Well, no great surprise that European markets, including those in the UK, have experienced a pretty sharp selloff over the past few days. The really interesting thing is that those across the pond have been holding up rather better than expected, given the slow but steady realisation that the bears have not been wrong - for example, the bankruptcy of Adelphi is
further evidence (as if any more were required!) that the big US car manufacturers are in deep, deep trouble, clearly because people are slowly but surely ceasing to buy their products.
And ceasing to buy gas guzzlers is just one manifestation of consumers beginning almost unconsciously to come to terms with the fact that they are hugely overextended.

The Dow Jones Index has been trading pretty much sideways (between about 9700 and 11000) for nearly two years now, but still it refuses to give up the ghost in the face of ongoing bad news from almost every direction. Conspiracy theorists might suggest that's because the authorities are manipulating the markets, but I'm certain that markets themselves are far, far bigger than any government's ability to do so. (Just ask Norman Lamont!)
No, the USA markets' ability to withstand economic shocks meantime is entirely due to that emotion I have so often mentioned - 'denial'. I used the phrase 'almost unconsciously' above, the point being that when 'almost unconsciously' becomes 'consciously', then markets will really start to head for the skids.

We see this beginning to happen now in the UK, with the savings ratio at long last starting to rise, as people begin the long, painful process of reducing their debt because by now they're reaching the stage where they know they are overextended. Hence the reason (in my view) why the FTSE has been tanking - the only area where 'denial' is still alive and well in the UK, is that of house prices, and that feeling won't last a whole lot longer, for sure.

One of you asked me recently why I appear so bearish about property, in the face of 'all the surveys' suggesting at worst a falling off in demand for a year or so, and at best, a continuing, albeit slow, increase in house values.

I guess I'm so bearish because I have seen it all before! History has a habit of repeating itself but as someone once said (Roosevelt, I think) "The only thing we learn from history, is that no - one learns from history."
You are fed up hearing it, of course - I know that - and if you own your home, you really don't WANT to hear it, do you?.....did I ever mention 'denial' anywhere during my ramblings?

Anyway, to answer the question, it seems to me that house prices aren't dropping significantly yet, for two reasons: first, sellers who are not yet distressed, are unwilling to accept low offers so they simply stay put, and second, there are still some mugs prepared to believe the hype that 'prices can only rise' and who reckon they have had a bargain when their compromise offer of about 96% of the asking price, is accepted by those who really need to sell.
Just wait till there are a lot of 'distress sales' being forced upon the market by 'distressed lenders'! Then we'll see just how far house prices can drop - although by way of reassurance to those of you who need it, in the longer term, history also suggests that a shakeout will be followed by the inevitable recovery.

We shall see - an old Chinese curse says 'May you live in interesting times' (think about it!) and it's certain that currently we're doing just that.

So where is all the foregoing leading? I just love the indirect route, and in my usual Ronnie Corbett fashion, the point is that if the US markets remain (undeservedly) strong for a few more weeks, then we can expect to see the main European indices pause for a time in their downward spiral while the sheep begin to believe things here are 'cheap enough' compared with the USA - it seems to me we might expect a bit of a short term recovery on this side of the water, and a bounce back upwards before the recent new downtrend resumes. If you recall, the other week I suggested that there might be a bit of fairly choppy action around 5200 or so and it would be unsurprising if that now happens for a while before the drop towards the next support at 4800.

In recent weeks I haven't mentioned the FTSE250, but if you look at the chart, you'll see clearly enough what's going on there. (Please bear in mind the number of points needed between any potential entry and the stop loss position when trading any index. If for now you can't afford it, PLEASE don't do it! All that would happen is you would have a losing stopout, because 'fear' would have you hold the stop loss far too tight. Trust me - I too have been down that road in the past!)

Moving on to today's charts, the other week I mentioned Cadbury Schweppes - worth keeping an eye on - and today there's a wee picture of Savills, the posh people's estate agency, just to highlight the fact that for similar reasons, it too might be worth watching.

The other chart is of Compass Group - all sorts of bad news has been surfacing - and the reason for showing you its chart is to let you see how you might have been able to place a 'sell' trade well in advance of the worst of the news - with hindsight, I regret that I didn't show you this one on 25th September when rather lazily I only used the Kingfisher example! However, you can't win 'em all and it simply points once more to the necessity of 1) doing your own research, and 2) cultivating huge amounts of patience.
It was good however to receive a couple of emails quizzing me about where to consider placing a stop loss on Compass, so a few of you obviously had 'sell' orders thereon. Well done to you!

That's about that for today, folks - all that travel, all that missed fishing, and I come home to pouring rain! Ah well, at least it means the first snow has arrived in the mountains pretty early this year, so all being well there will be loads of white stuff by Christmas. And I bet that's NOT the first mention of the 'C' word you have heard to date! If it is, then please accept my most abject apology. Who mentioned Easter eggs?

All the best till next weekend,
Ian.

PS: my publishers tell me the 19th November workshop is now nearly full - if you would like to attend, please give them a call on 01709 820033 to see if there are any places left.

PPS: I see there are a few newcomers to my ramblings, and if you are in that category, please note that when I put up charts in WICS, sometimes they don't give the whole story. That is entirely by design, and is intended to have you ask yourself some questions - if you get stuck, you know you can contact me for clarification, but in order to take ownership of the methodology for yourself, you really need to think things through. There's no other way I know of, to help you get to grips with trading.

PPPS: If you have opened an account with Finspreads (which I recommend you do, if only to use the 'Trading Academy' facility to dip a toe in the water) I wonder if you would mind letting me know? It would be extremely interesting to establish just how many of you have taken that particular route, because if there are enough of you, I'll try to negotiate something with them to everyone's potential benefit.

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'.