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.

http://www.ft.com/cms/s/0/374c30de-792a-11dc-aaf2-0000779fd2ac.html

London's bull market sourced abroad

By Neil Hume

Published: October 13 2007 03:00 | Last updated: October 13 2007 03:00

House prices falling at the fastest pace in two years, the chancellor lowering growth forecasts for the UK economy, the Treasury guaranteeing new deposits at Northern Rock, and big clearing banks still reluctant to lend to one another.

This is not usually a backdrop associated with rising share prices.

Yet, the FTSE 100 came within two points of reaching a fresh seven-year high yesterday and is now less than 200 points from a record high.

From its summer low - the index hit 5858.9 on August 16 - it has risen 15 per cent, or 872 points.

How can share prices be rising when the outlook appears so gloomy in the UK and the US? Is it possible to be bearish about the UK economy but bullish on the UK market? The simple answer appears to be, yes.

Equity strategists and City traders believe one main factor lies behind the market's sharp rebound.

It is called decoupling. This is the idea that the economies of the developed and developing economies are no longer closely correlated. Therefore, a slowdown in the US or Europe, for example, can be offset by strong growth in the so-called Bric countries of Brazil, Russia, India and China.

"As opposed to equity markets taking a lead from the US, the baton has been passed to Asia and China at least temporarily," says Graham Secker, equity strategist at Morgan Stanley. "Investors are really buying into the decoupling argument."

Morgan Stanley forecasts that the global economy will grow at 5 per cent this year and 4.5 per cent next.

Global growth is good for the UK market, according to Darren Winder, head of macro and strategy research at Cazenove. "The largest 10 stocks account for 50 per cent of the UK market. Yet the percentage of profits these companies make from the UK is very modest," Mr Winder says.

Vodafone, for ex-ample, makes just a small proportion of its profits from the UK.

The same is true of oil companies BP and Royal Dutch Shell while, in the mining sector, it is even more extreme.

"The mining sector accounts for 12 per cent of the FTSE 100's profits. And their earnings are entirely from overseas," Mr Winder says.

It is, therefore, unsurprising that the mining sector has spearheaded the recovery of the FTSE 100 from its August lows.

The sector has risen 49 per cent since August 16 and, in the year to date, it is up 58 per cent.

Indeed, the four top performing stocks in the FTSE 100 this year are all from the mining sector. They are BHP Billiton (up 101 per cent), Vedanta Resources (85.7 per cent), Antofagasta (71.7 per cent) and Rio Tinto (68.4 per cent).

Those strong performances have offset big losses in other sectors such as housebuilding, banking and property.

"The index may be back where it was in June but the complexion is quite different," says Mr Winder. Mortgage bank Alliance & Leicester, for example, is still 30 per cent below its post credit squeeze levels. Of course, global growth has helped not only the UK market. The reason the Dow Jones Industrial Average and the S&P 500 have recently hit record highs is the strong performance of multinational corporations whose businesses are global. Asian markets have also been hitting record highs. The outlook for interest rates has also helped London's recent strong run. The US Federal Reserve has already cut rates by 50 basis points to 4.75 per cent in an effort to stop the credit squeeze affecting the wider economy and most analysts expect it to repeat the trick if necessary.

In the UK rates look to have peaked at 5.75 per cent and could even be reduced by the end of the year.

Also, companies have been buying back big blocks of their own shares. In the third quarter a record 11.25bn worth of stock was repurchased by UK companies, according to Gareth Evans, UK equity strategist at UBS. He estimates that the number of companies actively buying shares each day rose to nearly double the level experienced in the first half of this year.

The key question now is whether the FTSE 100 can push on and reach the record high of 6,930.2 set at the height of the dotcom boom in 1999.

Most equity strategists believe it can.

"Despite the recent rally, European equities still trade on less than 13 times prospective earnings. Valuations do not look stretched unless profits collapse, which is unlikely," says Jonathan Stubbs, head of European equity strategy at Citigroup.

Mr Winder agrees: "Equity valuations, in our view, continue to discount a harsher operating environment than we believe is likely to mat-erialise over the next 12-18 months. At current levels, the FTSE 100 is still trading in the lower half of the potential trading range, identified by our market arithmetic, of 6,200 to 7,800."

Moreover, the outlook for UK corporate earnings re-mains good.

Mr Secker believes there will be something of a panic to get back into the market before the end of the year.

"Two months ago a large proportion of the investment community was bearish," he says.

"They had a US recession as a base case. As the market has ground higher, the bears on the sidelines, who thought there would be a better opportunity to buy, are having to reappraise that view."

Not everyone is as positive. Mr Evans, at UBS, says: "We are concerned that the new-found enthusiasm could peter out. Implied volatility is higher and bond yields are still falling. In the past this has given rise to a weak equity market." His year-end target for the FTSE 100 is 6,600 - 130 points below yesterday's close.

Over the medium term, the key to the performance of the London market may be determined by the outlook for the Bric economies.

Teun Draaisma, the Morgan Stanley strategist who told clients to start buying at the height of the August sell-off, believes China is the key.

"This bull market is made in China, and will probably end in China too, through the next Chinese crisis," he says.

will be interesting to see whether or not Dow now extends today's weakness, currently -169 ...... logic will not have any bearing, but merely sentiment and whether peeps reckon a pull-back is overdue and/or it's time to take some profits.

for myself, i have done and taken very tasty profits in TIO and PFC though i fully expect to buy back in due course ...... my FTSE short is also still in place and now only showing a failry modest loss

have also shown myself to be a total arsehole and opened a short in NRK at 214. albeit with a guaranteed stop

Have had good day today shorted ftse on fri evening at all time high, closed sharply lower, also shorted BLT, risky but paying off so far and SAB last week just below its high, raw material costs and slowing economy will hurt it in due course. have given up on nrk too difficult to predict where it's going and not able to watch all day.

Luck on my side, however on flip side did close gold last week and immediately after it rocketed, so luck on my side but not with everything as usual. look to get back in on any weakness.

Economic data due in US tommorrow.. house builders survey and septembers housing starts, have also opened a short on dow even though it has plunged today, it narrowly missed being opened today by order to fill, gutted. In profit as we speak, nervous day tommorrow for the US bulls. IMHO

Wall street picks up on technology results has minor jitter over housing starts tries to shrug it off and then loses all gains on opening.

Looking increasingly bearish at these levels, will Bernanke drop rates again next week, allowing inflation to get a grip on things. I am betting on further weakness this week, then will sit and wait for rate drop and minor more short lived bull run and resume for a retracement over the next two months as results continue to show weakening.

though a little bit hairy (said the bald one), i am happy to have a FTSE short still running as some sort of hedge on my long general equity position (NRK being the notable exception!)

just bought some CITE, apparently a forced seller has caused an 80% fall, coming back nicely.

CITE - That's a scary chart!!! Bit like the south face of the Eiger! Very brave, imo.

Rhymes with.....

Closed dow short for now, healthy profit today, short on ftse for tommorrow

NEW YORK (CNNMoney.com) -- A lot of Wall Streeters are reminiscing this week about where they were during the 1987 crash. The more recent tumult - in 2001 and even earlier this year - gets lost in the chatter.

The combination of circuit breakers instituted by the NYSE, and the Federal Reserve's willingness to intervene, means a crash on the level of Sept. 19, 1987 - in which the Dow plunged 22.6 percent on a 508-point loss - probably won't happen again.

Photos

Remembering Black Monday
On Oct. 19, 1987, the Dow fell 22.6% in a single day. Fortune asked 10 Wall Street veterans to share their memories of the crash.
View photos

But that doesn't mean the market won't - and hasn't already - experienced severe mini-crashes that crush investors and roil the markets for days or even weeks at a time.

"Could it happen again? Not to the level of severity as in 1987, but you could see a version of it again," said Kevin Melich, senior portfolio manager at Chartwell Investment Partners.

Remembering Black Monday
Take, for example, the market chaos that erupted in the wake of the Sept. 11 terrorist attacks.

At least on a psychological level, the Dow's 684-point plunge on Sept. 17, 2001, represented a crash. That marked the first day of trading after a four-session halt. The panic and almost across-the-board selling that ensued felt like something of a crash. Among the few sectors that managed gains that day: bomb detection software makers and other defense stocks.

Sept. 17, 2001, still holds the record for the Dow's biggest one-day point loss. But in terms of percentage losses, the drop of 7.1 percent doesn't even make the top-ten list. It was a shock and a panic, but not a "crash."

For many people, even those that don't follow the market closely, a "crash" is synonymous with the devastation of 1929 and, to a lesser extent, 1987.

"I don't think you can set forth any specific parameter of what is a crash," said William Hummer, principal at Wayne Hummer Investments. "It's more of an 'I'll know it when I see it.' "

Philip J. Roth, chief technical market analyst at Miller Tabak, described a crash as what happens when "everyone gets on one side of the market." Roth was speaking at a Dow Jones symposium on the crash and its ramifications.

Thanks to protective measures put in place after the '87 crash, the market has not since experienced a one-day decline of the magnitude of the 1987 crash. The infrastructure was on display most recently this summer, particularly during unusually heavy trading in August, when anxiety about the credit market crisis came to a head.

Two factors protect investors from another crash: the circuit breakers and the Federal Reserve.

Updated quarterly, the NYSE's current rule is that if the Dow plummets 2700 points in a given day - a loss of 20 percent - the market shuts down. If this happens before 1 p.m., the closure lasts two hours. If it happens between 1-2 p.m., the shutdown lasts one hour. If it happens after 2 p.m., the market is shut down for the day.

A 10 percent decline triggers similar measures. The maximum the Dow can lose in a single day is 4050 points, or 30 percent. Should that happen, markets shut down for the day.

The market has never experienced anything like that, but it has seen a series of mini-crashes, including the period after 9/11.

Other examples include: March 12, 2001, when the Dow tumbled more than 436 points in the midst of the big correction that followed the end of the 1990s tech boom.

Two others came earlier this year. On Feb. 27, plummeting Asian markets caused a domino effect in global markets on worries that the period of strong global growth was ending. On that day, the Dow plunged over 416 points.

And on July 26, fears about the collapse of the housing market and tightening of the credit markets sent the Dow falling 311 points.

In all those cases, within a matter of days - sometimes by the next morning - the market had stabilized and traders had used the selloff as an opportunity to move back in.

All are examples of modern mini-crashes. But a true crash on the level of the more famous ones in history would probably materialize today as a series of mini-crashes in a short period of time coinciding with mini-crashes in global markets, Hummer said.

A serious shock to the system would have to happen to cause that kind of reaction, Hummer said. What could cause that significant a shock? Analysts say it would take an international military event or global financial crisis.

However, even the impact of a prolonged market meltdown would be tempered by the second big protection: central banks around the world.

The consumer buying binge is over
True, Ben Bernanke and the other Fed bankers have made it clear that its not their job to bail out financial markets. But they have also made it clear that they won't let markets flounder to the extent that it sends the economy into recession.

That's how the Fed reacted to the tumult this summer, when stocks plunged 10 percent in August in a matter of weeks.

Circuit breakers and other technical aspects of the infrastructure kept the daily declines orderly, and the Fed cut the discount rate, which impacts bank loans, and then ultimately the fed funds rate, which influences consumer loans.

And the Fed was not alone, with banks around the world stepping in to manage the global liquidity crisis by infusing billions into their banking systems.

All of which is likely to continue keeping a lid on, but not prevent modern-day mini-crashes.

"People are more educated now, more inured to volatility than they were in '87, but what we saw this summer was a great object lesson in what can still happen," Hummer said.

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is it just me or does anyone else feel that the markets are about to head sharply lower?
also
does anyone have any thought on the overall implications if US cuts interest rates yet again?

I suspect gold and other commodities will rise, the dollar fall and inflation take off. Other countries pegged to the dollar might also rebel

My feeling (FWIW) is a damned if they do, damned if they don't scenario.
The greenback is weak, so a rate cut could weaken it further out of proportion and be seen as a sign of the economy being worse than anticipated, on the back of an earlier large cut.
No cut could well be seen as dithering and indecision in a nation that demands results now, and further damage confidence.
It just has that feeling about it.

I do too cynic ,look at the price of oil ,and weekness in the doller ,i shorted the dollar yen this week ,closed now ,my balls have gone ,which way now for the Dow ?

probably down; am already holding FTSE short (+ NRK, though that almopst doesn't count!) ...... am in two minds whether or not to liquidate a large slab of my portfolio and/or whether to short any $-vulnerable or house building stocks, notwithstanding that they have already taken a pasting in recent weeks

of course the elliot wave theorists will be saying, 'i told you so...'

added to my FTSE short barely 30 mins ago and already well in the money ... monday must surely be torrid in london

I had to go out today ,was going to short the Dow with a 40 pt stop ,i sat with my finger on the sell button then thought better of it , :-(

i am in danger of getting too greedy on monday by shorting even more NRK

interesting that my shares ususally perform admirably on days that the FTSE drops, think next week might be a tad different though...

ususally, is a word that i invented, it is like usually in many ways although spelt differentially...