Trading the Easy Way

Well, that was an interesting week in the markets - albeit somewhat predictable. If you refer to last weekend's WICS offering, you'll appreciate that I'm relaxing here in the sunshine, feeling a little smug - a dangerous disease to suffer from as a trader, let me assure you - but at least I'm aware of it! A loss or two will soon cure me, that's for certain.

Anyway, there really was little doubt that there was going to be a suckers' rally after such a sharp selloff, because there (almost) always is - so quite frankly it didn't take much of a crystal ball to work it out - especially considering the presence of the 'feelgood factor' caused by an impending long weekend. 600,000 people taking cross - Channel ferries on Friday evening eh? Now THAT's my idea of purgatory - hopefully the wind had died down! The only worse form of travel than a fully booked ferry is a crowded airport and the non appearance yet again of Mr O'Leary's finest.

Anyway, if the markets keep rising on Tuesday and Wednesday next week, that won't surprise me either, in the same way that all the "Great Buying Opportunity!" utterings coming from the mouths of 'financial advisers', as reported by your good selves, have been utterly and boringly predictable. Ho Hum. (I don't mean YOU are utterly and boringly predictable - I mean THEY are! YOU are VIPs as far as I'm concerned, because you have paid some doubtless hard - earned cash into my retirement fund and I really appreciate that, because frankly I don't expect to receive a huge pension cheque from Herr Chancellor in due course - and neither of course should you!)

I guess I had better not get started on that subject, given that you'll be perfectly well aware of the plans to make you work longer, while President Tone and his wee chums all retire at 60 on pretty nifty arrangements, naturally.

Just as well I don't live close to Parliament Square, with all these nasty comments I make about what is laughingly termed the British Government - otherwise Dr Reid might send the Stasi to kick in my door at quarter to three in the morning. Democracy, eh? I guess that particular concept died out when Plato, Socrates et al shuffled off a few years ago.

Moving rapidly on - and back to the markets, to your relief - a few of you have been asking "What if current events are NOT a suckers' rally but a resumption of the earlier uptrend?"

That's a very relevant question, and the answer to it is twofold I guess: 1) I see enough evidence to satisfy myself that the overall trend shows a lot more probability of changing than of continuing upwards, but 2) Does it matter if I'm wrong? If you recall from a much earlier WICS - don't ask me which one, because a proper WICS Index still eludes me and I simply don't have the mindset to produce one - I quoted John Maynard Keynes' famous comment: "When the facts change, I change my opinion. What do YOU do, Sir?" If the longer term trend is going to remain 'up', then per TTEW you won't yet have 'sells' running on Index trades, will you? You might well have ORDERS working, but unless prices fall below earlier lows, they won't be FILLED, will they? (I'll point out what I mean on another chart of the FTSE below, just as a wee reminder of how TTEW approaches these matters - but remember I'm only offering TRAINING here - in no way am I suggesting what to open, nor where to open it - that has to be 100% up to YOU to decide.)

As far as charts of individual shares are concerned, the overall market trend has little do do with decision making - the chart almost always will tell you what is most likely to happen next, in whatever direction. (Up, down, or sideways.)

One of you asked the other day "What's the opposite of a suckers' rally?" - another good question, my answer to which is 'Bear Trap' - where prices drop to cause bears (like me) to believe they're going to fall a lot more - so we sell, only to see the markets jump back up and stop us out.

Next, I note that the Enron pair have been found 'guilty as charged' - a few (quite a few?) hedge fund managers will follow in due course, I fancy - we'll see.

Some more snippets - according to Barclays Bank, "One in five Barclaycards is now considered as being a bad debt." Hmmm - that was kind of predictable too and I fancy the figure may turn out to be even higher. There was a report in the Guardian during the week (forwarded to me by one of you - thanks Bill) that claims there are "one million people in England currently facing bankruptcy due to mortgage and other loan debt." That's a little scary if it's true. Only one million? And what about the remainder of the UK? Maybe the Scots, Northern Irish and Welsh don't do debt?

Moving along, those of you who have been WICS sufferers since early on, will be aware I'm a wee bit of an 'eco warrior' so if I appear to digress when I mention the current banana crisis, doubtless you'll forgive me.

However, there is in fact a very relevant trading lesson here, as well as an ecology lesson that sadly won't be taken on board by our 'political masters' because such things never are.

Anyway, you may not know this, but there is only one single banana variety sold in the shops, and furthermore, it's a sexless clone - which means that all bananas are identical despite superficial appearances. So what? SO, if a disease develops and one banana contracts it, they will ALL be susceptible. If that disease then is impossible to eradicate, that entire banana variety will quite simply die out - every single plant thereof.

And guess what? Back in the 1950s, the only banana available in the shops was also a clone - but not today's variety - because it contracted a fungal disease and was totally wiped out.There were no survivors. It was replaced by today's effort that had been developed to be resistant to the fungus by the introduction of some genes from wild bananas, but now - you've guessed it of course - the fungus has got round the defences. This time however, there are literally no suitable wild bananas left from which to develop a new variety, because of rainforest destruction during the intervening years.

Given that the first known similar agronomic mess - up resulted in the Irish Potato Famine a very long time ago, there are no excuses - but that doesn't alter the facts, sadly.

It's highly probable that over the next few years, bananas will disappear from the shelves - and that leads me to the 'trading lesson' I mentioned above - because there is one company that depends pretty much 100% for its existence, on the production and sale of bananas. Its chart below shows a pretty clear 'sell' pattern long before the public became aware of what I have said above - indeed it's likely the public is still blissfully unaware that their lunchboxes may lack something important to them in the near future.

That's your lot then for the moment - I hope your holiday weekend is enjoyable, and doubtless we'll see over the next week or two whether recent action has in fact been simply a bear trap, or a true trend change!

All the best till next weekend,

Ian.

PS - not that you need what my Yank brother - in - law so quaintly calls a "Heads Up" about Rentokil of course, given its prominence in the TTEW manual, but.........

PPS - I have never really accepted the spin that companies purchasing their own shares are doing so from a position of strength - often in my view it's the reverse. Anyway, take a look at Brambles Industries, noting that they have bought back over £200m worth of their own shares since March, causing the price to push back up a bit, but suppose the support just above the earlier gap up were to be broken....? (If you want the 'technicalities' of share buybacks please ask a broker - I don't really have time to get into explaining all of that.)