2009 - A YEAR OF OPPORTUNITY

'Perhaps the most important newsletter I have written over the past 30 years'

Fred Stafford, February 2009.

I am now in possession of the information I need to be able to assess the markets in order to isolate this years opportunities and anticipate the threats for 2009. On the surface current threats seem substantially to overwhelm potential opportunities. The 'powers that be' are attempting desperately to cover up the mess they have manufactured over the past decades with a patchwork of lies and deceit accompanied by a collapse of in ethical and moral standards. In support of this attempt to stop the rot the establishment, in time honoured fashion - strive to confuse the indisputable with a tissue of lies and smoke screens.

In line with our universal 'contrarian' approach it is our intention to fight through the fog and confusion which has been generated by this propaganda intended to support the indefensible. Our objective will be achieved by making full use of the tools at our disposal to convert a potentially difficult investing year into a profitable one and perhaps even a record breaking year.

And now for our market guidance

DISCIPLINE IS THE KEY

The first objective should be to devise a discipline to counter, and then take full advantage of the problems likely to be confronted in 2009. The first control should be to develop a simple but effective money management system; see "Gann's trading hints" and follow them to the letter. In particular don't have favourites but allocate equal money to each investment. Keep rigid control of risk and under no circumstances change or ignore pre arranged exit points. Have the patience to wait for the right trading opportunities and never be afraid to be in cash. Appreciate that most opportunities will be acted upon against the opinion of the crowd. Understand that losing is sometimes part of the business of investment with the emphasis being on ensuring that losses are as small as possible without nullifying the opportunities.

In the current environment it is essential that you are in full control at all times and do not take your eye off the ball…markets are far too volatile for an inert approach. Be as flexible as possible and use the facilities offered by 'all markets' no matter how uncomfortable that may sometimes feel. Constantly reassess your holdings and your perception of the markets, as a roller coaster ride just may be in the offing.

To ensure success in such difficult markets it is essential that as many Gann-based reasons as possible are found to support your approach but avoid a fundamental approach unless you are a genius! Even then it might be better to leave it to W.D. Gann. Look at the recent performance of the number one fundamentalist Warren Buffett in his Berkshire Hathaway fund with a fall of 45% in the last 6 months! Remember - it is better to let the market tell you what to do rather than resort to the guessing game and listen to a series of fairy tales based upon the hopes and desires of a collection of self-interested institutional servants.

The following general indicators are employed in order to gain confidence in taking the first steps to the final investment and trading decisions.

They are not signals to buy, sell, short or hold, these being activated solely by Gann analysis.

THE GENERAL INDICATORS

1 - A Significant Pattern

Along with other markets the FTSE 100 has been moving within a trading range just above significant support. This support has held the market up for 3 months but is still being held within the long and medium downward trends. The market is therefore in balance still within the grip of a Bear market. The recent rise has failed to do anything other than produce a dead cat bounce, as it is known.

At first glance you could be excused for thinking that the first chart below represents the FTSE 100 as it stands today. The market is in a 3 month trading range after a significant fall and is attacking the previous lows. The actual FTSE chart is in fact the lower; the similarity is quite apparent. If Gann was correct in his assessment that investment history repeats itself, then there is an ugly conclusion to be drawn from these charts. The first chart represents the Wall Street Crash, Dow Jones from December 1930 to March 1931 following a fall from 1929 of 44%. The market then broke the lows on the chart and fell a further 50%!

Ominously the FTSE today as it stands today has fallen by 44% and is now attacking the previous lows!

Could history repeat itself? What I do know is that very few, if any, of the market commentators would consider this to be a feasible proposition. Therefore from a contrarian point of view this suggests that the projected fall of 50% is a distinct possibility. Such a prospect was forecast as long ago as 2007 being a fall to the G3 level at 1737.5. This will become a near certainty if the G1 is broken by a lower trend indicator line top forming on or under 3475.

This first general indicator is solidly bearish and may expose the nonsense being heard from the establishment of late.




















2 - The Informed Buyers Index

This bearish scenario would not be taken too seriously if the Informed Buyers Index was not in support…but in point of fact it is!

Since last October the FTSE 100 has risen by 16% emanating from support from the 'Hopeful' Institutions in an attempt to shore up their dreadful performance figures. Informed buyers on the other hand have ditched shares aggressively from November onwards - in spite of the rising index: this distinct divergence confirms the outlook for further weakness ahead. This index is, to me, a serious indicator.











3 - The January Effect

With January having come and gone, we are presented with an 80% chance of the 'January Effect' forecasting the outcome for 2009. Here again the conclusion must be the prospect of a year of declines with the FTSE 100 index having fallen from around 4600 area to under 4000 during January.












4 - The Trend

The medium term trend is still decidedly down. This is supported by the maintenance of lower tops and bottoms despite the recent qualified strength.

Gann's primary advice is to invest with the trend so, in general, 'shorting' is the recommended path to follow. Another Bearish indicator is thus confirmed.




















The Advance Decline Line

Despite the last 3 months of consolidation this index shows that despite this apparent support there are more share prices falling than rising. This adds weight to the bearish view.











This concludes an examination of the General Indicators we follow here at Gann Management, unanimously confirming a gloomy view for equities during 2009.

The next stage will be to examine our current "Gann analysis" of all the World Markets.

Fred Stafford. February 2009