeth, wash their hair and shave. Despite this, there is still an element of stock selection within historically defensive industries. (For more on this topic check out Cyclical Vs. Non-Cyclical Stocks.)

Conclusion
As all these tips suggest, caution is the name of the game. By having your money on the sidelines or invested in bond funds, value stocks, defensive industries and, under certain circumstances, on the short side of a stock you'll be well-positioned to endure a bear market much more gracefully. Adopting strategies like dollar-cost averaging, staying realistic and avoiding panic will also help you keep your assets out of harm's way.

by Investopedia Staff (Email | Biography)





As it is early days, I am not sure how these so-called bargain shares (that everyboby talks about) are going to react...There is plenty of time to wait and see so I will accumulate them onto my watch list.

I am 80% cashed up and will probably be 90% at the next rally.