Oh dear - time for another IW rant about "optimism/pessimism"! On the other hand, please just type "pessimism" into the search engine and come to your own conclusions because it has all been said here before.........Anyway, why is this annoying topic being mentioned again today? Simply because of the recent stock market rally and the fact that many "commentators" are turning distinctly bullish - with the exception of "pessimistic" old IW of course. Goodness me, even the Bank of England is suggesting the UK economy has bottomed and a "V - shaped" recovery is already under way. Hmmm, how about "pear shaped", fellas? Oops - there I go again - pessimistic and gloomy. Eeyore is my best buddy. There have certainly been a few emails during the week on that topic - one was mentioned in today's video clip 2422 in fact - and it's reproduced below, as promised in that clip. (Not that "Mark" was actually accusing me of pessimism, you understand - he makes a perfectly reasonable point - but from one or two of his previous questions it's fairly clear he feels a little "challenged" by the IW idea that markets have a very long way still to fall before the REAL recovery begins - and of course he is very far from being alone.) Anyway, here's Mark's email:

"Ian,
I know your general overview is for more bad news to come out and the FTSE to come back to test the lows or even lower, however, just looking at the chart,
if we draw a trendline from the high of May 19th 2008 to the relative high before the lowest low, say Feb 26th , and pull this out to touch the high of 6th Jan 09, this line touches the highs of Feb 8 and March 23.
After this we have had a move up probe April 1st and a retrace and now up way past the april 1st high. So wouldn't this all constitute a trend change and therefore if we get a retracement of the recent highs of today plus, wouldn't that be to say only to 4200 before continuing up in the new trend direction. And if this is the case and it then continues and moves to 4800-5000 why would it come all the way back to 3400 if in fact the trend has changed.
I haven't been suckered by media and am not listening to media hype, just looking at the chart.
Could you comment, and if I am wrong why would it go below 3400?
Many thanks,

Mark"

And this was my response: (along with the video clip mentioned above and further comments below)

"Mark - correct analysis re trendline, then probe/retrace/fill as a "buy on trend change" per the methodology. At no point have I suggested differently, & many are quite correctly in a buy trade as a result of the "look" of the chart. That's what "trading" is all about. As to a retrace soon, that will certainly happen as you suggest - maybe it will be held by the dma, maybe not, before a fresh push upwards - which is currently probable. That has been my position & still is. If the uptrend is going to have legs for a while yet, then the chances of an imminent fall below 4000 are not high. As to the rest of your question - ie "why below 3400"?, you need to look at the bigger picture and a longer timescale for an answer to that. I'll be putting something in WICS this weekend, to attempt to answer why I'm (allegedly) "pessimistic" - several emails are accusing me of that yet again! But essentially it's simple enough - this is a bear market rally & will sucker in a whole load of dumb money, thus leaving even more people without funds to benefit from the REAL bottom, which is a long way off yet. On top of that, I see the lessons of history all too clearly - and a further, much bigger, crash is 100% inevitable. More in WICS on Sunday!
Ian."

OK - so why IW's "100% inevitability" remark anent a bigger crash to come? Well, there are several reasons - and to be fair, some of them are more to do with "instinct and experience" than with hard evidence. There's also the Really Scary Granny crystal ball to take into account......but since you want some "hard evidence", try this: What has expanded the most, since the end of WW2? How about "credit"? (And of course its mirror image, "debt".) What (in the UK and the USA in particular) has shrunk the most over the same timescale? How about "the means of production"? Although we see a real meltdown now in that area, with the Chrysler bankruptcy and GM's travails hitting the headlines, for how long has manufacturing industry been suffering throughout much of the so-called "developed" world? How many UK jobs have gone from "producing goods that people want/need to buy" over the last 50 or so years? And please don't retort that "financial services" took up the slack.....So if there's all that debt and no real production capacity nor skills any more, how will the debt eventually be repaid? "Credit" after all is just an IOU, is it not? If you buy Treasury Bonds or UK gilts or German Bunds or whatever, you do so (presumably) as an "investment". But what is a gilt, if not just an IOU? And if the UK is bust (which it is!) then how do you expect to be repaid if the entity to which you lent your dosh, can't give you more than yet another IOU when you want the money back? What HAS to happen, is that the "perceived value" of all that debt/credit will start to fall - remember the "Jeep story" way back in Lesson Two of the manual? "Value is in the eye of the beholder".....People are getting more and more twitchy about "value" - and it's people in the mass who move markets. Think about it! As credit implodes, so will perceptions of value - and in due course people will have to accept that what they believe something is "worth" may bear little relation to what they can actually get for it. And if your response is "the government will just print more money" - 1) that's exactly the point - they will increase the amount of unpayable IOUs and 2) they will never be able to print cash fast enough to keep up with the deflation caused by imploding credit!
Anyway, that's one reason for the IW "coming meltdown" view. The other main one is "lessons of history" - as in "politicians NEVER learn anything from history." Mention has been made before in these ramblings, about "cutting open another artery" (try "artery" in the search engine) and essentially, that's all the whole current lot are capable of doing - with no thought at all to the fact that it has been tried before on more than one occasion, and has never worked. Someone more famous than IW once suggested that the true definition of stupidity, is knowing something has never worked but trying the same thing again anyway, in the hope that there might be a different outcome "this time". There are maybe three schools of economic thought - Austrian (type "von Mises" into the search engine), Keynesian, and Homer Simpson. On second thoughts, there are four schools - the one espoused by politicians is the Keynesian-Simpson school. "Duh, Bart - I just hit myself over the head with a hammer and it hurt, so I did it again an' it hurt even more. Maybe I should try a bigger hammer?" "Yeah, Dad - go for it!" The Broon/Obama world rescue has not the slightest chance of working - and the current bear market rally is only going to pull in the "last of the suckers" - including those who really ought to know better - such as your very own pension fund manager - before further destroying wealth. But make no mistake - it will be hard to stand aside while more and more sheep join the flock that's heading for all these tasty green shoots. Try "great buying opportunity" in the search engine! The whole point of TRADING, however, is that we CAN head for the green shoots and benefit from a wee nibble or two - and then happily head in the opposite direction when the field has been cropped bare. INVESTORS don't have that luxury - and I guess this wee diatribe is directed at them.......anyway, we'll see how it all pans out in due course - but as far as this guy is concerned, cash is king and will be for a few years yet. After that, even IW might actually invest in the odd stock once it's cheap enough - because it's more than likely that there will be some dividend - paying opportunities that will permit ageing fingers eventually to take a rest from the trading keyboard! (A fair old while yet before that happens though, all being well!)
OK - enough heavy stuff - onward to a snippet or two before we look at a couple of charts. There's the matter of UK members of parliament and their expenses of course, but who really cares? We all knew anyway that they're the most corrupt bunch ever to have disgraced democracy. Then there's the boss of Serco, who was hoist by his own petard and lost his driving licence for doing over 100mph. Ho ho - serves you right for selling surveillance cameras! And how about the NatWest bank's "Moneysense" impartial financial advice service? Surely it's just a dirty lie to suggest it was "directing people towards NatWest products"? Perish the thought, eh?
And finally before the charts, this one is (almost) irresistible as regards a trenchant comment from IW - but for once I'll just let the guy himself say the words with no further input - the "guy" in question being the newish head honcho of RBS. He was referring to his team of directors and suggesting that they would sort things out. His words were "I believe we now have the right tools for the job....." Oh yes.
On to a couple of charts then, and first we'll look at Burberry - it's in the same general business as Next Plc which is featured today in video clip 2420. Not surprisingly, the "potential head and shoulders" mentioned re Next, is also showing on the Burberry chart - but as a much lower cost stock, it may be more affordable to trade IF things develop suitably. Then there's a wee look at Drax - there has been a recent gap down and the price has just more or less touched earlier support - will it keep falling if that support gets broken? Finally there's an update of a potential stop loss position on the S&P500 - please refer to video clip 2375 for more about that index.
And that's all for this weekend - don't forget that the laptop will be getting packed away on Tuesday 12th May for the long trip to Scandinavia and won't be seeing daylight again till about lunchtime on Tuesday 19th May. There will be no WICS nor video updates next weekend - the next offerings will be the videos on Wednesday 20th May, internet connection permitting, and the next WICS will be on 24th May - again, connection permitting. Also, please don't email me between the afternoons of 12th and 19th May - that would be extremely helpful.
All the best, and happy trading!
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'.