ON THE BRINK - (Part 1)

There is every possibility that we could be at an historic moment for the stock markets which if ‘history repeats’ could also be followed by a wipe-out of the Bond markets. My September report pointed out the similarity of today’s FTSE 100 index to the Wall Street crash in 1930. The 50% rise from the March low at 5200 has for the last month halted the recent steady rise and has now met the falling ‘time’ angle down from the October 2007 high. Current levels could prove to be highly significant especially when accompanied by an important ‘time’ decision point.

As previously mentioned weakness from here could be a mirror move of the April 1930 fall down from 296 to 40.5. The markets could be on the brink of something really dramatic opening
up huge profits for ‘shorting’ on the way down followed by the opportunity of a lifetime to pick up shares with bombed out values within the next two years if not sooner.  

This is an exciting and fascinating moment in time. The last time I felt this exhilarated was at the time of my coup in 1974/1975 when re-investing my 100% cash position. As the technical details were so strong all was invested in the U.K. stock market. The reasons for such a bold move after the largest stock market fall ever in the UK will be explained in my forthcoming Gann plan to take full advantage of the imminent historic financial events. This equity position climbed by up to 300% within three months and was then switched into 25 year gilts providing a return of 16% p.a.!

The only regret I had was my inability to persuade 25% of my investors from pulling out of our management at that time. This was mainly due to their reluctance to accept our high cash position when confronted by the promises of others that the market was far too low throughout 1974 and large profits would be missed. The investor’s inability to exercise sufficient patience destroyed their chance to benefit from the opportunity of a lifetime. No doubt today’s investors will be once again following the self interest inspired advice dished out by those who were supporting the market back in 2007 before the sharp fall. As for myself I feel most comfortable when all around are at odds with my analysis. All around the experts are still bullish which gives support to my bearish position. I hasten to add that my views are not formed by my personal assessment but by Gann analysis which has been the reason for our non participation in any bear market since the 1970’s…a feat not attained by many.  

However, to date the trends both short and medium are still upward so signals from the markets are still awaited before the suspected scenario is triggered. Should the markets deviate from the direction of the past then our analysis will redirect us into any move taken by the markets. 

However, now is the time to plan on the assumption that trouble is ahead.

OUR PLAN FOR A BEARISH SCENARIO FROM CURRENT LEVELS

1- DEALING WITH THE THIRD AND FINAL LEG OF THIS BEAR MARKET

An assessment of the second fall is that it will be less spectacular than the 2008 plunge. It will probably have characteristics which will suck in the suckers who will then be regularly spit out after a month or two of rising prices from false optimism following a previous fall. Over the longer term the effects will be far more devastating than the 50% 2007/2009 fall.

A look at the 1930/1932 fall under illustrates the significant effect of 50% retracements of each fall in signalling the next ‘shorting ‘opportunity.  

When these retracements are lined up with angles and percentage movements after the trend is established there is substantial clarity in either exiting or shorting the market. The angle providing the date of the fall was a 2/1 weekly angle precisely pinpointing the time to take out short positions. The prime Gann percentages used are 8.33%; 25% & 33.33%.

Should the fall anticipated materialise the application of 50% retracements; angles and percentages will provide profits to offset the woes of the economy and the suffering of the many from a major bear market collapse. Click here to see the way Gann dealt with similar problems of the 1930 falls by trading in just one share US Steel.

We are now at an important stock market decision level where our expectation is that weakness will take hold from here and that a gradual erosion of prices will occur over the next year or two. Debilitating falls will be arrested by temporary rises giving hope to the perpetual bulls. Such a market is the most dangerous of all markets. Huge profits will be possible for those traders who can isolate the lower tops and act accordingly. If current levels are broken on the upside the historical relationship with the 1920’s and 1930’s will have been broken for the first time in a decade necessitating a re-analysis of our liquid position.

The 1920 collapse can be related to the 2000 collapse with an eight year wait until the next top in 1929 and 2008. Both these later tops were followed by a 50% fall; a 30% rise from the lows; a small correction followed by a 50% rise from the lows. In 1930 this was followed by an 85% fall! Is this our fate and does history repeat as Gann advised?

Of course, many will declare that history does not repeat and that an observation from the past will not make possible a look into the future. I will only reply with the maxim ‘Those who ignore history are bound to suffer from it’ 

To conclude, there could be some healthy profits from ‘short’ stock market positions not too far away.

THE COMMODITY OUTLOOK

To add to these stock market opportunities we can add the possibility of further profits in the commodity area.

The analysis of the Continuous Commodity index chart shows this index rising to a resistance level accompanied by a downward timing angle. This draws attention to the possibility of ‘short’ profits just around the corner. This is supported by seven metals contracts being set up for triggering ‘shorts and no less than eight softs. There are also a number of buys in the line up should the markets go the other way. All in all an anticipated profitable period before the New Year ensuring another profitable year from commodities to accompany those we have enjoyed each year since we recommenced our lower risk commodity analysis in 2005.  

To be continued .......

THE BIG ONE – FOREIGN CURRENCIES

Regards,

Fred Stafford