Hello again, and doubtless this weekend you'll be expecting some scathing comment from Williams anent poor old Northern Crock - however, it's really not that amusing to be honest, because once again the wrong people may be those who will suffer the most. I refer to depositors and to employees (I have zero sympathy for shareholders - if you're going to buy shares without doing proper research you're on your own as far as I'm concerned) - many people who entrusted these numpties at Northern Rock with their savings are clearly now extremely worried. Should they be? Well, that depends - if you have less than £2000 deposited your money is safe, albeit you might struggle to get your hands on it for a wee while due to the pressure on branches caused by the sheer number of depositors wanting out. And of course if you bank with them online you'll have a hassle because their servers are swamped. The next £33000 of your deposits are subject to a government - backed guarantee covering 90% thereof - but beyond that you're on your own if the institution itself goes bust without being rescued. Could that happen? Certainly. Will it happen? Almost certainly not. Another bank will step in - Northern Rock itself will cease to exist in its present form and I trust that those responsible for the fiasco will NOT be receiving big payoffs when they get their richly deserved P45s handed to them. Sadly a lot of frontline staff are likely to lose their jobs through absolutely no fault of their own. As regards depositors, as mentioned above it's extremely unlikely that anyone is going to lose anything - but the huge difficulty, especially among older clients, is that now they have withdrawn their life savings, where are they going to put the money? I'm conscious of the new lack of trust many people have just discovered because a couple of you good people (both on the 'senior' side of 65) have emailed me to say that suddenly they have no confidence in ANY bank/building society on the basis that "If it can happen to one, how many others are at risk?"

The truthful answer is that nobody knows - but at the same time nobody should get too worried. Certainly I would be reluctant to keep too much in any single UK institution, but that has always been the case if you take the trouble to read the small print. The banking system will not collapse - it has weathered many a worse storm over the centuries. The Northern Rock problem is fairly specific to them. (although a few more of the same will surface I suspect, albeit to differing degrees.) They (N Rock) made two major mistakes. (refer to WICS of 5th February 06 and 31st July 06 for more about one of these mistakes) The second mistake was how they funded the mortgages that they provided - they borrowed most of the money and leveraged their deposits to a highly risky extent, by being 'clever' in the money markets. If you type the exact phrase "wet behind the ears" into the WICS search engine you'll find some more comment about this - suffice it to say that the last similar situation occurred in 1973 (a Bank of England intervention after the collapse of London & Capital Securities) when many of these financial 'wizards' were still in nappies. In a nutshell, Northern Rock has failed as a result of desperately bad management - it's that simple.

Moving along, I note that a few "good excuses" are surfacing to explain away poor results before they arise - for example "The smoking ban is a very bad thing" (J D Wetherspoon), "HIPS are the cause of falling house prices in England" (Rightmove). As if! In fact, Rightmove came up with another pearl of wisdom during the week - they're suggesting that HIPS (Home Information Packs) are "Putting off impulse sellers" - now I know I'm just a country boy, but how many people decide to sell their home "on impulse"? I can just see someone walking up the driveway and knocking on the door. "Excuse me Mister, but I want to buy your house. Here's £250000 in cash - my removal van's waiting round the corner....." Duh.

In the bigger picture, there's another really good excuse going the rounds - indeed it's a major scam methinks, perpetrated by the US Federal Reserve. Conspiracy theorist - moi?.....Oops, what are these blue flashing lights outside the door? Must go......Seriously though, consider this: back in early July after much deliberation, the US SEC (Securities and Exchange Commission - a bit like the UK's Financial Services Authority) decided to abolish a 70 year old rule that forbade traders from selling a stock that was already dropping in price, until after that stock's price had retraced at least one point. The idea of the rule (The "Uptick Rule") had been to prevent short sellers really attacking a stock and forcing it to fall even further. In practice, bigger players could circumvent the uptick rule no problem at all, and it was long overdue for abolition - but the SEC refused to do so for many years. Why have they done so now? Well, already there are plenty noises being made that the recent US stock market woes are being caused by its abolition.......hmmm - nothing to do with debt and the credit crunch then? What a great wheeze, to abolish the rule in the full knowledge that markets are going to tank anyway, and then put all the blame on the loss of the uptick rule!

Next today, I note that the Private Equity industry's UK trade body is suggesting that if Gordon (oops, sorry - Alistair) tries to abolish its massive tax breaks then it faces "meltdown" with the loss of "thousands of City jobs blah blah..." That's another good one! Listen fellas, Private Equity faces meltdown anyway, due to the credit crunch. The days of the big buyouts to take a company away from the Stock Exchange are over for some time to come.

And finally (Thank goodness, I hear you sigh) it appears that turkeys sometimes do indeed vote to retain Thanksgiving and Christmas - US car workers are planning strike action over pay and benefits........

Anyway, onward to a chart or two, and first (naturally) we'll look at that of Northern Rock, to suggest how one might consider managing a trade, because some of you are 'in' it at the moment. Then we'll look at 'support' on the chart of DRAX, and finally we'll examine what looks very much like a counter - trend channel in the FTSE100.

That's the lot for this weekend - please note that next weekend (and possibly from now on in fact) WICS will be published on Sunday evening rather than late on Saturdays - as used to be the case when I began writing it nearly three years ago (!)

With best wishes until next Sunday then,

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'