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.

Got sent this article about the 'Yen Carry Trade', definately worth a read and then keep an eye on the Bank Of Japan's interest rates, if they rise, it may force another major sell signal:

Dear XXXXXXXXXX

You may not have heard of the yen carry trade...

..But it's been making hedge funds around the world colossal, and ridiculously easy,
profits since the turn of the century.

This year it's likely to come to an abrupt end. And that event could potentially destroy
your investments.

Today, the Bank of Japan (BOJ) decided to keep interest rates at nearly 0%, so the
trade is safe for another few months...

But by the end of the year the BOJ is near certain to raise rates, ending the yen carry
trade, and potentially, causing a catastrophic collapse of the entire global financial
system!

So what, then, is the yen carry trade, and why is it worth worrying about?

-----------------------------------------------------------------------
The catastrophic collapse of the entire global financial system
-----------------------------------------------------------------------

In a currency carry trade, you borrow and then sell a low interest currency, to buy a
high yielding currency...the difference between the two interest rates is your profit.

For years now, Japan's 0% interest rate has made it 'the darling' of carry traders.
Effectively, the Bank of Japan (BOJ) was handing out free money to global investors.

Its intention was to bring Japan out of a decade of deflationary depression, and spur
on Japanese bank investment.

The reality was, however, that the BOJ became the bank to the world.
-----------------------------------------------------------
The bank of Japan becomes the bank of the world
-----------------------------------------------------------

Global investors could borrow money at less than one percent and then invest in US
treasuries at increasingly higher interest rates.

Provided the currency remained relatively stable, and the BOJ constantly intervened
to see that it did, investors were laughing all the way to the bank. It was as good as a
free profit.

And it didn't stop at US treasuries. Bond markets in high cash-rate countries such as
New Zealand, Brazil, Australia and even Iceland became depositories for the free
money.

And why stop at bonds? Property, from London to Shanghai to Sydney to Miami
became a target. Plus, high risk emerging markets that offered substantial returns were
made less risky because funding was so cheap.

-----------------------------------------------
Huge liquidity and commodity hysteria
-----------------------------------------------

Then came the China phenomenon...

Suddenly commodities were on the move and the super cycle thesis was born. As
China surged, similar base metal investment vehicles were introduced. Suddenly all
the world was a speculator.

Global stock markets were also moving. Investors poured into commodity-backed
exchanges as metal price increases drove earnings increases which drove share prices
from miners to truck tyre manufacturers.

Although demand/supply fundamentals were clearly a force behind the commodity
rally, the pure hysteria of the rally was put down to a matter of sheer liquidity.

Since the US has tried to restart its economy after the tech crash, and Europe needed
to spur on growth, money has been cheap and the world has been, as so many
commentators have noted, "awash with liquidity".

And nowhere was money cheaper than in Japan.

---------------------------------------------------------------
Free money, a profit bonanza, and swelling bubbles...
---------------------------------------------------------------

Banks, mutual funds, insurance groups, pension funds and hedge funds the world over
have exploited the availability of liquidity, and exploited the yen carry trade.

No asset class has been left out, as speculative bubbles have developed in emerging
markets, metals, gold, real estate, art you name it.

But now that could all be about to change... and according to many people it could be
very nasty indeed...

"The entire global financial system is on the verge of disintegration, as the
result of the imminent collapse of the yen carry trade." Daily Telegraph

"The multiplier effect of the blowout of the carry trade is going to mean that
the crisis hits with a magnitude far beyond any individual nation or currency.
This will bring down the whole post-Bretton Woods floating exchange rate
system." Lyndon LaRouche, political economist.

David Bloom, currency analyst at HSBC has said that the yen carry trade covers every
single instrument imaginable, so when it comes to an end at the end of this year "it's
going to be ugly".

Now that Japan has begun a genuine recovery, interest rate hikes are inevitable. And,
earlier this year, the BOJ announced its clear intention to do just that in 2006.

------------------------------------------------------------------------------------
Recent turmoil has stopped the BOJ from raising interest rates in June
------------------------------------------------------------------------------------

The only reason the BOJ didn't raise rates yesterday, was because the recent stock
market turmoil has made the bankers nervous that the recovery will not fully
materialise.

But sooner or later the rates must rise.

And when they do there could be a rally in the yen that will force a sudden sell-off in
just about every asset class there is.

It's fair to say that the recent global market and commodity losses have occurred, to a
large extent, in anticipation of the yen carry trade collapse...

..We've seen the FTSE and DOW drop 10%. Emerging markets and commodities like
copper, aluminium, zinc, silver and gold have all dropped around 20%.

When the BOJ puts up interest rates we could see even worse.

As a private investor you're well advised to take stock, revaluate your strategy
and keep an ear to the ground - 2006 looks set to be the most turbulent year of the decade.

Best regards,

Stephen Edwards
Daily Wealth

silvermede thanks for that i dont think you will have to wait that long before another sell off .

If things go smoothly with the witches in the States, I think we'll end the week on a mildly positive note. I suspect people will evaluate positions over the weekend though, and we could see the sellers return on Monday. Once people are worried about further falls, it doesn't take much for the rallying effect to wear off. In my opinion anyway.....

Strawbs

strawbs agree it feels like a suckers rally

Woodie,

Yep. That would be my call. Given that sentiment doesn't change universally overnight, the more optomistic investors will be sucked in to buying what looks like cheap stock, probably hoping to average down their losses. In my opinion anyone think of doing so should really try and resist the urge (difficult I know). If you buy now and the rally continues, you might make back your losses, but if it drops you will definetly compound them. Staying out until the direction is clear, at least protects your money, and if it turns out to be a sustained rally, you'll eventually recover your losses anyway.

Strawbs.

strawbs well said

Don't suppose anyone will listen though. I remember a number of my friends during the tech crash. Some seemed to think buying a stock which had already fallen 50% was a good way to double their money..... When they didn't, they seemed to think it was all very well me being right with hindsight, but if I was wrong I would've lost a fortune (by not buying myself)..... Why people think a fortune on paper is better than real money in the bank I'll never know! Still I could be wrong I suppose, but I sleep better at night this way......

Strawbs.

10940 is the number to watch for on Dow ..... That needs to hold

Dow close 11014.5

StB,
I think there is an important difference between the tech bubble and now. The majority of the tech companies were over valued had little possibility of positive cash or had astronomic PEs. The market followed the Tech shares up in a general madness. Now the average PEs I think are not removed from "true" cash value. Cash flows seem reasonable. The uncertainty is "oil" prices and instability in the middle East, which is mainly due to the work of the two messiahs Bush and Cohort Blair. I think it is a very choppy market and have thought so for months, but it interesting to see the balance of directors buying to selling and the also some of the large institutional buyings.

I think it is time to avoid smaller companies with poor earnings, or those which are likely to be looking for more cash in the near future or those who constantly promise but don't fulfill.

Although it has been pointed out that the future markets in America are pointing to some further minor retracement, I am again long at the moment, but if I was slightly better organised I would prefer to be a watching rather than holding over the next month or two.

Of course you could always hedge your investments by taking the odd overnight spreadbet short on UKX (or another index), Fred. It might occasionally ease the pain next morning.

;-))))

I wasn't actually comparing the current activity to the tech crash. I was just saying that sometimes people get too carried away with the old price of a share, and assume that a large drop is a buying oppertunity, when in fact it could be a warning that underlying fundamentals (not the share but the market) have changed for the worse. I still think we'll see another sell off, it's just a case of what triggers it and when it happens. Definetly some choppy times ahead. In my opinion anyway....

Strawbs.

I think Strawbs is right .... Peeps have been badly shaken up and for sure $ interest rates have further to climb ..... how badly that unsettles the market remains to be seen

I had that nervous feeling again today that things are about to go pear shaped, which made me remember this thread from last year..... Anyone else think another major correction is just around the corner, or is it me being paranoid?

Strawbs.

not sure about major, but am currently short of FTSE with a modest target of 6285, tho may extend that if feels right ..... seemingly perversely perhaps, am long Dow.

overall, still feel FTSE is heading north, but decent correction certainly overdue

Not sure if my candlestick analysis is up to scratch yet, but I keep seeing bearish indicators everywhere. I'm starting to wonder if last years "mini correction" was just a dry run, and didn't scare people enough to follow through, because fundamentally people still seemed rather "bullish". I'm wondering if almost a year on, another correction might just turn into a full on down trend, which is why I was curious how people felt at the moment. Oh well. Guess I'll be liquidating the portfolio again. :-) Think you should do OK with the FTSE short. I'd probably go the same way with the DOW (short), but I don't really look at the American market, so maybe your right.


IMHO...

Strawbs

That'll be the sell off I was waiting for then..... :-)

Strawbs.

lovely wasn't it! .... was nicely short and have just closed that position .... whether one now buys at this level is another matter

Been liquidating some of the portfolio today. Think I'll sit on the sidelines again for a while. I hope the financial news out of the States later is OK, otherwise I can see this sell off accelerating....... Think I need to have a look at spreads/cfd's again. :-)

In my opinion, do your own research..... etc.

Strawbs.

have taken plenty off the table ...... like you, will watch, but actually think Dow mor likley to recover than fall, though there may still be say 150 points to go there before a solid bounce