I WANT A MARKET CRASH

shelman

1
439 1
A chap i worked with retired early, taking severance, and
invested the bulk of his money in various funds etc. Six or so months later he locked himself in his garage, started the car and slowly went to sleep...permanently.
The cause......


Black Monday



Black Monday, October 19, 1987, day on which stock market prices in the United States declined precipitously, accelerating steep losses in stock markets around the world, including London and Tokyo. By the end of the day the Dow-Jones Industrial Average had fallen more than 500 points, representing a loss of more than 22.5 % in the value of its stocks. Economic observers blamed the crash on such factors as lack of international trade leadership by the federal government, underlying weaknesses in the U.S. economy, and computerized trading on Wall Street, which triggered sell orders automatically.

The crash had been preceded by severe declines in the bond market since the spring and a flattening out of the rise in stock market averages. In mid-October the New York Stock Exchange underwent three days of sharply falling Dow-Jones averages before Black Monday's precipitous decline. During the week following Black Monday the crisis eased, and by the end of 1987 the stock market averages were slightly ahead of their totals at the end of 1986.
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He sold everything at a massive loss because he did'nt know the difference between a CRASH and a correction; compounded by the scaremongers in the BLOODY newspapers!
 

paulperryman

Junior member
16 0
For what it is worth, I think that even in the event-not unlikely now IMHO-that there is another severe correction ( I feel up to 25% possible) there are one or two safe havens for your money other than cash. I have had a Schroder 250 stockpicker fund now for 15 months and it has made me as many % profit i.e. 1% per month; the fund manager has a nose for sniffing out value and I intend to hold it for as long as the U.K. economy remains soundly managed as it is at the moment i.e. no return to inflationary tax cuts and "boom and bust". Many of the companies in which Schroder invest in the 250 fund will be familiar to those of you who like good yields and low p/e...indeed I was checking through your "themestream" list of low p/e co's which I had narrowed down to those which the Investtec site said were buys, and ,when checking out the co. on Hemscott, I found that Schroder had a sustantial stake in a couple of the ones I had refined the list down to even futher, using a very strict-criteria-entry-point of my own. If I remember rightly, AHT was one of them. The point of this ramble, is to demonstrate where there is AND WILL REMAIN safe, reliable value throughout the coming storm. The only other way will be to light on co.s which are expanding through RAPID growth - such as N.I.S.- where a p/e of circa 60 falling to 24 will cause a re-rating. Failing this, I have heard that there's some smart money heading for Thailand which some astute observers think has "bottomed". Paul.
 

RogerM

Established member
752 6
Patience guys, patience!

This is my first visit here, and it looks like an excellent forum for discussion. Rather than indulge in an excercise in semantics as to what constitutes a "crash" and what a "correction", the answer must lie in valuation. If ratings are too high, then prices must come down, and a return to a steady uptrend whilst prices are too high is just delaying the inevitable. My market chart is telling me that the FTSE 100 is on it's way to below 5000 based on the diamond that has just broken. This week will be critical as if the support at current levels from October 99 breaks, and I believe it will, then the diamond takes us down to AT LEAST 4928, with support at the 1998 low at 4600 providing the next support level. There needs to be a change in mind set before we reach the bottom. A whole generation of traders have learned to buy the dips, and I believe that they will soon learn to sell the rallies, which will push the FTSE down to below 5000 this year.

Meanwhile there are opportunities selling trading Index Futures and CFDs, and all the time my cash is sitting there not devaluing whilst shares get cheaper for when I buy back in, I believe that I am actually making money. "Standing aside" is in itself "taking a position"!

Nice to join you!
 

traderx

Active member
146 2
RogerM

Thank you for your contribution to this debate and first post. Welcome to Trade2Win BB. My controversial post has prompted some even more contoversial replies but I should have known better than to provoke the Members. I agree with your viewpoint that the sell off will continue for some time. The worse case scenario is that described by Titus-UK of a melt down on Wall Street due to of automatic trigger of stop loss and margin calls with brokers selling positons without reference to clients. Then critical mass and the correction is on the cards. UNLESS THE MARKET CHANGES DIRECTION SOON THIS HAS TO BE A POSSIBILITY.

Shelman is uncomfortable with this scenario and he expresses in the most graphic terms what the market has done and will continue to do to some people caught up in the wrong set of circumstances, but realistically where is this market going, DOWN, DOWN, DOWN. The trend is firmly established and nobody but nobody knows the bottom as of now. As Technical Analysts there is absolutely no case for sitting on long positions when you know that one support level after another is being broken. We know the rules for stop loss and money management and there is no excuse for being burned week in week out. IN EFFECT WE MUST BE BUSINESS MINDED AND TAKE THE RIGHT (HARD NOSED) DECISIONS FOR SURVIVAL. I look forward to your next post, please come back to me if you have any further points to raise.

Tx
 

titus-uk

1
291 5
Critical week

I agree with the views expressed - this is a critical week. If there is no retracement, i will take a position of standing aside. Why - well on the top down approach, all levels are looking serious:

the major indices themselves are almost all at at least 52 week lows. So - the choices are short term sideways, up, or down. Any continuation down is very bearish, and as stated by Roger, a any further fall may make falling off the cliff inevitable.
2. Stocks - well, little to add.
3. Sectors. Been looking at this this afternoon. I have some major concerns. Usually smart money moves from sector to sector. Therefore, at any one time, some trend up, some down, and some trade only. I find using price relative to secor MA's gives a good guide when to enter a sector. By my analysis, whilst the techs have fallen, other old economy sectors such as constuction etc have really taken off. (As an aside, how many of us were blinded not to see the likes of Beazer, Barrett Developments etc!) However, several of these sectors are now losing momentum, and are now starting to generate exit signals. This should be the start of other sectors generating buys - but lo and behold, there aren't any! Therefore if sectors that have recently been hammered are not attracting buyers, then the last legs will be kicked away. The way down could be very rapid.

I would be interested in what others think, because I hope this analysis is wrong. I really do.

Mark
 

sefty

Active member
114 3
quality info

Just had a quick scan of the BBs and this quality of discussion seems to be lacking on most of them. They are in fact mostly picking holes in each other rather than trying to make sense of the markets.
 

ChartMan

Legendary member
5,580 46
My findings too.....I've been scanning the weekly charts (FTSE250)this weekend and just about everything is on a downturn. How I'm gonna find a long for this week's comp, I've no idea...A couple stick out a bit as being a half chance..ABP AGS ARK IMI .
As for shorts,anything will do, it's just a question of how much..Time to go 100% cash I think
 

waldorf

1
141 1
Excellent posts, all those millions of PEPS and ISA's and other funds ,who can't hold cash for very long, will either be closed or find the least voatile sector .
When everyone stops buying the downward momentum spiral becomes unstoppable.
No government will allow this to happen, when a kind word, rumour, interest rate rise will abort it. Certainly, the style of trading today is effecting the direction of the markets,haven't heard "don't worry its the long term that matters" quote lately. Like to make one point though, No investers, traders, No market.?? There is a price at which we would all dive in, its not theory , its a fact, what price, index level using TA ,fundamentals ect. would that be, can TA tell us??, 1405 the opening price at the begining of Oct 1998 or one of the supports up to todays level.
Pesonally I seem to see the bottom of the Nas at each new low, it is the Nas, techmark that dictates and grabs all the attention, all other markets seem to follow its lead. I am an optimist (Bull) by nature , but even so, cannot see the end of this bear market, maybe I'll become a bear and short eveyrthing, seems to be the only way out.
Good Luck all
Col

[Edited by waldorf on 04-03-2001 at 05:15 PM]
 

RogerM

Established member
752 6
Well, you wanted to conjure up a crash - and you have! But where to now. Pundits are divided by further gloom to come, and those who feel that the fundamentals for the wider market outside TMT stocks are good and that the market is oversold. So how do we reconcile these various views.

Firstly the view that stocks now represent good value. The FTSE 100 is down 25% from it's all time high - a bear market by any definition. So it must be cheap now, right? Well no. The dividend yield on the allshare is 2.5%, which is about double the long term average of around 5%. Admittedly the actions of dear Gordon to tax dividends from shares held by pension funds is distorting the market as companies find other ways to use their profits (share buy backs etc), but nevertheless, it still makes shares look expensive. So what about the p/e of the market? This is currently about 20, or 17 if TMT stocks are stripped out - against a long term average of 14. But an average, by definition, means that price must sometimes be below the average. At the end of the 1973/74 bear market when the allshare slumped by 75% over an 18 month period, the p/e of the allshare was about 4, and the dividend yield about 11.75. This was against a backdrop of rising inflation, falling growth and a quadrupling of the oil price - not a current scenario - but history rarely repeats itself precisely. But these figures do go to show the extent to which markets can become oversold.

Remember Alan Greenspan's "irrational exuberance" comment? It doesn't seem so very long ago - but it was made with the Dow at around 6000. Now we are trying to persuade ourselves that at just under 10,000 the Dow is cheap!.

The press is saying that normally after a fall of 20 - 25% this is the bottom of a normal bear market (whatever that may be) and that buyers will come to no harm at these levels. Hmmm - try telling that to someone who bought into Japan after a 20% fall at 32000 on the Nikkei ( now 12152 10 years later). Or even the Allshare in 73/74. Or the Dow in 1929 which fell by 90% by the time the bottom was reached. Or the techmark where buying in after a 20% fall would now have halved your investment. Some tech stocks have already fallen by 95% - or as one fund manager explained it, they dropped by 90% and then halved!

I am not predicting anything so cataclysmic, but we do need a real capitulation phase before we have seen the bottom. Then we need a period where shares no longer fall on bad news, and where people get bored by the whole subject and reject shares as a means of investing. There will then be few sellers left and buyers will be able to start to drive up the price.

Finally, what are the charts saying. Firstly there is a diamond top pattern that has broken on the FTSE 100 and the Dow. The Dow pattern is well documented in Ed Downs excellent site http://www.signalwatch.com/ and needs no further comment here other than to say that the pattern implies a fall to 7700. Using the same technique for the FTSE projects the market down to at least 4905, with no real support before 4600. also remember that measurements based on a diamond are based on minimum moves - the actual move is frequently more. See attached chart.

The S&P500 has completed a head and shoulders top and standard measurements indicate a move down to 933, which is very close to the bottom in 1998, and a long period of consolidation in 1997.

For both the FTSE and the S&P I don't necessarily see this as a straight line move - a period of consolidation in the form of a flag or pennant at close to current levels would indicate that we have reached the halfway stage from the breakdown points on the major indices. But I believe that we will get there.
 

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madasafish

Well-known member
470 5
I agree with Trader X we need a crash .. but we will not have one.
Nasdaq comp is in a superbear down trend :
Since September a broad channel 500 points wide with sizeable rallies.
Since end January a much steeper and narrower channel down (200 points wide) inside the braod channel.

The two intersect at 1475 or thereabouts on 30th March give or take a few days.

We should see then some form of rally.. but I see further falls - remember :
1. profits are deteriorating so news will worsen
2. Intel Cisco and Microsoft and others have been booking up to 50% of their EPS by profits on INVESTMENTS. These are now turning to losses. So the news will get worse - much worse.

I expect a major selloff as 1998 - A Greenspan is no fool - if he cuts rates 1% next week he'll be like King Canute trying to stop the tide. BUT a big cut at the bottom when fear is at its worst will drive the institutions to buy in volume and hey presto a 20% rally in a week.. and the corner will turn..

So where is the turn? ANd when. My charts suggest NAS comp at 1100 - maybe spiking to 1000 - and a turnround - June to August - maybe later. Certainly neo earlier.

I'm doing my sums for what to buy and at what price.
BLM at 80p, Autonomy at £4, Colt at £3 seem about right.


(Last time I did this September last year I forecast Bookham at £15 so my track record is one of optimism)
Mike
 

titus-uk

1
291 5
I expect a mini-rally this week - after all, the MM's need volume. So a rally will create buyers, turnover, and profit - after all many MM's have a lot of stock - they need to sell this off at higher prices to satisfy their greed! (Not an insult, as to a lesser extent, that drives us all!)

However, the major down trend is still in tact. So to create volume, MM's will let the price fall. This may be a week to make profit - I hope, but holding any longer that friday may have risks!

Remember, capitulation has not yet come! Where is the bottom - may be as low as above, I do not know. I just feel we are not there yet!

Hopefully a good week to all,
Mark
 

CHARTY

Active member
119 1
This is an interesting thread and I just wanted to add few points.

1) This market, particularly the tech related stocks, are clearly trending. As an example, an ADX reading of 38.49 for the future on the NAZ is an indication of strong trending activity.
2) The SAR indicator developed by Wilder is one of those tools you would use ONLY in a trending market. It had been developed to always keep you in the market. It currently suggests being short the future on the NAZ.
3) The overall investment community has grown more mature, less “panicky”, mainly, I should say, due to the fact that financial education and information are reaching every day a larger part of the population. As a result of this, the “follow the flock” approach to investing (of which, do not take me wrong, I am a keen supporter!) has become more widespread. As a result of this, once we are in a trend, any trend, this is likely to last longer than it would have in the past.
4) Spread betting firms, CFDs, more people trading futures and options, all these elements make it possible for investors to play the market ALSO on the short side. In the same way there were speculators pushing up the NAZ before the, erm, “correction of March”, in the same way there are market participants holding short positions, thus contributing to the continuation of the current down trend
 

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