Investing strategies and secular bear markets

[Hoop]

In times of market transitions an investor is bombard with differing points of view based on differing criteriae....who's right and who's wrong?. ..who's information is more valid? ..is there an alterior motive...do you trust a more experienced and well known respected commentator to that of a commentator of unknown quantity/quality?

Brian Gaynors article in the NZ Herald is an intersting example. Brian uses one criteria (the most common one) to base his opinion that NZX as well as the ASX DOW and S&P 500 are not in a Bear Market Phase but still a Bull Market phase with a major correction. He is correct using his definition.

This brings up the dilemnas that investors face from time to time. Bull Market phases require less skill and less discipline to succeed. A Bear Market phase is demanding to an investor as he/she must use all the knowledge learn't and apply with strict discipline to succeed.

So where are we now Bear or Bull? Brian who is well respected for his investor experience says not yet a bear..so it is hard to interprete if that means it is still a bull market with a serious correction just finished.

I, who have few creditials unfortunately think Bear and it's short for Bearware

Other respected commentators also think we (NZX not mentioned) are in a Bear Phase DOW S&P500,FTSE etc.
...so are we in a bull or bear market ? click here.

I (for what its worth) am of the view that NZX has entered and confirmed a Bear Market phase(1):..due to the following criteriae:
...The Dow Theory NZX is in wave A click here
...Elliot Curve...NZX yes click here
...NZX broken its primary support of 3900 click here
...Market behavioural patterns show bear market phase characteristics click here
... Combined markets indices dropping 15-20% from their highs click here

At times like this it is good to get as much info as possible

where to from here ??
Well personally I beleive Colin Twiggs more so than Brian Gaynor due to more valid points mentioned and deeper analysis by Colin.

Colin Twiggs latest newsletter is good reading.

Using TA look at the key indices points NZX 3900, Dow 12800, S&P 500 1400, If we are in a bear market the above indices levels are resistence levels and will be hard to breach, therefore there is odds on chance that the breach wil not happen during this present phase.

For me I am taking the Bear option and holding a cashed up position.

Investors who are following Brian Gaynor will probably be buying up "bargains' ...so for their sakes I hope he is right and I am wrong.

Disc : bear market rally is maturing... beware of another downturn.

[Hoop]

Interesting day on the NZX. Considering the North half of the North Island is on holiday + Australia Day in OZ, the NZX is trading at higher volume than I expected. I have taken the advantage of this volume by cashing up my DPC holding (+5% profit).....Nothing flash,but my ojective this year is to be in +ve territory, if I succeed this objective in a bear market I will probably be in the top 5% of all market investment performers. Since I have adopted my Bear Market investment strategy* (commenced 8th Nov 2007) I am just in postive territory, so I am meeting my objective...so far!!.

* My Bear Market Strategy (of which there are many) I have adopted is ..stay mostly in cash and take advantage of buying and selling within each short bear market rally. Profits are interest on cash + the opportunty of buy/sell within each rally. I have broken my rule so far by holding longer term NZO and PRC stocks...this may change as I have now applied more rigid stop/loss criteria.

This reminds me of the quote from Colin Twiggs latest newletter (one of the events of a bear market phase theory) "......Bear market rallies are typically steep and accompanied by large volume. High volumes warn that existing stockholders are taking the opportunity to sell down their remaining positions. Stocks are transferred from strong hands to weak, and the market is likely to fall sharply at the first setback..."

I have come across some works by Gary Shilling, this guy foresaw the recent sub-prime mess back in 2004 and was ridiculed by nearly all of his peers at the time. Gary has been there and done that and is not affraid to speak his mind publically

His last years themes

Gary Shilling’s 12 Investment Themes

• 1. The housing bubble has burst.
• 2. The Fed will ease; meanwhile, the yield curve will remain flat or inverted
• 3. U.S. stock prices will fall, perhaps below the 2002 lows, in the midst of a major recession
• 4. China will suffer a hard landing due to domestic cooling measures and U.S. recession
• 5. Weakness in the U.S. and China will spread globally, dragging down economies and stocks worldwide
• 6. Treasury bonds will rally
• 7. The dollar will rally, but not before the recession is global
• 8. Commodity prices will nosedive
• 9. Maybe global and chronic deflation will commence in
• 10. Maybe U.S. consumers will start a long-run saving spree, replacing their 25-year borrowing and spending binge
• 11. Maybe deflationary expectations will become widespread and robust
• 12. Speculative areas beyond housing may suffer in 2008.

His this years themes...have to pay for that unfortunately.....see the Forbes article for more

Now for the people who think I only focus on what I want to believe...... Here is a good definition of Cognitive dissonance from Wikipedia

Now I will (seem by many to be bias towards the bear again) refer cognitive dissonance towards investmenting within a bear market phase
PAUL B. FARRELL
14 winning strategies for a bear-market recession


For those who think we are still in the Bull Market phase undergoing a correction, Cognitive dissonance theory still applies it is reverse as mentioned above and relates (to the belief of many) that I in formulating my analysis, I do it by filtering out the bullish mood info and only acting on the bearish mood info. (which I try not to do ...consciously anyway).

[AMR]

We had a bounce off the 12800 resistance last night on the Dow. Our blue chips aren't doing that well. FBU closed below $10, TEL whipsawing around $4, RYM bouncing off resistance at $1.85, the FP twins drifting sideways...

I think we might see a bit more sideways with a slight downwards movement for a couple of months yet.

As for NZO, I'm not worried at all.

[Hoop]

My quote from the 22-1-08 post ..My yesterdays quote.. So I will expect temporarily optimism and happy times. is still valid, it is the timeframe which is in doubt.

Well a fortnight ago it was all doom and gloom ..now it is guarded optimism. Goodish news has surfaced to which the meda has highlighted masking the more importantly jobless figures (up again). The good news of course brings back memories of the good times that used to be. So what has happened? Is there a rebound in the economy...from where I sit the answer is no. There is still a financial monster wrecking havoc out there and sooner or later it is going to clobber another (or the same) major financial company(s)/sector(s) and the doom machine will be back in action once again. This will no doubt end this present rally.

From a share investor point of view is there a way to predict the end of this rally? If there is I (+most others) don't know about it. However an investor adopting quick in and quick out bear market strategy can be sucessful by not being greedy and hanging around in the market for too long and abiding by some simple key points.

These Key points are (assumption is a Bear Market)
The size of the rally in progress is limited to its resistence level (high chance of respecting)***.
The length of a rally has a high chance of being of a short duration.
The rally is volatile, high volume of trades.
The rally always occurs during periods of investor relief from suffering (usually with release of some good news). (note:- At the other end of Bear market phase (3) good news is met with apathy and a rally if it happens at all is generally muted).

*** This area I am concerned with ,as with a rally that lingers on longer than normal investors start to think whether the end is in sight as they focus on the good bits and erase the bad bits. To keep every thing in perspective, some simple TA is all that is needed.If the maket indices are hovering around the resistance, don't buy in... it is a good time to sell and wait and see. If the indices breach the resistence level well and truely then times have changed and a buy signal is usually triggered if not then another downward slide usually happens.

Below are the present index levels and their resistence levels (RL).

Index....... Present ..........Major R L .........Next Impt RL

Dow ...........12635 ...............12800 ..............13000
S&P500.... ...1381................ .1400 ................1450
FTSE100... ...6026.................6000 breached....6100
Hang Seng...25035............ ...26000
Nikkei .........13860 ...............13600 breached..14700
ASX.............5922............... .6000..................6400
NZX ............3711............... .3900

For an investor (with Bear market strategy) to buy into this rally at this late level there is little to gain and much to lose. The Bear market assumption is that the indices have a high chance of respecting their major resistance levels ..so stay out.


Disc
hold NZO PRC PPP
Cash 80%

[Hoop]

We had a bounce off the 12800 resistance last night on the Dow. Our blue chips aren't doing that well. FBU closed below $10, TEL whipsawing around $4, RYM bouncing off resistance at $1.85, the FP twins drifting sideways...

I think we might see a bit more sideways with a slight downwards movement for a couple of months yet.

As for NZO, I'm not worried at all.

Impossible to accurately predict the future AMR, as there are heaps of unknowns out there, including some unknowns that are not yet created.

All we have is "present" data (aging by the day and hence becoming less reliable by the day) and history.
I have "" present because by the time it is presented it could be out of date and useless. A good example of this is the IMF report recently made public, the data was coallorated at during Oct 2007 the Fed policy was dramatically altered when they found out that IMF was dated and the later figures showed a big decline in the USA economy during Nov/Dec resulting in the emergency interest rate cuts.

As for NZO (which I have too) ....keep an eye on the oil price chart.

AMR being an TA person watch out for the $87 primary support level, the price at the moment seem to want to test this level...if it is breached (not considered likely yet) the Oil market will enter a Bear Market phase (no doubt followed with all the Bear market characteristic signs seen at the moment with shares).

[Hoop]

Quote.....Looking forward, though, there is a lot of bearish sentiment out there. Edward Meir, of MF Global wrote that, “the weakness we are seeing in the U.S. is now spreading elsewhere, rendering the notion that the world's economies can somehow decouple from the U.S. as largely misguided.”

The latest data suggest that global economies are moving largely in sync, with both Europe and Japan noticeably slowing, and even market-mover China's growth for 2008 projected by many to be below last year's levels.
Source: Casey's Daily Resource

This international sync has been noticeable for some time within the share markets.
This reinforces my view that we can still gauge the lead from the DOW to anticipate what happens to our markets down under for the time being.

At the moment DOW down nearly 3% at 12265 nearly closing bell time.

[peat]

From Elliotwave.com

[Halebop]

Interesting to see that the big dip signalled the end of the recession not the start.

People like to say the share markets are forward looking, pricing in future performance. Suspect they instead price in future manic/depressive behaviours rather than performance "I know prices are crazy but they'll be even crazier tomorrow" (Now I sound like a real estate agent).

Sharemarkets are a lagging indicator of expectations as much as a future indicator of earnings. By the time the last swinging optimist has sunk into depression and sold into a diminished pool of contrarian risk equity (Less Cash / Same Number of Shares = ), prospects have already improved.

Still, markets wouldn't be quite so profitable if this didn't occur...

[peat]

but that isnt a graph of the stockmarket and I would expect that statistic (ISM) to be lagging somewhat as its an 'after the event' number , but, personally I dont see stockmarkets as lagging, to me stockmarkets are predictive.
Halebop by the time that last optimist has dejectedley sold out the market would have been in an accumulation phase

[Hoop]

but that isnt a graph of the stockmarket and I would expect that statistic (ISM) to be lagging somewhat as its an 'after the event' number , but, personally I dont see stockmarkets as lagging, to me stockmarkets are predictive.
Halebop by the time that last optimist has dejectedley sold out the market would have been in an accumulation phase

Peat, I agree with Halebop...sorry.
The stockmarket is just an indicator of Human investors behaviouring together as a herd, yes you have some individualists or splinter groups but these are all averaged out during the overall days trading. In times of relative calm and rational market behaviour (especially during the middle of a bull market phase) the herd are usually nearly all of similar minds and predictions are made with a good degree of certainty and there is minimal to no lag and a degree of predictibility...but at the end of market phases the herd is divided which way to go due to conflicting information, and uncertainity leads to illogical / maniac behaviour, which due to the herds indecisive measures causes the market to lag real events, hence the term "in denial".
We are witnessing history at this very moment with a phase change from Bull to Bear, and with it comes the optimistic lag from the much more dire real events.

This brings up a point of interest....because there is always a more prominent lag at the phase change, it makes good investor sense to stay out of the Bear market phase until such time as the real events show improvement and then work away with FA to indentify good companies (the ones that have weathered the downturn well) with view to buy...OK you can never time the tops and bottoms but buying in at near bottom must be better than holding stocks during a bear market phase using the crazy excuse that you are a long term investor.

There is ample to buy in as there is that lag. The stampede buying frenzy if it happens comes in after the lag.

Admittedly a long term investor wins out by not selling in a brief bear market phase, but it is a gamble.

A more lengthy bear phase can be damaging to a long term investor, the chief damage resulting from an unforeseen "blue chip" company being perminently disabled or at best suffer long term harm from economic hard times which forces unforeseen rapid change to which that blue chip company is incapable of adapting to its new environment quick enough, telecom NZ from the dot. com crash 2000 springs to mind.


From my personal experiences.... I've had the best successes buying in when everyone tells you you are a bloody idiot buying into such a terrible market.
The time I 've had my worst investments has been buying in when everyone tells you should because they are such great bargains...This is an act of "in denial" from both ends of the market phases as far as I am concerned.

PS
Peat your chart..very interesting...I think it is that silly official recession tag of having to have at least the latest 2 quarters in negative growth before it is called a recession.
If that is true then your shaded area (end of 2002) ends when the chart just pokes it nose above the 50 line hence marking the official end...even though it is a slight negative the quarter following. To everyone outside officialdom I would presume would still be feeling like it was a continuation of that current "recession" > I don't think it is a lag event