Another sunny weekend in the mountains - not that you really want to know if you're in the midst of the UK storms! Wherever you are, I hope no harm came to you - the weather looked pretty horrendous these past few days.
"Harm" however might well be the correct term for the UK economy - as in "coming to harm" thanks to the reckless lending practices of the past few years, and the profligacy of the ex (but still current?) chancellor, old Golden Brown himself. The man who sold quite a few tonnes of UK gold at $276 an ounce, and who is in the process now of breaking his self - imposed "Golden Rule" regarding public sector borrowing. Ah well, he's a politician I suppose, so normal rules of keeping promises don't apply. It has been interesting to note the change of wording, reference taxpayer guarantees to Northern Rock, in that before Christmas their loan was "guaranteed" - not the term being used now. What a great wheeze - coming up with the idea of converting most of the (probably unrecoverable) loan into £30bn of "bonds" underwritten by HM government. The government takes on the debt (in a last gasp attempt to avoid nationalisation) and promises to repay.....the government. There once was a bird that flew around in ever decreasing circles till it vanished up part of its own anatomy.......if taxpayers imagine for one second that they are off the hook, they are kidding themselves. And the Institute for Fiscal Studies puts the probable true cost of the Northern Wreck fiasco at £100bn!
The other big scam (mentioned before in these ramblings) is the potential cost of decommissioning nuclear power stations - £61bn two years ago was the estimate, now it's £73bn, next year £***bn? By the time the new ones are (maybe) built, the old ones will still be costing £zillions - and the new ones will never produce as much as claimed anyway. It was ever thus.

US Treasury Secretary Paulson (anent the recent panic - induced Fed interest rate cut): "It shows this country and the rest of the world that our central bank is nimble and can move quickly in response to market conditions...." Ho Ho Ho. I liked that. Listen guys - the Fed responds AFTER the horse has left the premises. It's not "nimble" enough to get the stable door bolted before the equine has done the same. The Fed cuts rates in response to what the markets have ALREADY done - to wit, reduced the yield on three month US T-Bills (Treasury Bonds). As people begin to worry more and more about their investment risks, they begin a "flight to quality" (type that phrase into the WICS search engine) that results in their being willing to pay more and more for T-Bills, because they perceive that - rubbish though the US economy might be - the US government won't default on its bonds. As the capital cost of a T-Bill rises, so its yield falls, and currently it is 1.94%. Therefore even the new 3% Fed rate is still "too high" according to the market and we can expect further cuts in due course.

Not to worry though - the FBI is on the case. They must have had their overdue phone bill paid by a generous benefactor (if you're new to this nonsense, type FBI into the search engine for the reference). They are currently pursuing fourteen as yet unspecified companies (seemingly including several major banks) regarding alleged sub prime mortgage fraud. Maybe such products should now be renamed "sub crime mortgages"? Again, if you're new to WICS, you might care to type 'toxic waste' (without the inverted commas) into the search engine - or type NINJA and see what you come up with. Only fourteen companies? It will be a lot more than that in due course - an awful lot more!

Moving along, and it's one marriage "off" and another probably "on". I refer to China having stepped in to prevent the merger of Rio Tinto and BHP Billiton, by having bribed Rio Tinto to back off via the purchase of a 12% shareholding therein. A "reverse dowry" perhaps! Anyway, methinks both prospective partners will have cause to breathe a sigh of relief. On the other hand, Microsoft's bid for Yahoo will probably succeed, because the latter is in a total mess. But there's little prospect of that marriage working out well, because Google has a far better business model to meet the needs of the "modern" internet. We'll see.

Finally today, I had an email regarding my views as to whether or not to trade just before "announcements" such as the US "Non Farm Payrolls" that came out late on Thursday. My reply was that I totally ignore such things - day traders might be affected, but longer term traders (as per this methodology) have no need to consider them. After all, when you think about it, if you're going to get worried about "announcements" you'll never be able to open a trade! And on the same note, but taking the opposite position, if you ever feel a bit uncertain/confused/worried by market conditions, then stand aside. NEVER trade when you feel like that - and we ALL feel like that from time to time, myself included. In skiing, if a particular piste looks a tad too icy/rocky/infested with snowboarders (!) then I choose a different route down the hill - usually to a sunny cafe with a terrace where I sit things out for a wee while.Especially when snowboarders are around in any numbers! And that is NOT a joke - it's exactly what I do - and in trading, "doing nothing" is something everyone should do on a regular basis. Sitting too close to a screen all day makes no kind of sense in this business. If you NEED to trade (in the sense of being "addicted") then until you get over that attitude, you shouldn't even think about opening any positions.

Anyway, on to a chart or two. First we'll look at the Dow Jones (DJIA) where I have marked the break below the long term trendline and the subsequent retrace that stopped exactly on that trendline on Friday. Next, although it might well push up a wee bit more, I suspect the next moves will be downwards, although (as marked very roughly on the chart) there will be retraces along the way. For more about such formations, use the search engine and type "trendline", "trendlines", "probe", "retrace" - all minus the inverted commas of course. Next there's a chart of Hardy Oil & Gas to show both a fairly "classic" triangle (again, use the search engine for more re triangles) and the fact that the share is pretty illiquid - ie the volume on most trading days is pretty low. So what? - So it can be hard to get a spread bet company to offer it, and even if one does, spreads might be wide. That's the sort of thing to check before getting too excited about a specific chart! The last two charts this weekend are both of Speedy Hire - the first one shows no DMAs and the second is with the addition of these, partly to show you how DMAs bring 'perspective' to a chart and partly because this share might be about to experience a change in its trend. And that should be enough to keep you thinking and analysing, so best wishes until next weekend as usual.

Ian.

'IMPORTANT NOTICE: These WICS charts are for EDUCATIONAL PURPOSES ONLY. They represent only MY understanding of what is happening in the market for any particular share, stock, commodity or index. In NO circumstances should they be construed as recommendations to trade. If I choose to trade what I see, that is MY decision. YOU must, in turn, come to YOUR OWN conclusions about what action, if any, YOU might choose to take'.