Hello again, from a lovely warm and sunny day in the mountains! Hopefully the weather wherever you might be, is also being kind. To kick things off today, a couple of Really Scary Granny (RSG) predictions: first, this period of 2009 will become known as "The summer of madness" in due course, and second, when the markets begin the next leg of their ongoing collapse, the reason/excuse (see last weekend's ramblings for more about such things) will be "swine 'flu". At least, that will be the first story to be trotted out by all the talking heads - thereafter there will be plenty more "justifications" - and very few of them will be "new" ones - indeed, another RSG prediction is that none of the excuses will include the observation that "sheep can act extremely irrationally, especially when herded by a bunch of loonies......"

However, there are a few wee voices of reason around, trying to spoil the current feelgood factor (i.e. inject the lunatics with the merest smidgen of reason) - the CBI in the UK is suggesting that there will be "No return to growth till 2014" and the NIESR is saying that "House prices will continue to fall for another three years." There has been yet another fall in British GDP - for the fifth successive quarter - and government (i.e. the taxpayer's!) debt is a pretty impressive £799bn and rising by the second. Never mind, the lunatics have the floor for the moment, and Wee Allie the chancellor is leading the chorus - with the first line of the refrain being "Growth will return by the end of the year, yeah, yeah...." Which year, Allie? And don't think it's any different in the US of A either - nor anywhere else for that matter.

Anyway, what does it matter anyway, as far as trading is concerned? (Ah yes, now I remember, THAT's what these ramblings are supposed to be discussing...) Well, that has all been covered many a time here - but if you're new to this nonsense (and a huge "welcome" to all of you recently subscribed masochists!) the point simply is this: TRADERS can profit just as much from falling prices as from rising ones, whereas INVESTORS have to depend solely on rising ones. And the latter may soon find that their current euphoria is exactly that - "exaggerated elation" per the dictionary definition. Oh well, it was ever thus - but this past few weeks of market craziness has certainly been interesting to the detached observer of flocking/herding behaviour - and it's more than likely that the inevitable selling opportunities, especially in the indices, may be acquired in due course, at higher than expected prices - which means "further to fall" - which means...?

Now the foregoing might appear a tad on the flippant side - but make no mistake, the end of the current madness is going to hurt an awful lot of people and that is not a laughing matter in any sense. Unless you're a bit on the sad side, it's unlikely you take any real pleasure in the plight of others, unless they're called Broon of course, in which case you're forgiven.....Job losses, reduced pensions, risible redundancy cheques, pathetic returns on hard - won savings.....not funny. How to cope? I wouldn't have the arrogance to suggest much of an answer - but for sure, one thing to do (if you're planning ANY kind of "investing") is to ask an awful lot of questions before you part with your dosh! Or perhaps better still, chant "Cash is king, cash is king" every time you hear the words "Great buying opportunity". (Try these phrases in the search engine for more references, if you can be bothered.)

Moving along to a snippet or two, and first, it appears even Monaco's property values are in a mess - "down 37%" according to the Dow Jones Wealth Bulletin. Then there are the "recession beaters" - for example, the police forces of England and Wales now have "record numbers" of cops on the payroll - there's always a silver lining, eh? And how about the Berlin bordello (that has a certain ring to it!) where a discount is being offered to clients who arrive via public transport or bike (!) in a "green initiative" that seemingly has both increased client numbers and reduced parking congestion in the immediate area.....Hmmm - will that turn it into a desirable neighbourhood I wonder? (Still with Germany - regular sufferers of these jottings will know of the Williams dislike of their appalling autobahns - how about the accident the other day on the A2 that involved 260 vehicles, no less? Thankfully only a few people were badly hurt - the cause was "excessive speed in heavy rain". Oh yes.)

Next, and still with motor vehicles, you'll remember the mention here the other week, of Porsche's "incentive" to try to sell their big trucks. Hah! That's nothing compared with the Missouri truck dealer's offer. HIS offer is a new AK47 rifle with each truck purchased - and HE isn't charging an extra £11000 for the privilege. Presumably though, he doesn't hand over the weapon until after he has been paid. Only in America, eh? Seemingly the offer "Generates a lot of publicity and really angers liberals." Quite.

And Ford has (allegedly) made a profit at last.....Oh yes it has.....Oh no it hasn't....."Debt restructuring" has made the figures look like a profit, but it lost $1bn in its vehicle manufacturing business - go figure, eh?

Back in the UK, the auditors are refusing to sign off the accounts of the Treasury - "uncertainty over the costs of bank default insurance" being the excuse. And likewise, the UK's Equalities Commission is getting the same treatment, but this time it's over (alleged) criminal activity. You can't trust anyone these days.

Speaking of trust - how about the rabbis and politicians who have been arrested in New Jersey for alleged "bribery, money laundering, and trafficking in human body parts"? There are no words, are there?

Finally today, before an email or two and some charts, there's the matter of the bid from CVC Capital Partners for National Express. (It already owns a substantial stake therein.) CVC also owns Formula One, not to mention a fair bit of Debenhams, inter alia. Hmm, a good place to invest some of your savings then?

On to a couple of emails received during the week then, and first here's one from "Paul" - a very good question!:

"Hi Ian
The strong push on the FTSE over the last few days hasn't had a huge increase in volume and seems quite low considering.
Is this because all the sellers have gone on their hols so the market is more responsive to less volume of buyers - or something else?
I would be grateful for any thoughts.
Cheers
Paul

My answer was:

"The general holiday season will be a factor, yes - it takes less effort to move prices, the fewer the participants overall. There will be a lot of "smart money" that's meantime able to herd prices higher, ready to begin selling in due course."

The next email comes from "Elizabeth" and again it poses an excellent question - hopefully the fairly longwinded reply might be of a little assistance to some of you:

"Hello -
Market action will go either up or down: there are two choices!
The purpose of any methodology is to give the user an "edge" to identify those instances where probability suggests a particular type of action is more likely than not.
Taking a step back for a moment I wonder whether I would be better to just rely on what the charts tell me...or rather what I interpret the charts are telling me ..and trade on that basis rather than allow my (jaundiced) view of the world about us/the economy is telling me, to interfere. A couple of times recently I have shot myself in the foot by allowing that part of my brain to trump and overrule my interpretation of the charts (with a loss of 2000 pips over two trades! …c’est la vie!)
I am on the horns of a dilemma! I am still a newbie to all this as you know and would like to know what you think
Elizabeth."

Here's my response to Elizabeth's question:

"Elizabeth - maybe the way to look at this is as follows: as TRADERS, if we see an opportunity to enter a buy trade per the charts, why would we not do that? And once actually in that trade, why would we not use the methodology to STAY in the trade until we get stopped out? That is the essence of this methodology, using sensible money management criteria and a well defined trading plan. Once actually in an open trade, it's then a matter (come what may) of ignoring all the wee voices that suggest it was a mistake. Time alone will tell you that - and (it's in the manual!) a losing trade can still have been a "perfect trade". So as far as TRADING goes, what is happening "outside" a chart matters not a jot during an open trade. Again from the manual, you will know that paying heed to the talking heads, is the kiss of death to long term success.
Clearly however, it's what is happening "outside" - i.e. in the bigger picture - that actually creates a chart pattern in the first place (except for individual stocks of course, where that effect is much less.) This is actually quite hard to explain without becoming excessively longwinded (moi?) but an appreciation of the "bigger picture" stuff that gives you your understandably jaundiced view of things is required for only one specific (but massively important) reason in my view: it will enable you to hold on to your money/make best use of it over the longer term. The snake oil salesmen are again out in force, persuading people to invest in stock markets, because it's the best thing to do "for the long term" and "better get in now before you miss the boat" etc etc. I cannot stress strongly enough that "trading" and "investing" are totally different things and require entirely different (indeed perhaps opposing) mindsets. It is not for me to tell anyone what to do with their money, but I certainly believe I have a duty to subscribers, to try to act as a bit of a devils' advocate as regards the notion that this is now a full - on bull market, and it's with that notion in mind that I try to point out the odd "bigger picture" thing in WICS. I guess the point is that "trading" earns you money from week to week/month to month (hopefully!) but it's your understanding of the bigger picture that might help you keep that earned money "safe" and enable you to make it work as hard as possible for you over the longer term - for example (mentioned more than once in WICS) by being able to "buy stuff" at a much lower price than at present.
I don't know if this is helpful - please let me know!
Ian".

Just a wee addendum, Elizabeth - you suggested markets can go "up" or "down" - but they can also go "sideways" - don't lose sight of that direction!

OK, onward to a chart or two, and today we'll start with a look at potential resistance on Liberty International - it broke out of its triangle and if you "missed" that, you missed it, but maybe if it can push above its new horizontal resistance, it could head upwards for a while yet? Then we'll look at the opposite - i.e. "support" on the Wolseley chart, before seeing if the channels in the SMI and DJIA mentioned in tonight's videos can also be applied to France's CAC40 index.

That's all for today then - there will be no video updates midweek, and mentoring replies may be slowish - due to an influx of visitors - must be Mme W's excellent cuisine that attracts them? - but it will be "business as usual" next weekend, so happy trading until 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'.