Well, here we are at another weekend already, and perhaps a step or two nearer the coming "big drop"? The ongoing "madness" mentioned here previously, is still very much on the go, as the remaining sheep that were standing on the sidelines, get scared of missing out, and join the flock to buy as much stock as they can scrape together the dosh to afford. Even the most bearish are beginning to lose faith in their previous thinking. "Maybe this time things WILL be different", I can almost hear them mutter anxiously as they reach under the bed for their few remaining £20 notes before rushing out to grab a share or two in Next Plc before it hits that price ...... Well, by now you'll probably be fairly aware of this particular bear's view of that kind of behaviour - if not, have a wee trawl through previous issues of these ramblings! The thing is, nothing changes - not ever. Have a re - read of the manual and pay particular attention to the "wheels" mentioned therein. When working properly, wheels turn - and we all understand the "full circle" notion. Markets behave EXACTLY that way. Why? Because human nature expects it to be the case - and all market action is driven by human behaviour. Again, it's in the manual! (Just be very aware that despite the "imminent big drop" thesis, TRADERS can still trade stuff that could well keep on heading high enough to give a perfectly acceptable profit. It's INVESTORS that are going to take a very icy bath pretty soon - never confuse these two types of market participant.) And of course once markets DO begin the next downwards phase, traders can make profits by selling stuff - but investors will still "buy on the dips" in the ongoing belief that such dips represent "A great buying opportunity...." Again, it was ever thus, and there is no possible way in which shareholders (ie investors) can profit from an ongoing fall in the price of their holdings. Further below, there are a couple of emails that you may find relevant to this discussion.

Moving along - and again just by way of reinforcing the fact that the IW bearish view of current conditions is most assuredly not weakening, here are a few wee snippets from the UK to consider, in no particular order:

- Ernst & Young's "Item Club" thinktank suggests "House prices will keep falling."

- UK unemployment is at a 14 year high and showing no signs of lessening. (ONS)

- There has been a "major deterioration in public finances" (gosh really?) according to the Institute for Fiscal Studies.

- The UK's budget deficit from April till August has expanded from £26bn last year, to £67bn this time round.

- Tax receipts are down 25% but spending on "benefits" has increased by 11%, according to Grant Thornton.

- Net lending to businesses fell in July by the "biggest percentage since records began". (BoE)

- Foreign investment in the UK is down 50% year on year.

- The London Underground is seeing 200000 fewer commuter journeys a day compared to last year.

- The ONS says "retail sales have stalled".

And so on. (And if you believe that it's only the UK that's hurting, dream on!)

Yes, yes - I know the response from those who want to believe things are going to be just fine despite the gloomy IW outlook: "The government will keep printing money and we'll all be saved - and the chancellor says we're coming out of recession." If that's how you think, there really is no hope for you. Try "artery" in the search engine.......And if you DO still believe I'm "gloomy", that's another word to try in the search engine.

Another few wee bits and pieces - over in the Irish Republic, the government has just spent even more money neither it nor the taxpayer can ever hope to come up with, on yet another "rescue" of their banks. And to make matters even more crazy, the finance minister is to shell out €7bn MORE than the "paper value" of the alleged "assets" being bought from the banks. The "reason" given is that "We have to provide some allowance for long term value....." Ho ho ho. Who might be in whose pocket for that little scam - sorry - scheme, I wonder?

Then in France, we see that the Sarko one is banging on about the need to "Get away from focusing on GDP figures - it's time to measure quality of life, which is far more important." Mais oui, M. Sarkozy - but with nae money, quality of life tends to take a bit of a dive, n'est - ce - pas? There will be little surprise if the next French GDP figures are dire, eh?

On the international scene, it seems that the IMF is planning to sell 403 tonnes of its gold reserves. Why not just the tidy round number of 400? Or are the extra 3 needed for the lining of a pocket or two? Seemingly it's all to "help poor countries" so the Broon one will be first in the queue with his cap held out then.

And finally, before we look at a couple of emails from you good people - over in the USA the Obama one has issued a "stern warning" to Wall Street companies - they'll be shaking in their shoes about that! Seemingly they have to become "more socially responsible." Another "ho ho ho" methinks?

Anyway, onward to an email or two before you get the idea that IW is the merest tad cynical - as if!

First, here's one from "Mark" - another of his excellent questions! Hopefully my response might be of some assistance to some of you:

"Hi Ian, According to the methodology, when is a bear market rally not a bear market rally but a new trend? Not that in this case I think it is - but just asking.

Thanks, Mark".

My reply was:

"Now THAT is the $64000 question, Mark! There's not an immediately clear cut answer, because per the methodology there have been loads of nice "buys" these past months & you could easily argue that in that context it's a bull market at present. Certainly (again per the methodology) you can argue correctly that the downtrend that began properly in October 2007 was broken in early May this year, & then retraced sufficiently to call the beginning of a new uptrend on July 23rd when the initial upwards probe was broken.
However, in the bigger picture and in the context of "investing" (which is what matters in that bigger picture - ie corporate investment in jobs and new plant & equipment etc etc) there is a massive difference between an "uptrend" and a "bull market."
Uptrends occur at many stages of market action, as of course you know. But a "bull market" (and indeed a bear market) are functions of the much bigger scenario and depend upon the underlying fundamentals of what is going on.
When prices are pushing steadily upwards, based on underlying economic strength and all that accompanies it - specifically private sector job creation due to companies making profits, then it's fair to class that action as a "bull market". The reverse of course is also true - as at present - so for now at least, the current rise is simply a strong & sustained rally within an overall bear market.
I hope that may shed a little light on things - as above, it's hard to answer succinctly!
Ian.

The other email I would like to share today, is from "Mike" and the first question continues the theme above - Mike's second question is about DMA lengths, and again hopefully my response might be of some use to you:

"Hi Ian
I've watched the last few WICS videos regarding the FTSE 100 and just wanted to get your view on the idea that the FTSE could have been bought on the 4th August after the price broke through resistance at 4520 and the 25 dma had crossed the 45 dma? In hindsight a winning trade on paper if still held.
Taking the trade would still would have been within the methodology wouldn't it, despite your view of the bigger picture (fundamentals) which I appreciate?"

My reply was:

"Absolutely - the horizontal resistance that developed, based on the 7th May high, gave a perfectly viable buy trade once broken. As mentioned in WICS the odd time, traders need to take a different view overall,
compared with investors. People buying shares on that break, will be keeping them & feeling good right now. Once the drop back begins, they'll probably buy even more....and in due course will be wiped out financially. But as a trader, we can quite justifiably buy into such a formation, knowing we'll be getting out in due course."

Mike's second question was:

"In WICS 13th September you suggest trying the 25/45 pair with Tullett Prebon. I did but then tried the 30/50 which looked like they may be better in some ways, but not sure - how can I best decide which pair to use here?"

And my response was:

"Always a hard one to answer because we're all different in this regard. I like a "tightish" SL to which I then add a fair bit of leeway. That suits my "impressionistic" view of market action. Others who like"precision" prefer a SL to be "exact" and allow maybe only a couple of points' leeway - for them, a longer pair is essential. The only thing I would say is that 'precision' in markets tends to be pretty imprecise......."

Anyway, that's your lot for this weekend, so onward to a couple of charts for your delectation. First we'll look at Admiral and the triangle breakout that sent the price even higher than before that formation developed. Would you want to buy it now? Then we'll see a wee triangle on 3i that has just been broken downwards - ie counter to the prior trend. Does that invalidate the formation or would it still be a valid enough "buy" trade? Finally there's an update of the (still developing) wedge on the chart of the S&P500 and a brief discussion about stop losses for the more "aggressive" type of trader. Will the price exceed 1100 soon?

OK - gotta go now - I have a spot of strimming to do because the trolls are complaining that the flat rock where they hold their overnight raves is getting a tad overgrown - and you mustn't ever fall out with trolls......all being well, they will permit me to speak to you again next weekend, so happy trading until then.

Ian.

PS - a big welcome to several newcomers from Down Under, and a wee reminder to you that there are relevant links under "info" on my website, that direct you both to a suitable charting package if you only want to trade your local market, and to brokers that can assist you with the alternatives to spread betting that you need to use as your trading vehicles. Oh, and by the way - when I answer emails, I am neither "terse" nor "curt" (a couple of words used by one of you who got pretty upset at me) - "succinct" is a better description - no offence is intended to anyone!

'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'.