A week to remember

October 13th, 2008  by Antony Ganzitti

Closing Data

	current	change	%
Dow Jones	8451.19	-128	-1.5%
NASDAQ	1649.51	4.39	0.3%
S P 500	899.22	-10.7	-1.2%
FTSE 100	3932.1	-381.7	-8.8%
Nikkei 225	8276.43	-881.06	-9.6%
SPI Futures	4193	140	3.5%
All Ords	3,939.00	-351.8	-8.2%
Oil	77.44	-9.06	-10.5%
Gold	859.85	12.45	1.5%
Silver	10.36	0.22	2.2%
Copper	240.6	5.1	2.2%
Aluminum	2158.5	-95	-4.2%
Lead	1469	-187.5	-11.3%
Nickel	11955	-1245	-9.4%
Tin	14090	-670	-4.5%
Zinc	1418	-52.35	-3.6%

A week to remember

Only a few times in a person's lifetime will one see such events unfold in financial markets all around the globe.  We can look back to such significant events as the 1987 stockmarket crash, the 1929 depression, the 1998 Russian default, the skyrocketing price of oil in 1974, as similar type events which put a mark on the financial atlas.  In 2008 we have the 'credit crunch'.

Last week the Dow Jones lost 18% while our local market fell 15.5%.  The ASX200 index on Friday alone lost 8.34%, its second biggest fall on record.  It is something that this generation of investors has never been accustomed to, and all on the verge of the retirement of the 'baby boomer' generation.  The week saw cash rates all slashed by Central Banks around the globe in a cooperative effort to rejuvenate credit markets, and currency markets being sold off on the back of 'risk aversion'.  The G7 and G20 leaders and finance ministers met to restore market confidence and ensure a smooth restructuring process.  Other important news came from European leaders to agree on a detailed plan to prevent market panic, and a statement by Australian and New Zealand officials announcing that they would be guaranteeing bank deposits.

Our local market today will take heart from the Government's promise on the weekend to guarantee all bank deposits for the next three years. This includes deposits at all banks, credit unions, building societies, or Australian subsidiaries of foreign banks.  The Government will also stand behind the money that Australian banks borrow from foreign institutions as well as pumping another $4 billion into the secondary mortgage market.  A bill will be brought into Parliament as soon as possible to implement these new measures, however the banks will pay an insurance premium to cover the protection.

As usual I like to apply a different twist to market analysis and relate the developments from a technical and psychological perspective…

Friday saw the ASX/SP200 index close down 360 points at 3960.  Followers of Gann technical analysis may like to look into the interpretation of the significance of both those figures, 360 being the degrees in a circle and 3960 close to the number 3969 (derived by the multiplication of 63 by itself).  3960 is also divisible by 360, which itself is the most significant Gann number.  It might sound like mumbo jumbo to a lot of people, myself included, as Gann is one of the hardest arts of technical analysis to apply, but when you notice number patterns it is sometimes worth investigation.  Another Gann number 240 (2/3 of a circle) is the number of trading days today from our record high last November on the Aussie market.  If you believe in the alignment of the moon and stars, and that cosmic or intergalactic developments relate to our patterns of life on earth, the cluster of Gann numbers may be significant as they directly relate to new cycles beginning.  This form of analysis also subscribes to the fact that natural laws govern processes in the universe.

Another important Gann number came up with the US market on the weekend marking 1 year exactly since this downtrend started.  In Gann terms 1 year = 360 degrees of a circle.

As I said I am not an expert on Gann but for those of you who don't know W.D. Gann was one of the most debated traders and speculators of his time, whose work was solely based on astrology (visit  http://en.wikipedia.org/wiki/W._D._Gann).  Can we relate the above information with something fundamental which the market has been trying to tell us??  Of course we can, and Friday on our local market saw some important human behavior and psychology.

What made Friday important as a potential cycle low?

• Margin calls were high
• Volume was large (transfer from retailers to professionals)
• Retail investors in panic mode
• Retail investors liquidating entire portfolios
• Extremely high media attention
• Volatility levels at all time highs
• CAPITULATION!

Remember, cycle lows and highs display extreme characteristics of human behavior, and as our local market dipped under the 4000 mark for the first time in years, all the above was evident.  Remember bear markets end on indiscriminate selling, corporate and political crisis, and irrational behavior.  The market is like a pendulum which swings from bull to bear, overshoots, and eventually swings back.

Now it is far too early to start screaming that the bull market is back because the market still has a lot of hard work to do.  The irrational behavior what we are seeing alerts us to the likelihood of prices being in the 'oversold' zone.  Again, focus on your core blue chip stocks, top20 and top50 constituents which have been unfairly sold and represent 'Warren Buffet' type buying conditions.

Remember markets are forward looking, and they price in future expectations.  The question is, "at current levels have we fully priced in the future ramifications of today's problems??"  I believe the answer has to be a resounding 'YES'.

A couple of quotes from the most respected investor in the stockmarket, Warren Buffet, which I believe apply more than ever to today's market.

 "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

 "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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