rather than pick out individual stocks to trade, it can often be worthwhile to trade the indices themselves, especially in times of high volatility.

for those so inclined, i attach below charts for FTSE and FTSE 250, though one might equally be tempted to trade Dow or S&P, which is significantly broader in its coverage, or even NASDAQ

for ease of reading, i have attached 1 year and 3 month charts in each instance

Dollar weakening oil rising maybe commod stock won't get eviscerated. Is Buffett spending like Marcos today I wonder or waiting for vix to hit 40 ?

just picked up the following, which on balance, and assuming its accuracy, is probably good for the markets, insofar as it should give some stability ......


AFP - Saturday, September 6 05:05 amWASHINGTON (AFP) - The US government is planning to put under strict federal control troubled mortgage giants Fannie Mae and Freddie Mac, fire their top executives and use federal funds to bail them out, US media reported on their websites.

Fannie Mae and Freddie Mac, government-chartered, shareholder-owned firms that provide liquidity to the housing market, have been whipsawed by the financial meltdown in the past year, losing some 90 percent of their value on fears of losses from mortgage defaults.

A law enacted in July gives the US government the authority to buy shares or offer liquidity to the companies to keep them afloat, averting what some fear could be a major shock to an already fragile global financial system.

The Washington Post said the plan calls for placing the firms in a legal state known as conservatorship.

That means the value of the company's common stock would be diminished but not liquidated while the holdings of other securities, including company debt and preferred shares, would be protected by the government, the report said.

The government also plans to make quarterly infusions as the companies' losses warrant, The Post said citing unnamed sources.

The New York Times, for its part, reported that senior officials from the administration of President George W. Bush and the Federal Reserve on Friday called in top executives of Fannie Mae and Freddie Mac and informed them of the plan.

The Times said it was not possible to calculate the cost of any government bailout, but the huge potential liabilities of the companies could cost taxpayers tens of billions of dollars.

An American Northern Rock then, I would guess the dollar would weaken on this news, why do governments persist on short term bailouts for long term pain, if NR, F/Mae and F/Mac were allowed to fail this would send the strongest message possible to other financial institutions to (belatedly ) get their houses in order.

The banking sector in the UK has a lot more downside yet and the sooner we get there the sooner they would be able to build from a sounder base, but with the Gov tinkering it will take longer and so the pain will last longer. UK bank lending will contract markedly over the next 12-18 months. AIMO of course.
2517

because the knock-on effect is too frightening to contemplate

Very frighting, if F/Mae and F/Mac was alloweed to fail, it would be the same as letting Lloyds and Barclays to fail in the UK. I couldn't even begin to imagine the consequences.

Hmmm. Next week should be interesting then. I think the bullet of a market crash has been dodged a number of times since the credit crunch first began. Of course at the start everyone was feeling bullish, so an excuse to rally had the desired effect. Now though, we've had months and months of mounting gloom, everyday more bad economic news, and maybe an equity market in denial.

Those of a nervous disposition, look away now.....

In my opinion.

Strawbs.

I wasn't saying that I expected big market falls Monday, it depends on how markets react to F/Mae and F/Mac news, you can never be sure but I would think the reaction should be favourable, because it will remove some uncertainty.

So we may see some short term recovery, before a retest of the 5200 level.

But I feel you are right in saying we have avoided a major fall so far, and we still haven't reached the bottom yet.

only imho of course..........

and what level do you think Dow will reach?

No idea !

This from todays Sunday Times;

Some analysts said the action would boost confidence in the short term. David Buik at BGC Partners said . . . that he expects the FTSE to bounce tomorrow morning after New Yorks rally on Friday, which came in anticipation of a rescue of the two mortgage agencies.

But other analysts feared government control could backfire. If there is a bounce, its a false one. If anything, the situation has changed for the worse. We knew these companies were too big to fail; now it is the government thats on the line instead of them, said veteran analyst Richard Bove at Ladenburg Thalmann. He said unless the government had a plan for what to do next this was an unbelievably negative move that would increase the government deficit and could impact on Americas ability to borrow money.

For the full article go to:
Record bail-out in US of Fannie Mae and Freddie Mac - Mortgage banks rescue should lift markets

Yep. That's the way I read it too. Central banks and governments can't clear up this mess, it's too big, all they can do is move the pain around. Sadly it's not the organisations that created the problem that will suffer, it's the rest of us. Maybe the next "great depression" is closer than we think......

In my opinion.

Strawbs

the announcement is now out (go to cnnfn.com), but i am not remotely clever enough to judge its effect ..... however, as i posted before, it must surely remove some uncertainty in the markets, and that can only be good news.

Question is, have the markets been selling off because they're worried the US government will protect F/Mae and F/Mac, or worried they won't? Surely they were always going to step in to prevent the systemic risk? Maybe the markets are worried what this might do to the dollar, and in turn oil/commodities/inflation etc. It could be a very interesting week indeed. All eyes on Asia for the first clues tomorrow......

In my opinion.

Strawbs

Neither ..... market movement is primarily driven by sentiment and uncertainty is the one of the most corrosive .... in this instance, a major unsettling influence has (perhaps) been removed

Markets are also forward looking, and follow a herd mentality. Not necessarily out of choice, sometimes out of necessity. The dollar and equity markets got a lot stronger last month, oil and commodities a lot weaker. I just hope there's not too much leverage backing the wrong horses. We may see a temporary rally, but I can't see this as good for the dollar longer term. If the housing market continues to fall in the U.S., surely the government is going to have to borrow a heck of a lot of money to keep it supported! How deep are the U.S. pockets if any more financials need bailing out, and will the rest of the world want to keep picking up the tab? Still, the UK and probably most of Europe are in a bad mess too, so where do you put your money? Gold I suppose.....

In my opinion.

Strawbs.

IMO I think we are ready for a bounce and maybe the start of another bull market. Remember hearing a few months ago someone saying the mkts couldn't possibly recover because the miners were at their peaks (ie where could their sp go) and therefore there needed to be a major sell-off of mining stocks before the recovery could begin. Last week was very frightening (hedge funds forced selling?) but I believe good long-term for the mkts. Whatever happens Monday (once again there is a view that a major crash is needed before recovery) the banks and builders sp have stabilised and the miners are oversold so I am becoming more bullish.

The Halifax said yesterday that they think U.K. house prices will continue to decline for the next 18 months. Apart from the first time buyers who will benefit, assuming they can get a mortgage, that does not spell the start of a bull market to me. TW. has not stabilised, just had a slight reprieve with the stamp duty change. Their sites are not being developed, sub-contracted trades are being laid off & their cash flow is thin.
Sorry to disagree, but further for the equity markets to drop, imo.

As long as FTSE doesn't shoot up at open, I will be looking to enter long at some stage tomorrow. Feels like a short term bounce is on the cards from these levels, but I still think we are yet to see the bottom.

Indices have still been falling on bad news flow, usually after the bottom is reached in a bear market, the Indices will not move downwards on the release of bad news. When shares stop falling on bad news, this is normally the first signs for the start of a recovery.

No probs Harry.

What we all have to remember here is whether we are talking about the economy, individual companies or the stock markets. The former is crap and some way from recovery albeit you can argue that with oil prices coming down inflation pressures ease, therefore interest rates can be reduced. The SM though looks well ahead and on that basis I stand by what I say.

First an apology for copying the whole text here, but couldn't find a link, it's well worth a read but maybe best to cut and paste, then print off for some bedtime reading.

I wonder at what stage we are at at............

The Craft of Investing
Book by John Train

The Washout: All Is Lost!

A convenient place to begin our circular tour is bobbing around in the
pool at the base of the waterfall: In the depths of despair in a bear
market-1957, 1962, 1966, 1970, 1974, 1978, 1982, or 1987. Stocks
have just declined 35 percent, say, sliding several percentage points a
week for months on end. Near the end of the slide many famous issues
have been cut in half with terrifying speed.

At a major bottom, current business news is usually terrible, and
many authorities feel that things are likely to get even worse. There are
several spectacular bankruptcies, of international importance. Unem-
ployment is usually up. There is usually some grave unresolved na-
tional problem that is bothering everybody.

The brokerage business itself is likely to be in the dumps, with
many bankruptcies. Big producers of the up years have to cut back
on their lifestyles. Wall Streets own desperation reinforces the syn-
drome.

When in a market collapse everything finally caves in during a few
catastrophic days and weeks, there is an almost audible flushing effect.
Stocks are hurled into the abyss, like the cargo of a sinking ship that
the crew is desperately trying to save. Value means nothing.
About this time, if you go to a cocktail party, you will meet that ir-
ritating figure Faunty Smugg, who smoothly assures you that he hasnt
owned a share for six months. A social broker you sometimes encoun-
ter, Pete Pusher, claims that he has gone short in all his accounts.
Eventually, though, a point is reached where everybody who can be
scared into selling has sold. The professionals, who have been hovering
overhead, so to speak, and the institutions, who always have a few
billion dollars to spend, accelerate their buying, and finally an equilibrium is reached between the buyers and the sellers. Usually, the final battle occurs in a few days of extremely high volume - a selling climax. The ordinary investor, who has gone over the waterfall, is groggy, bruised, and sick, his ears ringing. He does not want to hear about stocks, never again. The few professionals and institutions have the field pretty much to themselves. What they buy goes up, since there are almost no sellers left.
Then, some weeks later, the old lows are quietly tested on modest volume, but it doesnt attract much attention. Experienced investors are confident that that better weather lies ahead.

Its odd, but major bottoms are almost never a spike. They have two roots, like a tooth.

Surge: Its Too Early to Buy. . .

We are at the beginning of the dynamic phase of the bull
Market, the optimum buying window will last for only a few months,
But it is prudent to hold off most of your buying until the market has
clearly turned, and is full and by on the new course. You can usually
recognize when the upward trend has been solidly established. The
professional investor does not mind paying 20 percent more for a stock
that has been cut by two-thirds, to be quite certain that it is not going
to go down a lot more.

The government-shocked by the decline, and as always beset by
clamour to do something-pumps liquidity into the economy,
which of course does not take effect instantly. The Wall Street pundits
declare that this time the stimulus isnt working. Its like pushing
a rope, you hear. In fact, however, the government will get what it
wants, and as soon as its intentions are fully clear, its time to act.
The months go by and prices rise. The misery of the recent past
is quickly forgotten, like a thorn extracted from your foot. A few mutual
funds will have been started during the bottom area, and articles
in the financial press begin pointing out that the Hercules Fund has
grown 75 percent in six months. One starts hearing extraordinary
stories of people who bought calls on Intertronics warrants and thus
transformed $100,000 into $800,000. The institutional issues, such as
the Dow stocks, make important moves. Volume, however, usually
continues low. The consensus of the advisory services remains cautious. The banks recommend staying in short-term, fixed-income instruments until the situation has clarified. The brokers, who have to push what they can actually sell, suggest bonds, preferreds, and the like. That, however, is what I call the yield trap. Most of the time, if bonds are going to do well, stocks will do much better. Indeed,
stocks well bought at such a time will double or triple in the next few
years.

The Surge Continues: Prices Seem High. . . Its Too Late to Buy

More months pass, and the market can now be seen to have estab-
lished a rising channel for itself, like a marble rolling from side to side
along a gutter. The Dow oscillates from the top of the channel to the
bottom, but continues in the same broad upward path. Pete Pusher is
quoted in a Wall Street newspaper as expecting one last major down
leg, which will be the time to buy. There will be few significant reactions during this phase of the new bull market.

The rising prices of the principal stocks attract more buying from
the professionals and from institutions who have been waiting on the
sidelines; this additional buying puts prices still higher. The higher
prices, in turn, give confidence to more buyers, who enter the market,
putting prices higher still. The whole system continues to feed upon
itself, to rise and build like a prairie twister.

The general public, during this phase, moves from feeling that its
too early to buy to feeling that its too late to buy.

The Second Stage of the Rocket: Prices Are High, But Maybe Its Okay to Buy. .

Time passes. Perhaps a year or a year and a half after the beginning,
the public, which has been apathetically watching from the sidelines,
starts to become interested. There are a number of downward legs, or
tests, against the bottom of the markets rising channel. Each time the
test is reversed at a higher level than before. The longer the channel
remains intact, the more it is considered invulnerable. But the more it
is considered invulnerable, the closer it is to a bust.

,Most times there is eventually a pronounced and unmistakable rise
in volume, which then falls off again. Later in the cycle one can usuall
look back and see that this volume bulge appeared approximately two x
thirds of the way up the whole eventual slope. The fervor and the
tempo of the dance continue to mount. The music plays louder and
louder. More and more spectators join in.

Not a Cloud in the Sky: Buy!

More months go by, and the public is hooked. Business news is excel-
lent. The standard forecast of the economic outlook is optimistic.
Jazzy funds proliferate.

Some particular market area-the major industrials in 1961, the
over-the-counter speculations and hedge funds in 1966, the conglom-
erates in 1969, the sacred-cow growth issues in 1972, the energy group
in 1980, high-tech in 1983, emerging markets in 1993-surfaces as the
center of attention and the focus of a self-confirming myth as the
brokers and professionals bid up these talisman stocks to irrational
heights.

The Blowoff: Stocks Can Only Go Up

Hot managers become famous. Young, glib, impatient of conventional
wisdom, they collect huge sums from trustful and greedy investors
hoping for miracles. The volume of hot manager trading may become
a significant part of the whole market. They chase new themes as a
pack. It then becomes profitable to jump aboard a trend (in the early
1990s, a new emerging country) instantly, before the less hot managers get hold of it and run it up. This further undermines the quality of
the buying. Brokers get younger and younger, since fresh graduates
swarm into the business, chasing the flood of commissions. Speculations, illiquid securities, collectibles, commodities, and ventures are
palmed off as investments. Securities firms specializing in issues of
glamour companies, or hot hedge funds, have long waiting lists for
each underwriting. A broker specializing in froth can sell any stock by
letting it be known that he is in touch with a few big operators who are
getting behind it.

Most new issues, even of companies without a history, or even established management, rise to an immediate premium. At cocktail parties,
people talk excitedly about the latest prodigy. Faunty Smuggs wife ex-
plains they are buying a shorefront house in Newport with the profits
of his last six months trading. Peter Pusher, the social broker, jumps
into the market with both feet, buying his customers low-quality volatile story stocks and as many new issues as he can get his hands on.*

The Nature of Markets

This is what is called a buying panic-the reverse of a selling panic.
It is, however, rarely profitable to jump on board a trend that has
moved more than 10 percent within three months. You are indeed
safer making short-term buys after the market has dropped 10 percent
in two to three months. This is one of the tiny handful of tactical rules
that seems to work quite well.

Why so? Because frenzy feeds on itself. The runaway horses get the
bit in their teeth and gallop faster and faster. However, the runaway
horses do not sprint all the way to Kansas City. At some point most
experienced market operators can feel the surge becoming exhausted,
and will do some buying (or selling) against the main trend, just when
the most inexperienced investors are hopping belatedly on board.

Coasting: The Markets High, But This Time Is Different. . .

As the months wear on, stocks hesitate; their upward pace slows, with
only a few leaders making new highs. The market analyst detects this
situation by the loss of breadth. For instance, the ratio of advances to
declines usually starts falling, even though the leaders are still rising.
Speculative volume tapers off.

And there are also inherent restraining features in a business boom:
1.Inventories eventually reach the point of glut. In the early stages
of a business pickup the entire pipeline-from the mine through
the mill and metalworking plant, all the way to the warehouse
and hardware store-has to be replenished, so factories go on
overtime. (After the peak is passed, the whole pipeline empties
out again, so factories cut back.)

2. The price of raw materials is bid up as production increases.

3. Money costs go up. (In slack times, there are few borrowers, so
rates are low. In a boom, the manufacturer needs more working
capital to finance inventory, and wants money for plant expan-
sion, so interest rates rise. )

4. Labor costs soar as full employment is reached, and the unions,
profiting by manpower scarcity, inerease their demands and get
more overtime.

5.Efficiency drops as older facilities are brought back into produc-
tion and high profits mask operating sloppiness.
Thus, beyond a certain level, more business does not mean higher
profits; about at this point in the stock market cycle that economic fact
is remembered.

A few enthusiasts still claim that this time things are different. They
rationalize that the government has mastered the business cycle, so
that there need not be another downturn; or that there is an absolute
shortage of stocks because of an insatiable institutional or foreign
appetite for them, which will support prices at permanently higher
levels; or that stocks are the only refuge from inflation.
Nonetheless, in a bull market an unlimited volume of securities can
be manufactured, enough to satisfy everyones desire to invest, how-
ever strong. When the ducks quack, feed em, said the old-timers.

The Top: Hold

At last the government, concerned about economic overheating and
stock market speculation, starts leaning against the wind. The Fed-
eral Reserve raises bank reserve requirements; the discount rate goes
up a notch; margin requirements may be tightened. Here again, the
government gets what it wants, and in time this process always wres-
tles down a runaway bull market.

The insiders, suspicious of stock price levels, step up the sale of
their holdings in secondary issues.

Another few months pass, and we start to recognize the typical
top formation. It often comes in January, on good economic news. A
series of vicious reactions, or chops, begins, probably for the first
time since the cycle started. First, over a six-week period or so the
market falls rapidly, perhaps 10 percent. Then the arrival of belated
second-chance buyers halts the decline and puts the list, up to new
highs.

Some time later there is a second vicious chop, which usually bot-
toms at a higher level than the previous one. The recovery again car-
ries to a new high. Those who sold out at the bottom of either chop
feel foolish. Those who jumped in are jubilant. Peter Pusher, the so-
cial broker, says that the Dow is going up another 30 percent, al-
though selectivity remains- important. If you sell out at about this
point, you probably wont regret it. To push the operation to its limit,
however, you only abandon ship when the successive chops reaching higher levels and start into a downward pattern, with each peak lower than the last one, and each drop going below the one before. The secondary stocks, those not in the leading averages, have been sluggish for months. This is the beginning of the end-a dangerous moment.

Over the Hump: Its Too Soon to Sell

The public remains heavily in the market, but the professional inves-
tors are edging out. They have known for some time that the most
conspicuous issues are too high, and are waiting to sell as soon as they
conclude that the game really is over and there is nowhere to go but
down.

It is like the ogres dinner party, at which the last guests to leave are
eaten themselves. When chairs begin to be pushed back and napkins
placed on the table, the wise diner prepares to dash for the exit as soon
as theres any excuse to do it. This crush at the door is why the market
goes down much faster than it goes up. The lower-quality stocks start
declining significantly.

The Slide: Prices Are Cheap, But Its Too Late to Sell. . .

A few more months pass, and a number of issues, although not yet the
leaders, have fallen appreciably from their highs, perhaps 25 percent.
The mass of the market, as measured by a 2000-stock index, or, for
instance, as indicated by the advance-decline ratio, has been going
down for some time. Business news is now felt to be not too good. You
hear doubts about the economic outlook: Perhaps there will be a recession next year?

The market, like a tired horse that no longer feels the whip, drops
on bad news but fails to respond to good news, often governmental
stimulation measures and bullish announcements. Still, the major bro-
kers remain bullish on America. (They have to be, since, like companies in other industries, they have expanded their facilities, and thus
lifted their break-even point, in the preceding boom. )

Faunty Smugg quietly sells his Newport establishment. He lets it be
known that he has taken a few losses, but that things have come down
so far theres no point in giving up now.

Its Okay to Sell

After a while we may see a severe decline, with perhaps 25 percent
marked off the prices of the more volatile issues. There is often a
deceptive recovery, which one might call the trap rally. It often comes
in March and can last a number of weeks, producing a significant
bounceback in the battered leaders. Some public investors, who were
on the sidelines all the way up, are finally lured in by the lower prices.
The usual sequence is that the lowest-quality stocks collapse first, while
the top-quality issues struggle forward; then the general market starts giving ground. Finally, the institutional growth stocks let go, and everying starts slipping faster and faster, and indeed many old issues are so far down that the companies solicit tenders for their own shares, sometimes amounting to hundreds of millions of dollars in a month.

The Cascade: Sell!

Now the river sweeps over the brink, carrying everything with it. A
cardinal point of market strategy, if you are a trader at all, is to get out
before this cascade, even if one has already lost 15 or 20 percent.
Business news is bad. The standard forecast is for more stormy
weather ahead. The hot fund managers have to meet redemptions, but
find out that illiquid securities cari t be sold and depart in disgrace. As
for the margin operators and leveraged funds, their borrowings turn
out only to have hurried them to disaster. (Aggressive managers as a
class lose more money than they make, because you can only raise
money for a ressive vehicles when the pot is bubbling, and the lessons of the previous collapse have been forgotten. This kind of money comes in most readily when the cycle is nearer its end than its beginning. Relatively little money is thus in the aggressive pools of capital on the way up and a lot more on the way down.)

The Selling Climax. The Markets Going Way Down'

The torrent crashes down the falls. In the frightful plunge some stocks give up in a day their gains of a year, and drop 30% in a week.
Pete Pusher urges his customers to sell before the lose everything It
is so sudden and so awful that for a while many investors cant quite
believe it. When the smallest investors finally throw in the sponge and sell out, it turns up in the newspaper figures as odd-lot short sales. The
man who cant afford to deal in hundred-share lots goes to his broker
so sure that the end is at hand that he sells short seventeen shares, say,
of GE, hoping to buy them back for a lot less after the cataclysm. This
paroxysm of odd-lot despair often takes place right at the bottom of the
market, during what is called the selling climax. Such a climax does
not always occur, but when it does, an experienced investor can feel it
clearly. Fairly often it comes in October. For years Ive wondered why.
One possibility is that October is when the crops move from the field
into the barn, and a risky crop loss becomes a solid one on inventory.
So here we are again, four years or so after we started out, half
drowned, bones broken, washed out, all passion spent.

But if youve kept some reserves intact, and have the knowledge to
recognize real value when its being dumped by panicky, uninformed
sellers, and have the guts to act, then at these moments you can make
the buys of a lifetime. Weve had eight economic storms since World
War II. During almost all of them investors became convinced that the
skies would never clear and the sun shine again. But it always does.

Crises

I have mentioned that one should try to determine the main trend of
the market, and then look for buying opportunities during reactions
against that trend.

An infallible formula for this exercise is buying during crises, par-
ticularly war scares. Wars are inflationary, thus they are bearish for
money compared to things, including things represented by stocks in
companies. The immediate shock of a war scare, death of a president,
or other crisis creates an imbalance in the market that forces prices too
far down.