Tag Archive for 'stock market collapse'

Investment Risk and the Stock Market

Published on August 24, 2010 in Education. 0 Comments Tags: , , , , , , , , , , , , , , , , , .

One of our members has, very sensibly, enquired as to the ’safety’ of our ‘Stop-Loss’ protection system.  Our answer includes the following comments:

One of the reasons why we restrict ourselves to the FTSE 350 stocks and currently, in this volatile market period, eschew Small Cap and AIM stocks is that it is very rare for any such large and liquid shares to suffer the sort of calamitous collapse of up to 50% overnight. That, of course, doesn’t mean that it is impossible but it is very unlikely.

It is possible for a gapped open to exceed our stop-loss price and it happens perhaps 1% to 2% of the time. As we use, and recommend, the tight money management rule of 1.5% of capital the resulting loss of, say, 2% or even 3% is far from calamitous and is recoverable.

Having said that, one should bear in mind that investing/trading on the stock market is a ‘risk’ business. The unforeseen, the exceptional, the ‘one off’ event is an ever present, if relatively low, risk. If one is not prepared to accept that risk then one should not be investing into shares of any nature or size.

Some of us suffered badly in the 1987 stock market crash when share prices tumbled by some 25% over two days (and the stock brokers took their phones off the hook so none of us could trade!!) but it is a different world now but I, for one, would not say that it could never happen again!

Controlling the risk, watching and managing each holding and minimising losses is the secret to making money on the stock market.

Don’t get suckered in to this market – the FTSE could be about to change direction

Published on July 27, 2010 in Uncategorized. 0 Comments Tags: , , , , , , , , , , , , , , , , , , , , , , .

Let’s begin by admitting that no analytical system of the Stock Market is perfect and always 100% right. But there are some technical signals that do tend to ‘work’ more often than not and it is, therefore, worth taking note of them as and when they occur and adjusting one’s trading accordingly.

One such technical signal is when the index (or stock price) meets the level of its 30 week moving average (‘MA’); when it does the index, or share price, will often change direction at, or near, the meeting point. If the price has fallen to the MA level then, often, it will turn back upwards; if it has risen to the MA level then, often, it will reverse and fall back.

As you can see from this chart over the last few years the FTSE has changed direction each time it has met with or come close to the level of its 30 wk  moving average and it is at that level again now -

So, it would be wise to take notice of this and to hold fire on any new share purchases or long trades of the FTSE until the picture becomes clearer.

Another point to bear in mind (no pun intended) is that the FTSE is currently in a technical downtrend and within any downtrend there will often be ‘bear’ trend rallies that last for between 3 and 5 weeks. This week is the 4th week of the current rally!

FTSE FORECAST

Published on July 19, 2010 in Uncategorized. 2 Comments Tags: , , , , , , , , , , , , , , .

The latest forecast of where the FTSE is headed is now available and the future is not looking very bright.

The FTSE 100 – Is it going Up or Down?

Published on February 28, 2010 in Education and Market Reviews. 0 Comments Tags: , , , , , , , , , , , .

Last week’s efforts by the markets, and by the FTSE 100 in particular, leaves the impression that the index exhausted itself with its effort in bouncing up off of its 30wk Moving Average the week before. It is as though it felt it had done too much and used too much energy as last week’s efforts lacked any real signs of continuing strength.

An inconclusive week which, just to make life difficult, could be followed this coming week with either renewed energy and a rise up the scale or an absence of buying interest and a fall back towards another test of its (still rising) 30wk.MA.

So, it does look as though we are due for another inconclusive week of sideways movement and whipsawing tendencies as we have all experienced over the last few months (just look at the short term chart of the FTSE 250 index and note how long it has just meandered sideways).

But all of this will change, and probably soon. The market will not go sideways for ever. Our technical signals are far from fully positive, in fact there are several negative signals which hint at the growing potential for a sudden collapse of the markets.

But that will only happen if the FTSE 100 falls below the 5100 level (the equivalent for the FTSE 250 is the 8888 level) and whilst the indices stay above these level there remains the possibility of a return to upward moving share prices. But that will only become a real possibility if the S&P 500 index can get back up to, and stay above,above the 1122 level and that is not going to be easy for it to achieve as it too has a number of negative signals that suggest a sharp decline is still a danger.

So, the message remains one of ‘no change – but change coming soon’. It is a ‘Baden-Powell’ message – “Be Prepared”

Individual market commentary and illustrative charts are available at http://www.sharehunter.com/news/market-review/

The Potential for Another Stock Market Crash

Published on February 3, 2010 in Uncategorized. 0 Comments Tags: , , , , , , , , , , , .

The UK and US stock markets are on a knife edge of a possible second price collapse as they are following, almost exactly, the same directional path as the Dow Jones did in its 1929-34 series of crashes.

There are so many similarities between the current moves in the FTSE and  Dow Jones with what happened in 1929-30 that is very scary. The stock market could be on the brink of a possible collapse.

ShareHunter correctly identified the end of the 4 year ‘bull’ market in May 2007 and, in June 2008 forecast the potential for a market crash, giving ample warning of the potential for the 50% collapse in the FTSE 100 index.

The FTSE is once again on the edge of a cliff: The 1929 Wall Street crash wiped 50% off share values and the 2008-09 crash has done exactly the same for the FTSE. The post-crash recovery in 1930 took prices back up to the half-way level of the collapse; the 2009-2010 recovery on the FTSE has done exactly the same.

Then in 1930 the market recovery petered out; the market crashed back by 28%. This could happen again now”.

According to the latest ShareHunter research, if the historical pattern continues to be followed by the FTSE then it is likely to crash down to the 4100 level, if not to 3500. The FTSE has turned by 7% in the last 3 weeks and could soon fall by another 20% or so.

Of course, it may not happen and the market may just blip along sideways before it makes another push upwards but it is well to be aware that there are a number of technical signals that are suggesting that UK and US share prices may take another big hit.

More detail and illustrative charts are given below in the longer blog dated 28th January.

Watch this space….

Is the Current Market Downturn About to Get Worse – Much Worse??

Published on January 28, 2010 in Uncategorized. 2 Comments Tags: , , , , , .

History suggests that it might!

We are becoming increasingly concerned that the 2009-2010 recovery in the FTSE might be ending. There are several signs that suggest this could be starting to happen although, we must add at this point, so far the current correction has to be viewed as nothing more than an overdue reaction to the extent and pace of the 2009-2010 recovery after the 2008-2009 collapse.

We were right when, back in June 2008, we warned of an impending stock market collapse (although we did suggest a 70% fall was on the cards but it actually fell by only (!!) 49% and we are now growing increasingly aware of the possible fragility of the recent recovery and of the potential for another, major, stock market crash.

Please do not think that we are forecasting another crash, we are not, but we are suggesting that it is well to be aware of the potential and so be able to avoid getting caught on the wrong side, should it happen.

Our present concern centres on two aspects; the first we have written about several times and that is the important support/resistance level for the S&P 500 Index which is at 1122. Having pushed its nose above this level the S&P 500 has fallen back to it and is struggling. If it cannot regain the upper ground above 1122 then it is likely to run out of support and fall off, possibly rapidly.

And, as the S&P 500 is the main driver for the London as well as for Wall Street a fall would quickly be replicated on the FTSE (as well as others).

The second centre of concern is the distinct similarities that exist between our current markets and what happened during and after the 1929 Wall Street Crash. This concern is growing and should not be dismissed as fanciful as significant historical trends do repeat from time to time. The similarities that exist look more substantial than the comparisons made over recent months by various economists as to the Great Depression and the West’s current financial tribulations.

We base our analysis purely on technical features of the price actions of the markets and we pay no regard to macro economics.

The chart below shows the S&P 500 Index over the last 2 years (we will come to the FTSE 100 shortly) -

S&P Simple

(Click on any chart to enlarge it)

Note how the index fell by over 50% and then started recovered by 50% of the collapse and then just poked its head above the 1122 and immediately fell back.

Now let’s look at the Dow Jones Industrial Index for the same period. Note how it has done the exactly the same; big rise, big collapse and a recovery of 50% of the collapse and then poking its head above the 10345 resistance level and now has fallen back below it.

Dow - Simple

And the FTSE -

FTSE Simple

Now, we have seen this same pattern – a long rise (over years) followed by a price collapse and then a 50% recovery of the collapse…and that happened with dramatic and long lasting effect in 1929-30. Here is the chart of the Dow for that period.

1929 Wall Street Crash

And you can immediately see what is starting to worry us a little now – that the recovery only just poked its head above the half-way level of the collapse before it crashed back down again. And then it just kept on going down eventually taking out 90% of the value from the 1929 top.

Now, we are not suggesting that there is likely to be anything of that proportion involved in the coming possible correction of the market but we are suggesting that it is entirely possible for the market to follow a similar pattern at least as far as a retest of the March 2009 lows.

The 3 charts below show the potential danger to the S&P 500, the Dow and to the FTSE 100 index if they do continue to follow the same pattern:

S&P - 2010 Collapse

Dow - 2010 pos collapse

FTSE 2010 Collapse

Note in the case of the FTSE, it is still a little above the half-way support/resistance level. This could stand it in good stead, particularly as the current dominant trend is still the Uptrend, but it is a cause of concern that the current correction is gaining impetus and is likely to be greater than any previous correction made during the recovery uptrend since March 2009.

Conclusion:

No definitive change from Uptrend yet but the number of warning signs is slowly increasing. The worry is that, with the markets having thus far followed a very similar path to that established in the 1929-30 period, any continuation of that path will be the cause of major price falls in the coming months.

There is, of course, always the possibility that the markets will break with the historical pattern and make further progress after the current correction has run a short course but it would be wise to do two things -

  1. Be prepared for another crash
  2. Brush up on your Shorting skills

Just in case!

Alan Saunders

Chief Analyst

@ ShareHunter

29th January 2010