The market seems to be selling-off on the back of limited bad news imo, apart from the dollar that is.

If you can hold your nerve and apart from any short term requirements to offload poor performing stocks, I have a couple!!, my advice would be sit tight. This does not have the feel of the tech(mining!) bubble at all. Difference being there are a lot of good fundamentals, unlike in 2000 when there were a lot of over rated nothing companies.

Very! ..... 60 in July since you ask .... Out of curiosity, why? .... am i really that puerile (quite possibly!)

Worth a read?

Echoes of late eighties crash persist in markets
Published: May 19 2006 20:57 | Last updated: May 19 2006 20:57

For those of a certain age, some of the recent goings-on in the markets are reminiscent of the dotcom bust six years ago, writes Tony Jackson. For those of a less certain age, such as myself, a more remote parallel comes to mind the late 1980s.



In one sense, let us hope the parallel is inexact. In one day in October 1987 the Dow fell 500 points, equivalent to 2,500 points today. Anyone predicting that now would be taken away in a van. But the echoes persist. Then as now, people had fretted for some time that the markets had gone up too far, too fast. Indeed, the Dow had peaked in August 1987.

So why did it collapse in October? Because it did, seems to be the answer. The Yale academic Robert Shiller polled US investors immediately after the crash, asking just that question. The commonest reason given was that the market had been overpriced.

In the circumstances, that might seem a statement of the obvious. But Mr Shiller also asked whether investors thought the crash was due to a specific cause, such as profits or interest rates, or to investment psychology. Two-thirds chose the latter.

So why had they kept on buying before? That at least is an easy one. What we have here is the Greater Fool Theory.

This says that even though you are perfectly aware a thing is overvalued copper, say, or shares in a fly-by-night oil explorer you keep buying it anyway. Why? Because the thing is still going up. When the time comes, you will find a Greater Fool to take it off your hands. Until, of course, the music stops and the Greater Fool turns out to be you.

Here is another possible parallel. In October 1987, part of the problem was the recent introduction of computerised programme trading, designed to sell automatically when a certain trigger was reached. What no one seemed to have spotted was that in a crash, the computers would keep on selling against each other until someone switched them off.

Today, such programmes would seem laughably primitive. What we have instead are equity and credit derivatives, in vast quantities. These are of mind-hurting complexity and even the people who trade them have PhDs in physics (yes, really). No one seems very sure what would happen if that lot blew up, but I for one am rather keen not to find out.

Another slightly unsettling thought is that in 1987, the Wall Street crash was in one sense a surprise. People thought the US market was rather overvalued, but the Japanese market was screamingly so. So when the collapse happened, they were looking in the wrong direction.

Even more bizarrely, the Tokyo market shrugged off the Dows crash and kept on climbing for another two years. By the end of 1989 it was nearly 50 per cent higher again. And then it had a real crash. The fall in the Dow, it turned out, was really only a blip in the long bull market that kept going until 2000. Tokyos Nikkei index, by contrast, is still less than half its 1989 peak.

So are we headed for further big falls this time round? As the 19th century Baron Rothschild said in reply to a similar question, if I knew that, dear lady, I should be a rich man. For what it is worth, I doubt it. But I worry just the same.

It is not so much that shares are obviously overpriced, in the developed markets at any rate. It is rather that everything else has gone up as well, from oil to oil paintings.

Even within the equity markets, it is striking that nothing looks obviously cheap any more. Contrast the dotcom boom, when a lot of traditional companies were decidedly cheap and went up accordingly when boom turned to bust.

As for gold, I am not about to pronounce on whether it is worth $700 an ounce. I merely point out that when it peaked at $500 in late 1987, it had risen by $200 since 1985.

Similarly, I have no firm views on whether interest rates and bond yields are too low. But I would prefer it if some UK government index-linked bonds had not been trading at such bizarrely low yields lately. And I see the French bank SociGale has just spent an extra 6.5bn (4.4bn) on hedging its corporate loans, in preparation as it tactfully puts it for more normal trading conditions.

I also note that, as this paper reported a few days ago, there has been an unprecedented boom in corporate bond issues in the past week or two and also in company flotations. That might be because everyone is in such a terrifically good mood. Then again, it might not.

As for the rise of the hedge funds and private equity, dont even get me started. But that is how it is with investor psychology. There are always things to worry about. But for a long time the past three years, in this case you dont let them bother you. And then you do.

And after all, parallels can be pressed too far. In the UK in 1987, the crash passed off fairly quickly and markets resumed their upward march. Then, a couple of years later, inflation took off and interest rates went to 15 per cent. The housing market slumped, and a large part of the retail trade with it.

That couldnt happen today. We have learnt our lesson, and now we know better. Dont we?

pity anyone long on the sensex today, if they had a open postion from friday, it lost 1100 points in one session 10% in a day had to stop trading for an hour.

Market taking another bashing this morning ,oil especially .

Grim again. isn't it !
looks like sub 5500 on the way and then ?

It's getting worse.. NOW DOWN - 117 !
Will it bounce from these levels or go down to 5500 then bounce or ... go down thru the 5500 level... can't see any new negative factors from last week that justify these levels/
mm etc., taking the opportunity for a massive tree shake... should bounce up from these levels I reckon (imho)
(

There is something a little dubious about this extent.
I have stocks marked down on absolutely no activity and others that have only seen buying are down 2%.
This seems to me to be someone making hay while the sun shines and grabbing stock cheaper than there is any reason for it to be on the back of blind panic.
alan

skyhigh you was right nice bounce but for how long?

the problem is , the natural resources stocks are hit, people with derivative positions near to pay margins so sell good stocks to pay them!!

Any shares with low liquidity or small NMS (normal market size) will be marked down quickly as they will be hard for the market maker to shift if there is any sudden selling pressure. There may be protected trades (T trades) going through, selling stock, which is why the price will fall on no actual visible activity. Other stocks may not be marked up for the same reason, e.g. background sells being factored in. I suspect there will be many such days as these over the next few months. Investor sentiment is often more important than fundamentals, when the market shows signs of fear or greed. There will be many a down day, with the occassional false rally. I would look for wider sell offs in the small and mid caps over the next few weeks. Especially shares that have doubled or more, and haven't been hit yet. Fund managers will need to lock in profits generated elsewhere to offset poor performance, and a slide in the large caps stocks. This will, I suspect, start to become a self fullfiling prophecy, with the private investor left holding the baby. In this environment, any bad news will be twice as powerfull, just as a few months ago, the slightest good news pushed shares higher. In my opinion anyway....

Strawbs.

This market does look as though long positions and stop losses are exagerating the sp movements; whether good news can reverse it in particular stocks is going to be interesting. There are a few with good news due out this week that will test that.

Shareshure,

I think that will certainly be a good test. Don't get me wrong. Some stocks will continue to do well, even if this does prove to be the start of a bear market. I know from last time though (the tech bubble), that many of my friends didn't react to the early falls, as they'd done so well out of the rise in their own stock picks. Most didn't start piling out until at least a month or so later. I put that down to the cummulative fear effect of more down days, and a change in press sentiment, from "a short term correction" to a "more sustained trend". Only time will tell if history repeats itself. Anyone investing for the long term, with a good company, will no doubt average out any dip, and finish ahead. Although I'm generally a long term investor, personal circumstances mean I prefer to sit on the "guaranteed cash" while the dust settles, rather than loose any of the profits I've made.

Strawbs.

Certainly hitting momentum investors a lot harder than long term investors like myself and otheres here. Some long termers will sell out and take profits, Im holding as Ive been through situations like this before and if it does turn out to be a Bear of course there will be a spike downwards in the chart but the longterm trend will be up. (if you hold strong decent stock)

Glad I didnt get sucked into the Commodity and Oil sectors, carnage going on at the moment. A lot of investors will be lost forever to the markets which isnt a good thing as we in this country in general dont invest or save as much as the likes of the US or Germans.

The markets these days seem to be dominated by gamblers with a TA chart guide and a cfd or SB account looking for a quick fix.

Dont really know the answer as to how to rectify this, does anyone?.

Can't believe some of the oiler's ,,were they really that overvalued ?? luckily i wasn't in much when this started ,i'm out now and staying out until we have some clear direction ,the problem may be when this ends ,we go sideways .

I suspect in the euphoria of rising prices, a number of stocks will have been overpriced. At the end of the day, it's only worth what somebody's willing to pay for it though. If the price looks like it will keep on rising (as many have since the start of the year), then people will happily keep paying more, regardless of whether any fundamentals have truely changed. Of course, that ultimately skews the value of a stock, and makes it harder to judge where true value lies. When momentum switches the other way, the reaction will be overdone in the opposite direction. We won't know which stocks are fairly valued until the dust settles, and the price chasers have been scared out of the market.

Strawbs.

Yes and by the look of it there may be some bargains to be had .
Dow sliding again .

The only thing is... you get into the bargains in this type of market and.. they fall as well !

There has been so much carnage on my portfolio that blood is beginning to leak out of my monitor! Happy to hold at current levels as I have made safe some profits and will re-invest when things appear to have settled. Lots of potential bargains exist based on fundamentals and near-term prospects, IMO.

That also worries me. I know people that have seen this correction (or whatever you want to call it), and are thinking of closing ISA's to get spare cash to buy "bargains". Great if you can pick the true bargains, but pretty suicidal if you can't. I think some people just get infected by the "can't loose" mentality, and forget the little "shares can go down" disclaimer on the tin.

Strawbs.

I agree Strawbs , i won't be looking until the dust settles ,i don't think anyone knows where this is going next.