THE MIRROR COULD BE BROKEN

The 7 year reflection could have been broken as portrayed on the FTSE 100 chart when the upward break of the line on the chart occurred. However weakness from recent tops below the line could suggest that it may only be a temporary break and the reflection might still be in play…only time will tell.
















Consequently the 7 year Mirror as an indicator must be withdrawn, at least temporarily. The informed buyers continue to ditch shares on any market rise and the advanced decline line exposes that there are more falling shares than rising shares despite the indices recent strength. Our bearish view remains in tact but with less certainty than when supported by the 7 year cycle.

A study of market sectors also exposes internal weakness

Of the 34 sectors only 7 have shown positive results with Chemicals, Autos and Electricity showing gains of less than 5 %.

The winners being:-

Mining 26%
Electronics 18%
Oil Equipment 16%
Oil Producers 9%

The heaviest loser being:-

Retailers 19.5%
Travel 17%
Tech Hardware 17%
Telecoms 16%
Banks 16%

During the year the FTSE 100 has fallen by 7%. The divergence between the best sector and the worst sector is a remarkable 41% proving the importance of sound sector analysis. Our Sector analysis enabled us to successfully 'short' poor sectors and pick up profits from the positive sectors.

I have found the markets particularly difficult to trade this year but have managed to avoid any loss of capital and at the moment find ourselves ahead of the game. The company's basic philosophy of concentrating on maintaining capital has been observed despite a gearing rate of 2.5. It would appear that this gearing rate is at a level which we can observe our basic defensive qualities yet still produce sound profits.

The most important economic factor currently is the probability of STAGFLATION. (Economic stagnation accompanied by high inflation) This is an extremely destructive scenario which all but the 'Ancients' will not have experienced. All I need do to prove this destructibility is to show the 1970's FT30 with its 72% fall to create fear into any investors mind. This economic scenario falls into line with my long term analysis that the FTSE 100 could fall to 1737.5. Now I know that this is completely ridiculous but so was my analysis in the early 1990's that Japan would fall to 9279 from 39,000. In the event this prediction proved too bullish! It is wise to note that predictions appearing acceptable often prove hopelessly inaccurate whilst reality is often preceded by seemingly outlandish predictions. Who would have believed in January 2007 that the oil price would rise 170% from $50 to $135. Anybody forecasting such a rise would have been considered insane and then would be forgotten when proved right. Forecasting is a fools game but still fun even if immensely frustrating. Investors much prefer to follow those who have similar views to there own rather than those with alternative views. It is interesting to note that a survey of market newsletters in the State showed that the letters which got things wrong had a much higher following than those who were proved to right. The investment world is indeed a weird place with all its psychological hang ups.

Current analysis of the various investment areas is pointing to a difficult period ahead which will require great flexibility. This will probably necessitate the ability to move effectively away from traditional areas and into alternative avenues. Gann Mgt. analysis provides the ability to isolate investment opportunities in any of the worlds markets and provide directional guidance.

So where should we be concentrating?

THE WORLDS STOCK MARKETS (Mostly Bearish)

The Western Developed markets look vulnerable with severe weakness still looking likely which could present attractive 'shorting' opportunities. On a more bullish note the markets of interest are Pakistan, Philippines, Russia, South Africa and Toronto Comp. Subject to continued strength, the Japanese Nikkei will look positive over 15000 but I am not too hopeful.

THE WORLDS BOND MARKETS (Mostly Bearish)

The Bond markets for Gilts, Bunds, French and Japanese Bonds have recently broken support levels with only US treasury Bonds finding support which if held could shortly provide a buy signal. US Bond weakness from here would be extremely bearish.

THE GOLD MARKETS (In balance)

There is a complication situation here with Bullion on support but not yet signalled. The UK Gold Market looks weak whilst the US still has Bullish tendencies but which could break down any time. Our recent venture into this market has been disappointing forcing us to withdraw immediately weakness became evident following our Great Defence strategy of selling quickly everything that does not go in our direction. There is no room for that four letter word 'hope' in our vocabulary.

COMMODITIES (In balance)

Much to my surprise we have a 100% cash stance in both Metals and Softs. This surprise emanates from our lining up possible future Buy signals for all the metals…so far none having been triggered. In the Softs area again each contract is subject to possible future signal but no signals have been triggered to date. Here there is a fairly even split between longs and shorts.

This is obviously a situation where patience will be the key.

ENERGY (Waiting for oil to fall to support)

We have a considerable number of buying opportunities lined up. These signals will probably be subject to the movements of the Oil price depending upon when oil finds support. We will be concentrating upon energy futures contracts to substantiate when support is verified.

ALTERNATIVE ENERGY RELATED STOCKS (The decade's major opportunity area)

This sector is receiving our special attention.

To date very few of the constituents of this sector have provided profitable opportunities. However, we believe that big profits are about to emerge over the next twelve months. To take full advantage we are concentrating upon all the various areas for alternative energy stocks including Bio Diesel; Electricals; Ethanol Producers; Geo Thermal; Grids & ; Micro grids; Hydrogen; Negawatts; Nuclear; Oil Related; Solar Power; Tar Sands; Wind Energy.

Our current analysis is pointing to the underlined areas as the most interesting with no fewer than 20 possible Buys.

NATURAL RESOURCES (Buying opportunities lining up)

This area is not dissimilar to Energy with a patient strategy in play waiting for our 24 opportunities in the UK, the US and Europe to develop.

CURRENCIES (Breakout of trading ranges possible)

The major currencies against the Dollar and the Pound have for some time been stuck in uninteresting trading ranges. They are now threatening possible breakouts. This is an area which could become tradable over the summer period.

THE BRIC ECONOMIES (Questionable opportunities)

It is often advocated that the emerging markets likely to lead the way are the BRIC economies being Brazil, Russia, India & China and therefore are worthy of serious consideration

Brazil has had a fabulous rise of and continues to trend upwards. There may be an opportunity on a correction back 6237.

Russia is a market which Is looking bullish and could provide early opportunities.

India after a 100% rise is now in a down trend and possibly will not provide profits over the shorter term.

China over a two year period enjoyed a phenomenal rise but has been devastated over the past 8 months. However, the index is now on support at Gann's second most important support level and meandering within a trading range just above this support. A break of the range on the upside or downside would be the trigger for action.

IN SUMMARY

The areas of immediate interest are 'Shorting' the developed markets which have suffered from the almost criminal activities of their bankers supported by a naïve debt greedy populace. On the more positive side Russia, Brazil, The Philippines and South Africa are of current interest where ETF's and ADR's will be analysed with Russia perhaps also supplying individual share opportunities. I am also recovering interest in the currency area which I have neglected due to the trading ranges in which they found themselves. I could find any breakouts interesting.

A little patience will be necessary for Energy, Natural Resources (perhaps imminent) , Alternative Energy stocks, Japan, Natural Resources and China. Commodities could burst into life anytime as could the Gold markets but Bonds look decidedly unattractive although all is not yet lost for US treasuries.

So there it is. A recipe for a staggering amount of work in order to avoid the forthcoming 'troubles' which look likely during 2008/9. Our philosophy to follow a 'Great Defence' rather than a great attack should serve us well when difficulties emerge. This is not the sort of philosophy which you will find with any Institution and their so called managed funds whether pension or otherwise which could once again get pulverised as they did in 2000/2003. A much more specific considered approach is necessary. We can supply it. We are confident that we can find returns similar to those in 2000/2003 despite the market collapse at that time. This time the fall could exceed the extent of the 2000 collapse…so beware.

Currently our portfolio holds 50% cash, 20% in shorts for Europe/UK banking and 30 % in energy stocks.