Hello, and welcome to the first WICS of 2006 - a very Happy New Year to you.
I'm sure 2006 is going to offer some great trading opportunities for us all.

It's good to be able to speak to you again after the long break.
No, I'll rephrase that - it's GREAT to be speaking to you again, after a somewhat wearisome holiday period - too much snow is just as bad as too little, and it doesn't take a lot of being indoors to get me thoroughly claustrophobic!

Anyway, I haven't entirely wasted the time, and my TTEW course on Forex (currency) trading is well under way - please don't ask yet about the date it will be available, because I'll keep you posted. (Allow roughly 3 months though, because I'm definitely going to get some skiing in as the season progresses.)

Moving along, I see it won't be a very happy year for more than a few folk, sadly: according to the DTI, over two million people in the UK are still paying off credit card debt from Christmas 2004, never mind 2005.
Three million have credit card and personal loan debt of over £10000 each, and total UK personal debt is now over £1.5trillion. (that's one thousand, five hundred BILLION pounds sterling - a truly staggering sum indeed.)

Personal bankruptcies are soaring, of course, and many large Plcs are planning to completely close their final salary pension schemes, even to existing employees. Rentokil has led the way and I see the Co - Op and Arcadia are not far behind.

With the FTSE100 companies having seen an aggregate pension fund deficit grow in 2005 from £65bn to £75bn (according to Deloitte Touche), despite a soaring stock market, it will amaze me if there are ANY final salary schemes left in another year or so. (Public sector employees are pretty much exempt from such potential stress, of course - at least for now.)

According to the Society of Motor Manufacturers and Traders (SMMT), new car sales were down 5% in 2005, back to the numbers sold in 2000.
Interestingly, sales to private individuals were down a full 10% - a sure sign that the consumer is buckling under his or her debt burden, and is becoming far more cautious in overall outlook. Not good news for the High Street, then, though no doubt it will please environmentalists, and will slightly slow down the growth in the balance of payments deficit, given that over 80% of cars are imported.

Continuing in cheery mode, I see that a MORI poll of FTSE100 top executives has established that over two - thirds of them are expecting an economic downturn in 2006, just under one third expect 'no change' and only 4% are predicting an improvement in the economy.

Did I hear someone mention gas prices? Train fares?

Anyway, am I gloomy? Of course I am! But only because I'm a bit grumpy from lack of skiing, not because of economic conditions. There is always money to be made if you're a trader - indeed, falling markets usually are much more profitable than rising ones, because they tend to drop fairly 'cleanly' once they get going, and if you look back through WICS at the likes of Alba, for example, you'll see what I mean. I have put up a chart below of Cable & Wireless, just to illustrate how, once it started to fall away near the end of 2000, it offered better overall trading opportunities than while it was slowly working its way up beforehand.

Both 'euphoria' and 'disappointment' are highly contagious in the market environment - right now we're seeing the euphoria phase developing, especially in European markets - you only need to look at a chart of the FTSE100, and even more so, the FTSE250 - which just keeps on making new highs - to appreciate the fact that everyone and his brother is piling in to buy stocks.
Just remember what happens when everyone who wants to buy, has already bought!
Greed is well and truly to the fore at the moment, coupled with 'fear of missing out' and an awful lot of the least sophisticated are now jumping in to the markets, having (as always) waited too long by far.
In the words of Robert Prechter of Elliott Wave International, "Investors are more afraid of missing the next rally than they are of protecting their portfolios, and that's a bearish signal."

The biggest hedge funds (ie the REALLY smart money) are now 'net short' the markets - that means they have more 'sells' in place than 'buys', by a pretty large (and increasing) margin.

So what does that all suggest?

Pretty simple really - markets are entering the final 'euphoria' phase when almost every participant believes they can 'only go up' and that of course more or less delineates the peak of the long bear market rally.

Given this current exuberance, I fully expect European markets to continue rising till perhaps May or June, albeit with plenty retraces too, before they finally capitulate to the bears and turn inexorably downwards.

As for the USA, I think the drop may arrive a lot sooner than that - the hedge funds I mentioned above, are dealing much more with American stocks than European ones. 10000 for the Dow Jones may not be that far away, after a final push to the upside to let the 'smart money' sell some more of their holdings to the 'not so smart money'.

Oh yes, and while we're talking about 'smart money' - I see Brandes (a very big American investment house) has just sold £160m worth of its Marks & Sparks shares, for a tasty profit of about £64m.
Now, that's fair enough, because Brandes still retains more than a small investment in M & S and there's nothing wrong in profit taking - after all, what else is buying shares all about?
However, given that next week M & S are issuing a profits update, I'm interested in the timing of this sale.

Anyway, finally for today, I promised I would answer the question I asked you in the last WICS (18th December) - "what do successful traders have in common with successful golfers, tennis players, snooker players etc etc?"
Full marks if your answer had something to do with 'eye on the ball', 'focus', 'singlemindedness', 'ability to concentrate on the job in hand' etc etc.

As to this weekend's other charts, I have updated both Babcock (last featured in WICS of 13th November 05) and William Hill (11th December 05) for your interest.

And on that note, all best wishes till next time. (At the moment, the next issue of WICS is planned for next weekend as usual, but that may have to change as the week progresses because I may need to make a trip to the UK on fairly short notice. If there's no WICS on January 15th, then there probably won't be one on the 22nd either - best just to check on the website at the time.)

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'.