Trading the Easy Way

Welcome back, on yet another balmy early summer's day, where all in the garden is rosy, unless of course you have a share portfolio that's beginning to worry you, or a 100% mortgage. Never mind - you'll be able to buy lots of Standard Life shares soon and retire wealthy when they increase a thousandfold in value - yeah, right.

Anyway, another interesting week - if you recall, I suggested last weekend that some further upward pushes in the indices (after the previous week's suckers' rally) wouldn't have surprised me, but so far, that hasn't happened to any great extent. Nonetheless, I still reckon there will be another wee burst of upside activity before the predicted downturn begins in earnest - maybe towards 5850 or so in the FTSE100 for example - but the next major move is going to be in the other direction and it's going to start happening very soon now in my view.

In essence, the 'smart money' has pretty much left the arena by now, and as always, those left holding the parcel when the music stops are going to be the punters - the 'weak holders' who are always the last to buy, and who inevitably do so just when market cycles peak.

It can often take years of course, for market 'peaks' or 'troughs' to form in a manner permitting (relative) confidence in predicting medium term outcomes - say over a few months or so. Right now it's my own view that we're very rapidly approaching such a point - obviously only time will tell just how accurate or otherwise this prediction will prove to be - but most certainly I don't accept the current 'Great Buying Opportunity' spin!

Last weekend I referred in passing to possible levels of indebtedness among 'Scots, Northern Irish, and Welsh' - that comment elicited an email from one of you who hails from the Republic of Ireland - undoubtedly my equal favourite country alongside Italy. Simply the nicest folk on earth. Anyway, compliment over - here's the 'not so nice' bit, according to Francis, my correspondent:

"Ian, re your comments about Scots/Welsh/N.Irish, I have to tell you that here in the Republic of Ireland the levels of personal indebtedness are nothing short of crazy! The Celtic Tiger economy of the last few years has seen the construction industry go mad and along with more or less no planning restrictions we have seen MacMansions spring up everywhere, wrecking our once beautiful countryside and mortgaging people to the hilt and beyond. Even our Prime Minister now says he expects a 'soft landing' - implying he knows there is big trouble ahead in reality. When the Tiger loses its teeth you'll see Irish bankrupticies go through the roof."

I guess the same can be said for any economy that has permitted excessively lax mortgage lending - the crash in the UK and the USA for sure is going to be far worse than that in France, for example, where in the main, the maximum permissible mortgage tends to equate to around one year's salary and thus people generally are far less indebted than are the Anglo Saxons.

Some commentators are still determined that the UK housing market is doing just fine - yet according to the CBI, furniture and carpet sales are well down on last year. Now I may be missing something here, being a bit dense, but surely, people being people, if house sales were as strong as some are still suggesting then I would have thought carpet and furniture sales would also be buoyant. In these days of easy credit, I just can't quite see the young couple moving into their new fake Tudor job and sleeping on the floor.

Moving on, I mentioned last weekend that Brambles Industries were buying back shares and that I wasn't madly impressed by that - now of course we see that the biggest ever loss made by any company, ever, has just been posted by Vodafone - but don't worry folks - they have announced a share buyback scheme AND have massively increased their dividend. So that's OK then.

I also note that MAN Group (the managers of the world's biggest hedge fund) have just posted record profits - did I ever mention I was a tad sceptical of those who take 20% (and more!) of investors' profits but accept no responsibility for, nor share in, clients' losses?

Hedge funds, eh? As mentioned last weekend, it will indeed be interesting to see when the lawsuits begin - pretty much coincident upon publication of massive losses during the imminent market crashes, methinks.

Doom and gloom from Williams eh? Luverly! My old Highland Grannny (the really scary one) would have been proud of me.

But seriously, there are going to be many great trading opportunities for those of us who are prepared not to be hidebound by the 'buying' mentality that grips most people - as mentioned in the TTEW manual, those who are only prepared to buy, are approaching their finances with the equivalent of one arm tied behind their back.

Make no mistake though - there WILL still be buying opportunities too. When markets start to 'tank' overall, there is always a 'flight to quality' - a tendency to move out of, say, telecoms (perceived as risky) and into areas where people will always need to buy the product - utilities and food for example. It's also interesting to note that in 'bad times', shares in tobacco and drinks companies tend to do well - doubtless due to psychological reasons. And of course so - called 'Defence' stocks - aka 'Offence' stocks - will tend to prosper while the likes of Tony and George still strut around the place. In the longer run too, the oil exploration sector can hardly go wrong - although individual companies therein could well go to the wall because it's a risky old business too.

Anyway, enough already! You'll be fed up by now with what seems to be my doom laden attitude - but please be very, very sure that 'doom and gloom' is NOT what this is all about - my intention for the entire TTEW project is that you should be able to objectively consider BOTH sides of any market situation, and form conclusions that hopefully will result in profit in YOUR pocket!

On that note, on to today's charts, which look at 'channels' in two of the potentially strong areas mentioned above - one is a utility share, and the other is the tobacco sector. (By the way, I don't wish to sound unhelpful, but if you want to trade a sector as opposed to an individual share within it, you will need to do your own 'shopping around' among the spread bet providers because they don't all offer 'sector indices' and even among those who do, there can be big differences in spreads. It has to be part of YOUR job to conduct that type of research. I'm showing you the chart because I consider it to be a good example of what I'm trying to teach.)

OK - that's it till next weekend, by which time we may well have witnessed the beginning of the long awaited trend change, when prices drop below their previous lows as mentioned on last weekend's FTSE100 chart.

Happy trading!

Ian.