Well, another week of the so - called "summer" has gone by, and certainly it has been an interesting one in the markets, that's for sure! Even the Guardian newspaper - not renowned for its general business coverage - has been getting in on the act and running learned articles on why world markets are in turmoil. I have to say there's one point made in a Guardian leader with which I totally agree: Private Equity and Hedge Fund managers have been rabbitting on for ages about how they do not require to be more heavily regulated because "they know what they are doing, and market forces are the best regulator, blah blah...." The newspaper is most certainly correct when it suggests that the current turmoil makes it pretty clear that a whole lot of these financial types most assuredly do NOT "know what they are doing". I mentioned "wet behind the ears" last weekend and that the result would be "panic" - and for sure, that emotion is only just beginning to surface. Wait till things start to get really bad!

It is certainly interesting to see how widely the contagion has already spread - it's not that long ago that Bear Stearns started the ball rolling within the US sub prime mortgage market, and already we have BNP Paribas (a major French investment bank) "freezing" the assets of three of its biggest funds on the grounds that "current lack of liquidity means we cannot fairly value the units". Ho ho ho - that's a good one. I recall Bear Stearns were saying exactly the same thing word for word the other week about their toxic waste - although not in French I suppose. How much is something like that really worth "on paper"? Less than nothing perhaps - after all, you have the recycling cost of all that potential cat litter to take into account. The ECB (European Central Bank) jumped in with a liquidity injection for European banking institutions (as did the Fed in the USA, and the Ozzies, not to mention the Japanese...) Hardly an expression of confidence in the overall resilience of the banking system methinks. Needless to say, the big USA mortgage lender I mentioned last weekend anent "could go bust" HAS indeed done just that, with the loss of around 7000 jobs.

Anyway, the whole thing certainly hasn't damaged Royal Bank of Scotland shareholders' appetite for risk - over 95% of them have endorsed RBS' £48bn bid for ABN Amro, the huge Dutch - based bank. I note that the "advisory fees" will be £175m - peanuts in the context of the bid but a nice safe little earner for somebody! As to the deal itself....

Moving along, what does this major trend change mean for us as traders? - Clearly, it spells "opportunity" but there are a couple of major caveats, the one closely related to the other. Caveat number one is that we shouldn't be looking only for "sell" trades because if all your trades are in that direction, then caveat number two will come into play and almost certainly cost you money - any thoughts as to what it might be?

Next, please try to trust what a chart might be suggesting, because somewhere out there, there are going to be "buy" trades too. Please do NOT assume that because markets are falling and "paper worth" is becoming extremely hard to quantify, that the ONLY direction will be downwards - it won't be! Those of you who have been masochistic enough to have suffered these ramblings for any length of time, will know that the current situation has been entirely predictable and unavoidable (in my view) and it can be easy to fall into the trap of thinking "Well, it took far longer than anticipated but Williams was spot on with his gloom and doom predictions, so now it will be all downhill". No it won't! In falling markets, there are always very sharp upwards corrections as enough of these aforementioned wet behind the ears twits begin to believe all the inevitable press hype that "things are extremely oversold and there are bargains to be had...." The classic unit trust sales spiel in a falling market is "This is a fantastic buying opportunity" just as in a rising market it's "You really need to get in now before things go even higher...." NOBODY whose living is made from selling you collectivised investments (endowments, unit trusts, investment trusts, pensions..) is going to suggest you SELL what you already own before it becomes even more worthless, now are they? I gather the California Teachers' pension fund has just seen $1bn of alleged worth evaporate, and despite my flippancy, I really don't think that's very amusing in any way at all. It was ever thus - those who should know their job (the fund managers) are too often utterly clueless, but those who actually suffer are the people who trust them. I would hesitate to suggest I'm a caring, sharing kind of guy but it makes my blood boil when I think of hard working people who come to retirement age and discover that what they thought they had saved, is just a teeny bit divergent from all the glossy hype.

Oh yes - you were wondering what the "second caveat" was - it's "extreme volatility". You will doubtless have noticed over the past couple of weeks, that both the drops and the subsequent retraces in world indices, have travelled a lot more points' distance than had been "normal" for a long time. This is entirely to be expected, especially in the early stages of such a major trend change - and what it means is that we'll probably need to consider wider stop loss positions than have been necessary for quite a while. (You know of course that when it comes to index trading, wide stop losses have always been the order of the day.) Once the bear market gets properly under way, things will tend to settle down a bit, and if this extremely volatile phase concerns you, then take a break for a while! I know that the volatility really suits short term traders - but that's far too frantic a lifestyle for this fella!

Moving on, I see Ryanair's Mr O'Leary is up to his usual tricks, arguing non stop with various airports and their owners as well as the EU Commissioners - trying to keep his shareholders away from realising the truth methinks - the truth being that passenger numbers are well down and still dropping, with seven out of forty planes about to be grounded. And I note that Aer Lingus (The other main Irish airline) is dropping its Shannon to Heathrow route - not a great sign for the Irish economy it has to be said, with so many American firms based in the west of Ireland. (Yes, I know that means Shannon - USA flights predominate, but much of the "financial dealing" surrounding these firms is conducted out of London and I get a whiff of continuing "Eastern Europeanisation" - I don't imagine that term is in the Oxford Dictionary but there you go. What I mean is that as Paddy prices himself out of the market (already more or less a done deal) these American companies will accelerate their relocation to lower cost areas on the mainland of Europe as well as Asia. Xerox and Procter & Gamble are the latest examples of what they're meantime terming "downsizing". Then the financial execs will be flying to London from Prague - or Istanbul - or perhaps Beijing - not from Shannon. Maybe I'm wrong, but we'll see.

Finally, I note that the Chinese government has bought a substantial stake in Barclays Bank - and of course they have already lost a fortune in Blackstone - governments truly are the last of the patsies that generate the final "pop to the upside" in markets, and once they get involved in trading/investing to any extent, we can be sure the top has been well and truly reached.

Oh yes - on the topic of "scams" - I mentioned a while ago that the whole "biofuels" thing is one big scam, and now I see that National Express seems to agree - they have pulled out of a major trial on the grounds that the overall environmental cost of producing a gallon of biodiesel is greater than any potential saving. Good decision, guys - but look what happened to their share price.

Anyway, on that note, let's take a look at a chart or two and see what we think.

First we'll see if indeed a 'sell' might be brewing for National Express, then we'll examine a channel probe on the chart of Domino's Pizza. (And by the way - when everything seems to be dropping, always have a search for those that are NOT, because maybe that's where some of the smarter money is going to be finding a new home). Scroll down through Sharescope and look for the figures that are NOT in red!) Finally we'll look at Savills (remember the other week I spoke about who might be affected by a property market slowdown/collapse) because during the week a couple of you emailed regarding "Have we missed the boat? Surely a price can't just keep dropping?" My answer of course was "Why not?" It's all too easy to watch a price running away from you in either direction and believing "It can't get any higher/lower". The main thing is not to chase it, but always to wait for a pause/retrace and for a suitable pattern to emerge that might validate taking a trade. (Think "triangle" or "support/resistance" for example.) I know the chart of Marconi has now gone, but if you type it into the WICS search engine you'll still find it there somewhere - look in WICS of May 1st 2005 - and it's a tremendous example of what CAN happen - in both directions! In fact in the markets, ANYTHING can happen and you need to be totally aware of that fact. Just remember always, that rarely do prices go from 'top' to 'bottom' (or vice versa) in a straight line - retraces are the norm, even when bankruptcy looms, because people will begin to hope that someone, somewhere, will get the firm out of its mess by buying it - and on that hope, some people will buy into what might be clearly a total disaster on the basis of making a killing IF a buyout happens.

And that's your lot for this weekend - it will be interesting to see just how much of a market bounce appears during the week! Until next weekend then.

Ian.

PS - just a note to say that due to constant badgering (I'm flattered - no complaints!) I might possibly run a live seminar over a weekend - perhaps early in October. The venue and exact dates are uncertain at this stage due to my somewhat fluid travel plans, but if it goes ahead it will be either in Switzerland (near Geneva) or in Dublin. Accommodation in a quality hotel for Friday and Saturday night will be included, along with all meals and snacks as well as airport transfers. Flights will not be included. Partners/spouses will be welcome at a small additional charge, although they won't be able to participate in the seminar itself of course. If you're interested, please let me know. Numbers will be limited probably to a maximum of fifteen, and the cost will not be cheap - but as with everything in life, you get what you pay for! (My publishers will produce a detailed agenda in due course.)

'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'