Wednesday, March 25, 2009

Bear Market Rally Or New Start?

One of the toughest questions to answer when we go through a down market is where is the bottom. Supposed experts attempt to rationalize and explain, but the bottom line is that actually stating unequivocally that "this day" is the bottom is tough to do. However, there are many so-called experts who are stating we are now in a bear market rally. Wikipedia states "an increase in prices during a primary trend bear market is called a bear market rally. A bear market rally is sometimes defined as an increase of 10% to 20%. Bear market rallies typically begin suddenly and are often short-lived. Rob Carrick of the Globe and Mail explains the advantages of getting in now in spite of the possibility this swing is short lived. Markets run in cycles and even down markets have upticks. The real question becomes how should you react? Is this sudden surge in global stock prices the end of the bear or a trap for people who want to get in cheap. Only time will tell.

What I use to define whether or not a market is in a bear market is simple stage analysis. I break the market up into four stages - basing, bull market, topping, and then bear market. It isn't hard to identify what stage a market is in. Here is where the lingo gets very technical.

The simplest way is just to look at the market in relationship to its long-term 150 and 200-day moving averages. These averages represent the average stock market close each day over a length of time. Once the market breaks below them and stays below them for 6-8 weeks, this indicates markets will almost always turn down. A bear market then begins and throughout the duration of the bear market these moving averages become resistance throughout the rest of the bear market. The opposite also remains true - once the market breaks through the moving averages, then we are usually in a bull market. Most technical analysts (translation - really boring people who never see the light of day) look for the markets to break through the 50 day moving average as a positive sign. At that point, the 50 day average becomes the new "market bottom". Some analysts prefer to look at the 100 day average. They believe that this is far more accurate. Here's an example form the close of markets on March 23rd for the TSX.

The blue line represents the TSX over the last six months. The red line is the 50 day average. Theory is that once markets break through the 50 day average, that becomes the new bottom. Sure didn't work in the latest case. But look at the 100 day average. It's only this latest market uptick that pushed over the 100 day average. Could this be the sign that the worst is over? Let's look at the 100/200 day moving averages.

Based on past history, the market has now created a new bottom and the new "high" will be in the 10,500 range (the 200 day average). We are just below 9,000 on the morning of March 24th. Most pundits predicted that the TSX would reach between 10,000 and 11,000 for 2009. Based on the above evidence, this looks like a good guess, but we shall see.

Stay well and pay it forward.

Thursday, March 12, 2009

Welcome To My Nightmare !!!

In the immortal words of Alice Cooper, Welcome to My Nightmare. I would like to welcome you as I start a brand new blog. The reason for the change - to throw the bloodhounds off the scent. For anyone who doesn't know me, here is a quick introduction - spent the past twenty or so years as a teacher and educator on financial "stuff". Sounds really boring? Not so - the photo on the right is a recent shot of yours truly after another day of market declines. This is not boring stuff if you look at it the right way. My favourite thing to do - freak people out when it comes to the subject of money. Yours truly has a slightly different bent when it comes to all things financial - part of the reason for this blog is to allow me to vent to a wider audience. So buckle your seatbelts kids, 'cuz you're in for the ride of your life.

Sooooooooooooooo apparently it's not acceptable for your company to take huge financial gambles, screw up badly, ask for the government to help and then hand out cash to every employee with their hand out. The AIG fiasco has made the US government stand up and notice. While everyone is upset with people taking millions of dollars, they also need to appreciate the position that Tim "the softest hatchet man in the world" Geithner is in. Mr. Obama has handed him the keys to the treasury, without proper assistance or staff, and basically instructed him to solve the entire crisis. Sunday evening, Mr. Obama appeared on CBS's 60 Minutes and discussed the problems facing the economy. The president ordered Treasury Secretary Timothy Geithner to use every legal means to recover the bonus money from AIG. If it is not repaid, it will be deducted from the company's next bailout payment. The House decided to extract its own revenge by passing a bill that would impose a tax of up to 90 percent on the AIG bonuses and on the bonuses of anyone making more than $250,000 a year who works for a financial institution receiving more than $5 billion in bailout funds.

While the government and the public in general are outraged by a company giving bonuses out of public funds/taxpayer pockets to "executives" who failed, some other facts need to be pointed out. Arthur Leavitt, former SEC chairman points out that some of the AIG bonuses were in fact contractual in nature. How would you like it if a major Canadian employer suddenly stated that your "contract" was no longer valid? I'm not suggesting that the bailout should not have happened, but as Leavitt points out, we essentially have the government riding a wave of anger and determining that contracts can be broken unilaterally. Just imagine you were an employee of AIG who didn't do anything wrong, your "area" made money, and you no longer get a contractual bonus or have to pay it all in taxes.

Many times, we look at the surface of a problem and come to a quick conclusion based upon what we assume are all of the facts. Is that the case here? We need to look at all of the facts before we make a decision. Hopefully this blog will help you see past the "noise" when it comes to finance issues.

Stay well and pay it forward.

Could This Be The Final Blog ???

It's officially over. While my desire to continue with this blog was high, recent developments have made me rethink my decision. When I began blogging, it was based on a desire to minimize the number of emails I sent out - emails I believe that some people never read. I wanted this blog to provide a light-hearted and off beat approach to serious problems and issues. Unfortunately, we live in an ever more litigious society and with the "standards" of large companies, I often felt I was walking along the edge of a cliff.

My beliefs don't always coincide well with people "above me", and I felt the possible risks were becoming too great. As I explained to one person, "what's the sense in blogging and telling you what I believe you should do if I get fired for doing it and you cannot ask me what to do". It pains me to say so, but for now my blogging days are over.

However, who is to say that an anonymous blog under a covert name and new blog address couldn't appear at some point in the future...

There is a light at the end of the tunnel, and I believe it no longer says Amtrak on the side. Best wishes to an end of this mess and look forward to seeing you soon.