Well, I trust you have taken note of the wee "Kilroy" drawing in tonight's video clips! If not, please go there now before you read tonight's ramblings. Why? Just to make the point that markets "will act as they will act" and traders should be certain of that fact. Oftentimes the point has been made here, that in the trading environment there are "no guarantees" - in fact, that is the ONE guarantee that's guaranteed......Loads of emails during the week of course, wondering "Why?" - as in "Why have most world stock markets jumped upwards again?" If you have been a subscriber for any length of time, you'll already know the answer of course: "Because they did." Everyone (including IW!) likes to have a "reason" to trot out as an "explanation" for stock market behaviour - that's just human nature & we're all victims thereof - but the only viable reason for why markets act as they do, IS indeed simply "human nature". It's "mass psychology" that drives prices - nothing more, nothing less - and "reasons" are generally trotted out AFTER the event in order to rationalise things. (NB as above - this guy is as guilty of seeking "reasons" as is anyone else - albeit in the full realisation that it actually matters not a jot. Trying to work out "where next?" matters far more when it comes to putting cash in the bank account!) Anyway - bearing in mind the comments above - why the sudden upwards push? Citibank, Goldman, and Bank of America's miraculous return to huge profits? China's "economic recovery confirmed"? (according to some numpty at J P Morgan.) Broon's pronouncement that "My way is the right way to solve the banking crisis"? Or the UK environment secretary's "1.2 million new green jobs"? Ho ho. (just a wee aside - if you have been a regular sufferer of these ramblings, you'll be aware of IW's deep cynicism regarding "green issues" when it comes to government attitudes thereto - in fact today I was going to say a word or two about the oxymoron inherent in the term "new ecotowns" but this gentleman has really hit the nail on the head - well worth a read when you get a moment:
http://www.guardian.co.uk/commentisfree/cif-green/2009/jul/16/ecotown-turbine-commercial-political

As regards stock markets, eventually of course hard facts will bring their own influence to the party, and of course it will end in tears for investors - but please remember previous comments here about "timescale". Nobody can predict (not even the Really Scary Granny's crystal ball) the exact "when" of events - but if there is any certainty about this business, it is that this is most certainly only a maturing bear market rally, and that it will most assuredly end. Thereafter, prices will most certainly fall below its March 09 beginnings......probably.

And that word brings me to another point about trading - we can ONLY deal in probabilities. We need to consider the "What if?" question at all times, and try to work out what is most likely to happen. We can NEVER be certain as to a specific outcome - this is all covered in the manual of course, so I won't bang on again about it too much here - this is just a wee reminder to those who perhaps have "forgotten".....So, what is "most likely" to happen within the bigger picture? Consider where the money needs to come from in order to see a true economic recovery throughout the developed world. Consider too the fact that (Citibank et al notwithstanding) 6.6 million private sector jobs have "disappeared" in the USA alone, over the past two years or so. (according to a University of Maryland survey.) Consider that the State of California cannot pay its bills and is issuing IOUs, allegedly for "payment in October". These are currently being traded at around eighty cents on the dollar, so I wonder "which October?" California has closed/is closing 80% of its State Parks because it can't afford the staff wages. Hmm - these parks bring in many $m a year more in revenue than they cost - go figure, in the quaint language of my Yank brother in law! And parks are being closed in other states too. Home foreclosure rates are accelerating throughout the USA, and the commercial property market is in a total mess - as it is too in the UK. Then there's the small matter of the $trillions of toxic waste still lurking deep within the banking system. I could go on, but you get the general idea. Anyway, will this current frothy market continue to bubble upwards for a while? Possibly - even "probably" - but when it crashes, don't say you weren't well warned! (And please never lose sight of the fact that individual stocks do not necessarily move in lock step with the relevant index - as witness tonight's video of Autonomy...)

Moving along, not all industries are in a mess - crime still seems to pay. The British ABI is suggesting that insurance fraud is now a "£1.9bn industry" and the UK's home secretary says that "30000 people are involved in organised crime". It's comforting to know that such exact figures can be produced, although he didn't say whether he had included or excluded MPs and bank executives from the number....

Still in the UK, the Mandelson one seems to be dragging his feet a little over releasing the demanded bung to Tata Motors anent Jaguar funding - his reason being "We need to be sure the taxpayer won't be left high and dry". That's a first, then.

And remaining with motors - an IW interest as you'll doubtless have worked out! - even Porsche is having to offer incentives to buyers these days. One thing they have never done is give anyone a discount, so what they're doing (for a specific Cayenne model) is offering a fancy wristwatch and a set of leather luggage - but hang on - for an EXTRA £11000 on top of the price of the vehicle? Some incentive, eh? British Airways pilots probably won't be in the market for such machinery any time soon - they have accepted a pay cut - and they certainly won't be the last group of highly skilled people forced to do that as this deflationary environment continues to develop. British inflation is now running at just 1.8% - still above water but that won't last.

Anyway, on to a couple of emails worth sharing, and then a chart or two.

First, here's one from "Peter" - an interesting question about "trade ordering":

"Ian - I have a question about long term support. A few stocks on my watch list have bounced off a support level periodically over a period of several weeks or months. Does this still count as 'support' in terms of placing an order to sell and waiting for the next test of the same level? Here are some examples:

Bellway touched 593-597 three times since 28 May, plus support earlier 23 Dec-12 Jan. Would this justify a sell order somewhere below 593?

Next has bounced off 1400 twice recently before heading upwards. Again would a sell order below 1400 still be appropriate?

Likewise Peter Hambro, Spectris (377 back in April) and Spirax-Sarco (741 last October/March).

A related question, at what point does an order become invalid? For instance if I had decided to buy Aviva on break of resistance above 367, at what point would that order become invalid - break of uptrend, DMA's turning down.....? Next (as above) and M&S (sell below 278) pose similar questions.

Best wishes

Peter"

My reply was:

"Peter - good to hear from you again.

Re above, the more resistance/support the better - months are fine, even years sometimes! Nothing wrong with sell orders where you mention. Re "no longer valid" - that's a very difficult one to answer because each case is different. It's a matter of the "picture looking different" - in your Aviva example, the break below 300 MIGHT suggest a buy is now off the cards - but if it pushes back up then who knows? But if it breaks below the latest low then any buy order is probably better cancelled if only to save your having to keep an eye on it. Equally, if you had been watching that one then you "might/should?" possibly have sold on the break of 300, so then a buy order above 367 might still be your SL - and possibly for double the sell stake on the grounds that you would want a fill to the buy side .....etc etc. "

The other email today is from my (fairly regular) correspondent "AZ" and it concerns "moving a stop loss against your position":

"Hello Ian !
The question I have got is related to Fidelity European Values Plc. I have been filled on the probe of resistance below 870 and see price went up in recent days. 25/45 DMAs being crossed and pointing down. Was it per methodology ?
In latest WICS you are saying Markets could reach June highs, for Fidelity this is 1000 but my current SL is @ 941.
Should I move the SL up ot leave it ?
Thanks for support
regards,
A.Z."

This was my response:

"Your trade was fine. (support break though, not resistance) The price is pushing up as you say - but per the methodology it is a bad idea to move a SL against you. It's all too easy to start doing that too often. Also, re June highs, there is no way to tell if any single stock/trust will behave according to how an index moves - I was speaking about the indices - & in any case, even they might not cooperate with what I was suggesting. This time is a good example of why I always suggest balancing buy & sell trades as equally as possible.
Ian."

OK - on that note, on to a chart or two and tonight we'll start with Dragon Oil - the theme being "conflicting signals" - is there going to be a break below the trendline probe, or will the price head upwards out of the channel? Then we'll take a look at resistance on the chart of Serco, followed by a wee glance at CSR, just to see if the triangle drawn last weekend is still a valid enough thing to be considering. Finally there's an update of the S&P500, last featured in video clip 2557. Has the "head and shoulders" discussed back then, now morphed into a counter trend channel?

That's all for today then - I'm off to see if the wee elves that live under the walnut tree, have been the true cause of the recent market action - if they have been buying in big numbers, I'll be very angry with them and they won't be getting a wee drinkie for a while....

All the best until next weekend.

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'.