The stock market is crashing....

[tech/a]

BSD

Will be funny to see how the technical/mechanical trader's 'tight' stop losses work on leveraged positions when the physical stocks gap 5-10% down one day.

Just as funny as fundamental traders doing the same thing with no stops.

No stops getting matched, margin calls on stock falling in a straight line. The assumption of continuous pricing has crushed more than one 'smarty'.

Sure and some "Smarty's" have been in the same stock for years leveraged and have seen 400% rises.Even if the same smarty had a 100% fall in his stock in a single day before he took a sell (highly unlikely) he'd still be 200% +

No matter how much you 'test' your 'systems' - a one-in-a-thousand day will rip you apart if you are excessively leveraged.

True no need to be a one in a thousand year event if excessively leveraged.
But the issue here is leverage not a crash.
Even the 87 crash went from -41% to -25% in 3 mths.

40% banks, 20% RIO and Hills - much of the industrial sector is already smoked. I love the resources, but we are very due for a pullback and many no-growth industrials are hitting PEs over 16.

True consituents and weighting are an issue.If we take the S&P200 the 2000/03 Bear market corrected 22% not 37%

Anyone prepared for 50 bps of interest rate rises in Aust?

Yes in property I'm set to 9.5% not that I think it will get there.(Gearing and return)

Some will get caught and some will give back even huge chunks but some will also still be grinning from ear to ear before,during, and after a possible crash.
You know not everyone are complete mugs!

The guy that bought 10 houses through 2000 and sold 4 to now hold 6 3 of which are freehold--is he a mug?
The guy that bought 100000 ZFX at $3.90 leveraged on margin and still holds is he a mug?---Or BHP or etc etc.

If a crash comes then take action.
Nothing wrong with being defensive just that its not that profitable.

 

[BSD]

A couple of points regarding market PEs

1. What does the market PE look like ex-BHP,RIO, Banks and Insurers?

- bloody expensive when you consider the expected EPS growth ex-resources is very low

Hence my point regarding the uselessness of our index in making many investment decisions

2. The higher the risk free rate - the lower the PE must become.

With growth ex-resources getting low and GDP growth tracking around the 2-3% levels a 6% earnings yield (16times) on equities is not sufficient

You can never pick the bottom or the top - but the leverage factor at the moment is enormous.

Wayne, I am not really a bear, just VERY conscious of the amazing level of risk being taken by very ****sure punters who are leverage to the gills and havent experienced a good shakeout for many years.

Inflation number on Tuesday will be interesting. Massive price rises in commodities both hard and soft will soon come through the numbers and a 1% quarter of CPI will have the RBA moving rates up smartly.

50 bps will have a massive effect on the overleveraged 'Strayan.

Imagine consumer confidence if new home buyers from the last 18 months are in 'negative equity'.

 

[Joe Blow]

the chart I posted a few posts back is a daily and not weekly chart and so those are 65 and 200 day and not weekly averages....sorry for any confusion.

Joe/Wayne - any chance of increasing the current 20 minute editing time to something a little longer like say at least an hour?

Bullmarket,

I'm probably going to keep the time limit as it is as it is my experience that it is rare that there is a need to change a post after 20 minutes. And for those times where a change is required I will gladly do it for you. Simply send me an email at joeblow@aussiestockforums.com with instructions and an updated chart (if required).

 

[bullmarket]

ok no problem Joe

please ignore the PM I just sent you at the same time you must have posted your reply.

I'll sack my proof reader and put out an ad for a new one

cheers

bullmarket

 

[Porper]

Its like having a LARGER Profit and succumbing to the temptation to take profit,only to see the stock move up another 400%.

I did this last week.I have been exceptionally bullish on Gold for months and sold everything the day before the big push over $600.No logical reason, just a temptation to put good profits in the bank.

Emotion is hard to conquer alright.

The market certainly is booming, not a good time to be out now.So why did I do it

 

[BSD]

Tech - I am not making personal slights and I apologise if you get that feeling.

On your points:

1.
Fundamental traders will get hurt. But they wont own the real garbage (TOE, NIA, SHN etc) that will be completely shaken out, that many buy (and profit from now) on the basis of a pretty chart and another crazier mug paying more.

2.
Many of the sharpest system traders get hurt by both non-continuous prices AND prices of seemingly diverse positions becoming highly correlated.

3.
Believe me, if some of my best profitable trades go from being 500% up to only 100% up - it is going to hurt like a beeatch. See posts on EQN

4.

After '87 the index may have only been down 25% a couple of months later - but it took years for the index to recover to previous high and many who were punting rubbish never recovered. Helix Resources anyone?

Most punters couldnt give a fig re the index

5.
I dont bregrudge anyone who spun the wheel on property and owns a few free ones.

Let alone ZFX or BHP punters - I am one of them. Margin lending is a suitsble strategy for those with cashflow and a long term horizon.

Aside from property punters, the interest rate effect has NOT been accounted for in many people's equity portfolios yet.

You may have prepared for 9.5% rates, but a massive proportion of everyday consumers have not.


Relax mate, I am not taking the p!ss out of you!

 

[tech/a]

Relax mate, I am not taking the p!ss out of you!

Didnt think you were.
Had you been you'd have done a better job of it than that.

 

[Smurf1976]

A question for those who have the necessary software / data.

How broadly based is this present advance in the market? How many of the top, say, 300 stocks are actually at or near all time highs?

In other words, is the ASX in the midst of a broad advance or is the index simply being pushed higher by a few star performers?

 

[TraderPro]

You guys might like to read this column by Alan Kohler today...

http://www.smh.com.au/articles/2006/04/18/1145344086511.html?page=fullpage#contentSwap1

 

[tech/a]

A question for those who have the necessary software / data.

How broadly based is this present advance in the market? How many of the top, say, 300 stocks are actually at or near all time highs?

In other words, is the ASX in the midst of a broad advance or is the index simply being pushed higher by a few star performers?

Smurf.

Percentages that have reached their all time high close at sometime over the last month.


ASX 100 38%
BT Margin list (Closest I have to ASX 300) 28.5%
Full ASX 24%

 

[tech/a]

You guys might like to read this column by Alan Kohler today...

http://www.smh.com.au/articles/2006/04/18/1145344086511.html?page=fullpage#contentSwap1

Although it was meant as a warning it certainly didnt look all that negative to me.

More positive points,Even comes with his own disclaimer.

Great Blog

 

[wayneL]

Wow!

Gold just topped 645, Silver @ 14.67 Crude @ > 72

Bonds making new lows and 10 year notes not far from doing the same.

I'm happy to take the money but apart from no negative reaction in share prices, this all feels a bit funny. The traditional correlations are breaking down.

Tech

Check this book out if you want a nice gentle counter to the bull arguement:

http://www.amazon.com/gp/product/15...0232-9606441?_encoding=UTF8&v=glance&n=283155

 

[tech/a]

Wayne
Ill buy and read the book.
I respect the writer as six sigma is a good read for those in business.
But from a quick read of the summary it doesnt seem rounded.
In that consumer debt isnt balanced with Glodalisation,Global economic growth,and its US based.We have rescources,and even now can be seen as independant at times from the US.

Still Ill have a read while hugging my Teddy Bear.

 

[tech/a]

On the other hand 16 pages of
Economic Boom till 2020.

http://www.wired.com/wired/archive/5.07/longboom.html

Peter Schwartz and Peter Leyden are no economic slouches either.

 

[bullmarket]

Hi BSD

A couple of points regarding market PEs

1. What does the market PE look like ex-BHP,RIO, Banks and Insurers?

- bloody expensive when you consider the expected EPS growth ex-resources is very low

Hence my point regarding the uselessness of our index in making many investment decisions

2. The higher the risk free rate - the lower the PE must become.

With growth ex-resources getting low and GDP growth tracking around the 2-3% levels a 6% earnings yield (16times) on equities is not sufficient

I've updated my spreadsheet that calculates average market PERs (as per spreadsheet I uploaded about 4 weeks ago in the 'tradingstrategies/systems' forum) with today's prices from commsec.

The weighted average (by mkt cap) PER for the ASX200 (XJO) has jumped from 16.6 four weeks ago to 17.5 now.

I took out BHP, RIO, WBC, ANZ, CBA, NAB and QBE (I haven't removed any other insurers) as you suggested and the weighted average PER jumps to 18.8 on todays prices.

MY PER's are based on Forcast 2006 EPS numbers from http://investor.ninemsn.com.au/investor/shares/finder/default.asp

Either way, I think our market is looking at best around 'fair' value assuming a fair PER of ~17 with a bias to looking a little pricey. I still don't see our market as grossly expensive overall as I mentioned earlier.

cheers

bullmarket

 

[noirua]

I think its very normal for so much bear sentiment.

Its like having a LARGER Profit and succumbing to the temptation to take profit,only to see the stock move up another 400%.

There is absolutely nothing I have seen that gives credible evidence to a pending crash.
I see much which gives credence to a boom that will and can continue due to excessive demand.

I lost a lot of money, in paper terms, in the 1987 crash. It was different to the 1973-75 great bear market, when gold shares doubled in price, in 1987 they fell at an unbelievable speed - St Barbara Mining ( Endeavor Resources ), crashed from 90 cents to 22 cents in one week, they finished at 3 cents - so take care my friends.

 

[Smurf1976]

Thanks for the info Tech. I'll have to think some more about the significance but suffice to say I'm glad to hear that it's more than 5 or 10% of stocks that are driving the market up. I'd be worried if it were that narrowly based.

...

As a general rule I'm bullish about commodity prices and in particular oil. But realistically I think we're at some sort of turning point here. The pace of price rises for gold, silver and oil has accelerated dramatically and, well, if gold keeps rising at $20 a day... So I see two basic outcomes. Either (1) the central banks get serious about maintaining value in their currencies and we see an interim top in gold (and possibly silver and oil although they do have physical considerations adding price pressure). Alternatively, (2) we are about to see the bears' long awaited gold boom and fiat currency collapse (or at least serious loss of value versus commodities).

Realistically and in view of the overall pattern of the gold / silver / oil bull to date, I think option 1 is more likely. I just don't think the bull has gone far enough to come to that end point at this time (if it ever happens). So I think Central banks will act to reign in inflation expectations - another way of saying that the interest rate rises aren't finished yet. If they go far enough then my guess is that gold / silver / oil are where stocks were at this time in 1987 or where gold was just before it's slump in the mid-1970's. The bull isn't over but a decent correction is in store IMO. Question is when.

All just my opinion of course so do your own research before making any decisions. Note that I'm commenting on the price of the physical commodities expressed in US Dollars and not AUD prices or mining stock prices.

 

[BSD]

I took out BHP, RIO, WBC, ANZ, CBA, NAB and QBE (I haven't removed any other insurers) as you suggested and the weighted average PER jumps to 18.8 on todays prices.

Either way, I think our market is looking at best around 'fair' value assuming a fair PER of ~17 with a bias to looking a little pricey. I still don't see our market as grossly expensive overall as I mentioned earlier.

cheers

bullmarket

Good Evening bullmarket.

Not in violent disagreement and thanks for your attention to detail.

But if the risk free rate becomes 6%, an equities market with a PE at above 16 times needs good growth prospects to be a worthy play.

Setting aside the resource sector - where is the growth coming from?

It isnt from the domestic economy that is for sure.

I remember in 2002 trying to get clients to buy stocks with PEs of 12 and EPS growth of 20%pa.

How a bullmarket changes the mindset. We switch from absolute to relative value.

18 times is bloody expensive in my opinion.

 

[wayneL]

Setting aside the resource sector - where is the growth coming from?

It isnt from the domestic economy that is for sure.

I remember in 2002 trying to get clients to buy stocks with PEs of 12 and EPS growth of 20%pa.

How a bullmarket changes the mindset. We switch from absolute to relative value.

18 times is bloody expensive in my opinion.

agree

 

[wayneL]

Silver down more than 11%

Gold down >$25

We might get our crash after all (just {half} joking )