Hello again - it has certainly been an interesting week in the markets - very possibly the USA markets are now at the 'tipping point' and it will take very little indeed to start a rush for the exits - this coming week will give us a better idea.

'M&A' (Merger and Acquisition) fever seems to be diminishing across the pond and along with most of the 'Moms and Pops' having now bought what they have been persuaded to buy I can see minimal prospect now of a further upside push of any real size. We'll see - but shares in most companies in the DJIA are now fairly steadily falling in price and any rises are on the backs of only a few at any given time - not a good sign if you are a bull.

As far as Europe goes I'm still of the view that there's some upside left but again we shall see.

The other weekend I was a bit scathing (moi?) about 'shareholder value' anent takeovers and with Vodafone having decided to write down (as in 'write off') £27bn in Germany and £6bn in Japan I kind of rest my case.

Both sums involve having paid way too much to take over other mobile operators, and are indicative of the Napoleonic attitudes of far too many boards of directors. (Remember Marconi? Once it was a hugely successful Plc, way back in history.)

On a similar topic, I might also confess to a degree of cynicism concerning so - called 'Fundamental Analysis' as it pertains to those who are actually capable of carrying it out. (With the best will in the world, the general public is NOT capable of doing this - simply because of 'access' issues - you won't get to grill a Financial Director, nor the auditors, nor interview key employees and so on, the way in which a fund manager can. And believe me, if you CAN'T do these things, you ain't anywhere close to finding out the truth!)

Fund managers and the like CAN of course conduct good quality company analysis, but sadly, very few of them do so - too many of them have their own agenda and it is seldom closely connected with helping YOU.

Why am I touching on this today?

Consider the matter of Britvic. Now in the interests of my avoiding saying anything of a libellous nature (perish the thought!), let me just make a few comments that possibly might be of some passing interest to you.

A few 'big players' involved in the hotel and drinks industry decide they might make some money by getting together and funding a new company that will become a biggish player in the 'fizzy soft drinks' sector.

They put together the cash (a lot of cash) and launch the company.

Unfortunately it becomes apparent fairly quickly that maybe they haven't been as clever as they had thought and that watching 'The Apprentice' might not have taught their 'bright young graduates' quite enough about market research.

"Oops" say the big investors. "It appears this whole 'healthy living' thing is reducing sales of fizzy rubbish and that schools are about to dump all their vending machines. Maybe we won't make gazillions of profits after all.

I wonder what we ought to do?"

"I know - let's launch the company on the Stock Market! What a great idea - the public can buy our shares from us at a grossly inflated price - that's what they always do on a new launch!"

One of the bright young graduates wonders about how on earth they can sidestep the small matter of a contracting market for the products, but the big boss is clever and he says "We'll get a survey done - a little positive market research should do the trick - from a couple of independent sources will be fine."

"But...but - won't an independent researcher confirm the market is getting smaller, Sir - NOT larger?"

"My dear chap, who will be paying the researcher's fees?"

So along comes the glossy prospectus prepared by some merchant bank or other, and 'Independent Research' from two separate sources confirms that 'the soft drinks market is expanding by between 2.1% and 3.6% per annum'. Excellent news.

The launch on the stock market is a success, the big players cash out very nicely when the punters buy in as expected, and a few short weeks later, some other, somewhat less flattering figures surface. Check a chart for the rest of the story.

Remember that Internet gambling company a few months ago?

The main reason I trade from charts is because they hide an awful lot LESS than can otherwise be hidden from us, and I strongly urge you to do likewise.

Before we look at today' charts, here's an excellent question that I received recently - I would like to share it with you, along with my reply - I hope it might prove useful.

Hi Ian,
At the bottom of lesson 3 page 4 you stated that you are of the opinion that "everything concerning a particular market is already factored into the current price".
However does this also factor in emotion of the market towards a particular item. For example, lets take the last tech bubble. It's probably safe to say that everything concerning all the .com companies wasn't factored into the price. Cashflow, earning, profitability etc.
Hence the massive crash in 2000 once everyone woke up to themselves. To me, this statement ignores your rule about not being emotional. If the market is emotional then isn't that asking for trouble? Market crash tomorrow, market wakes up, investor loses money in "emotionally inflated" stock. I know that you were talking about personal emotion but market
emotion must come into it too.
Am I missing something here? I feel that I am.

Thanks for your time

J.

My reply was as follows:

You're missing the idea that 'market emotion' is NOT separate from 'personal emotion' - it is simply the sum total of all the feelings, beliefs, prejudices etc of all current participants.
'Fundamentals' don't come into the equation, because in theory, they are 'objective' and objectivity is a gift possessed by maybe 5% of participants, if that.
The market is only a vehicle that expresses the 'mass emotion' of the participants.
If a share crashes, it is because enough participants have come to believe it is vastly overpriced. In terms of 'fundamentals' it may or may not have been, and a subsequent sharp recovery would merely indicate that enough particicipants entered at the new low level because THEY believed it was 'way too cheap'.
In general, what happens with 'bubble stocks' like the dotcom scenario, is that the clever players well understand the mass fear and greed that drives market behaviour, and they jump fairly early on to the media - inspired bandwagon, buying shares and ramping up prices, assisted by their ability to manipulate financial journalists, who in the main are about as stupid and gullible as you can get.
Pavlovian behaviour causes the masses to want to buy before they miss out (fear) on a fantastic profit (greed.)
That all feeds on itself until there is literally no - one left to buy, because everyone who could do so, has already bought .
Well before that point - ie when the 'music stops' - the smart money from the clever players above, has already sold its holdings to the stupid, greedy money - they have 'passed the parcel' for a huge profit.
Once everyone has bought, how can prices keep going up?
And at that point, the saner voices start to be heard - the analysts who actually understand 'fundamentals' (of whom there are very few) get asked by the same media 'Why has XYZ dotcom stopped rising after all the predictions it would quadruple this year?'
The answer, which hitherto had been obscured among all the euphoria, is "because it's a complete lemon with no chance ever of making a profit" and now, because prices have stalled and are falling back, FEAR takes over and everyone starts trampling each other in the rush to the exit.
I could go on, but I suspect you get the drift!

Anyway, onward to today's charts - two this weekend and each annotated as appropriate.

Happy trading till next weekend!

Ian.

PS - just an 'advance notification' for you - I have been invited to swap the Pyrenees for a couple of weeks in the Alps so I'll be away from 18th March till 3rd April. I'll almost certainly produce WICS just before I leave on the 18th (although it won't be online till Monday 20th due to my webmaster's time commitments). There won't be a WICS over the following weekend (25/26th March) because I'm not taking a computer with me on holiday. I should be able to write WICS the following Sunday (2nd April) but I'm not able to promise at this stage because it's a long drive back!

Please note too that due to my webmaster's commitments the autoresponders will be working from 14th March but in fact you'll get a reply to emails till some time on the morning of the 18th.

.'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'.