Investing strategies and secular bear markets

[Hoop]

Winner, a little more dimension from me to reinforce your secular cycles and the events included within those secular cycles.

Attachment 328

Notes from my pathetic attempt in posting this chart

My chart is a 36 year time frame of the DOW from 1971 to 2008

the 1987 crash was in the 1982-2000 Secular Bull Market cycle.

Over the 36 year graph there are no broken long term uptrend lines

the scale is linear so the data are all out of perportion ... the 2000-02 crash looks bigger than the 1987 crash,which it was not true. The secular bear does not stand out with the linear graph neither. (It needs to be in Log scale)

Primary support at 12000 is very significant.

10,000 is significant as a trendline level

2 vertical lines between 1982 and 2000 show the secular bull market phase

Both 12000 and 10000 look realistically achievable in todays climate.

Secular Bull market ended in 2000 has to be replaced by Secular Bear.

Food for thought

What happens with a crash in a secular bear market phase? Does this alter the historic recovery phase after the crash event? Will the future recoveries such as intra bull market phases within the secular bear phase be shorter and stunted as was the 20003-2007 Bull?
Winner estimates 2014 as an average timeframe for the death of the secular bear...will this give us another opportunity of another intra bull market phase if so it will be short in duration. If no bull then we investors will have to manage a 7 year bear phase with short term raalies (corrections**) which is a long bear period historically averagewise.

Secular phases follow the same patterns as their shorter time frame phases counterparts......so in Bear phases follow the simple 5 down 3 up rule. (5 downturns to 3 corrections**)

** Please note: Obviously, many people deny (or not thinking) we are in a shorter term bear market phase (confirmed last week)...because....The use of the word "correction" in a bear market is a rally event
Thanks Winner for reminding me that we are in a secular bear phase, it will alter my investment strategy a little (assume to 14 year phase as reference)...such as not to too excited when a bull arrives within the next 1-3 years time as it may be stunted as well. This makes following TA, with its trendlines and buy/sells signals even more important over the rest of this secular bear period.

Liz: The NZX didn't respect that mid 3700 support closing at 3664

[winner69]

Hoop - interesting stuff

Secular cycles are generally based on valuation cycles more so then prices ...... like P/E ratios which over time do cycle from highs to lows.

Secular bear markets commence at the first down year after P/E ratio peaks and ends at the bottom of the P/E cycle (when the low is reached) ....... conversely a secular bull market runs from a low P/E to when the P/E peaks.

The secular bear market in the US from 1966 to 1981 saw P/E ratios fall from 24 to 9 .... followed by a secular bull market through to 1999 when P/E ratios reached 42 ...... and the current secular bear market then started ......... and will probably end when P/E goes below 10 (based on history) some time in the future

Another interesting thing that is counter intuitive is that the US economy usually does better during a secular bear market then during a secular bull market .... like from 1964 to 1981 the DOW went nowhere but GDP grew by 373% while during 1982 to 1999 when the DOW 1,200% GDP grew by only 196% (half of what it was during a bear market) Inflation had some bearing but taking out inflation real GDP growth was similar in both the secular bear and bull market.

It really is valuation cycles that matter .... rather than price

Looking ahead P/E in the USA is still high (esp if you account for record margins (not sustainable) and as it is turning out a lot of the financials profits were all smoke and mirrors eh ..... this is why I stick to mt long term hypothesis as to waht is going to happen over the long term and invest accordingly

[Deev8]

Looking ahead P/E in the USA is still high

The historic P/E for the S&P 500 is 16.8, which is still high. The NZ market P/E has fallen to 14.4, but the UK FTSE 100 is on a relatively modest P/E of 10.8.

[Hoop]

The historic P/E for the S&P 500 is 16.8, which is still high. The NZ market P/E has fallen to 14.4, but the UK FTSE 100 is on a relatively modest P/E of 10.8.

The unknown, Deev, as Winner has pointed out is that the earnings part of the P/E equation is suspect.

Email from Colin Twiggs on Saturday night confirms what we have been talking about ...as usual a great trading diary with much needed graphs and expertise.

So to the hard part....where is the market going to go in the short term?

I am hoping for a small rally (up to 6% on DOW,NZX ), whether I get what I wish for is another story. Why ? you may ask. I think and hope that 12000 support on the DOW is a massive thick floor support which will take a lot more downward pressure than what is available at the moment to break (expecting it to evenually break at a later date). There are many investors out there who are in denial that the Bull has died and with the rally it will reinforce their thinking that the correction (fall) has ended and they will enter and bargain hunt in averaging down.....with them, there will be the Bear market strategists jumping in and out for a quick buck + plus some Bear Market investor rogues who will pump and dump. So I will expect temporarily optimism and happy times.

Short term buy and sell on the volatile stocks (RAK, FBUetc) and the hardest hit utilities (CEN etc).
Telecom has fallen the least and seems to be an oasis within this downturn so this stock is an enigma in regarding a quick punt.

From TA and assuming the bear market is operating... 12800 on the DOW is the resistance point at which the market will run out of stream. Depending on any upward pressure, that is, if that pressure is weak it may not get any where near the 12800, however at the moment this 12800 is the maximum benchmark. If for some reason the indices passes 12800 and up significantly past that point (very unlikely), it would be assumed that the bear market phase was not established in the first place,a false break or some sort of artificial intervention has occurred.) On the other hand if the DOW falls quickly below the primary 12000 support mark I would then expect a crash to occur as the downward pressure must be huge

therefore DOW 12800-12100 = 700 (6% rise is the maximum)
NZX 3900-3650 = 250 (6% rise )

Not sure about the ASX factor, they are not a confirmed bear market yet so if a fall happens across the ditch and the Bear is confirmed it may drag the cross NZ/OZ stocks with it. Colin Twiggs expects the ASX to keep falling.


Problems and Dilemmas

Will the 12000 mark hold?...wont know until at least Wednesday morning (NZ time) Holiday Monday in America I think??

Will the rally be a good 6% or a wimpish one or delayed for the next few days after more falls. In theory Key support NZX at mid 3450,so possible 5.5% fall until resistance is meet..DOW support at 12000 (1% fall)

Will the NZX and ASX wander aimlessly on Monday and Tuesday or will Asia create impetus? Will know by tomorrow.

Is it not worth the risk. Get 7.5% in the bank guaranteed



So I am tempted to buy, not sure what yet....TA trend lines and buy signals will be useless as I am buying to dump on the rally.

We probably have a couple of days to think about it

NZ Shares that rally constantly to the past DOW rallies is probably what I will be looking at. FPH is not a candidate to that rule but NZ investors perceive this share as undervalued so I will be watching that as well as other "perceived" undervalued stocks ie NZO and PRC etc.


Your thoughts and suggestions.....

[Hoop]

Hoop Quote....So I am tempted to buy, not sure what yet....TA trend lines and buy signals will be useless as I am buying to dump on the rally.

Badly worded by me .......OBV and probably other quick TA signals would not be useless but very valuable to identify the entry point.
Apologies to the TA and day traders.

[AMR]

I'm not that keen to buy at the moment...the Dow might stall at any place below 12800 as well (most likely 12500, the intraday low during the August panic). Stocks are too gappy right now, and the prevailing trend is down. I tend to sell short right before close if it looks like the S&P futures are going to indicate a lower opening along with a bearish chart pattern and an indicator divergence is even better.

[Hoop]

ASX primary support of 5650 is breached, now at 5631. This may confirm their bear market phase.
AMR did you have any joy shorting in Oz today? What a shocker day ASX all ords down 2.9%.

Yes as you said the prevailing trend is still down.

I feel quite chuffed today all my 3 stocks recorded gains + another day's interest from the bank

Disc: NZO PRC DPC

[Hoop]

I might not be chuffed today !!!

Big losses in Europe (footsie 5578 -5.48%).
Latest news from Marketwatch... quote..Stocks in Europe are trading over 20% below 2007 highs, which meets technical definitions of a move into a bear market. It also meets the definition of a crash .


Also another article from Marketwatch March contracts on the Dow Jones Industrial Average traded 522 points lower to 11,584 as of 11:30 a.m. Eastern.
My take on this is that 11,584 is below the big primary support of 12000 and is a bearish sign signaling worse to come.

My yesterdays quote.. So I will expect temporarily optimism and happy times. is still valid, it is the timeframe which is in doubt. I mentioned that the 12000 on the DOW will take a lot of selling pressure to breach...however with extra imformation being received all the time, the chances of a breach is now looking a lot greater than yesterday.

Areas I will be watching today on the NZX are

Volume...will there be irrational selling (fear or panic)
NZSE50 Indices drop..will the key support of 3450 hold?
Look for stock selection, the "perceived" good value stocks which have been hammered the most.

Depending on these factors I may or may not jump in. If I do, it will not be a huge buy in, as I must protect my portfolio against adverse risk.

The adverse risk is the realisation this could be what many commentators have been thinking of for the last 6 months..the meltdown or "crash"
Crashes tend to install panic selling and cause a further irrational sharp drop. I do not want to be in the market when this happens.

Note: Europe's plunge overnight (NZ Time) meets the definition of a crash.

[Hoop]

Dow closed at 11971 (-1.06%)much lower intraday but recovered due to artificial stimulis by the FED dropping the interest rate by 0.75%.

The DOW is at the approx12000 support, and there is evidence of resistence appearing at this level. This support level is offerring a resprite from the meltdown.

Will the 12000 support be respected? If so we may see bargain hunters emerge and give a few weeks of bliss, (and a push towards 12800) if not and the 12000 is well and truely breached (closing time not intraday) the melt down will continue with the next target support at 11200 (another -7%). With the index at 11971 and was a lot lower earlier in the day, the chances are in favour that the 12000 support level will be breached at some point of time, and we are presently in the eye of the storm.

Bought PPP yesterday (short term) first buy for 6 weeks. Only a small purchase in relation to my portfolio.

78% cash (may increase) Have adopted the "selling in the rally" strategy.

[Hoop]

The closing bell shows the DOW at 12270 (+2.5%)
Although the index was as low as 11700'S it has rallied back to close above 12000 primary support.
In the past the DOW activity is reflected to the other world stockmarkets, so the ASX and NZX could also see a bounce.

We are at the beginning of our first Bear Market Rally....use it wisely as it may not last long.