all bulls you must read this post part 2

Ok - I've broken the ice with post #1 and a lot of questions to be answered so better do post #2.

Thought I'd start a new thread rather than add to the old one.

I did expect to cop a fair amount of abuse from bullish punters but thought it worth the effort to provide a broader view for people to consider and if it helps anybody to save some cash and prevent them potentially being wiped out then it was worth it.

However, thanks for the unexpected nice compliments from most of you.

Also, although some may pigeonhole me as a bear, all that means is my conviction is we are now into a downtrend. Until we started flattening out in May/June we were in an uptrend and I was a bull making as much money as I could like everyone else going long on mainly spec stocks.

Anyway to cover some of the questions:

1. What i'm doing now: a mixture of cash, short positions and intraday trading.
2. Am i just a downramper. I totally understand people beng cynical - this being HC. At the end of the day it is your money and your decision. However I would suggest that if i wanted to maximise profits from my shorts i would try to ramp the market up so I can take out new short positions at higher levels. Anyway, could anybody believe any individual is able to downramp all the markets in the world?????
3. Stocks falling prior to "correction" (20 July): I know most were falling because I saw them falling/beginning to fall during this period. Some examples, have a look at these charts: eg. NAB, ANZ, WBC, WOW, MBL, ORI, CGJ, FGL, PDN etc
Also a large number had large flat tops which were clearly about to fall: eg. AMP, QBE, CSL, FMG etc.

4. Hindsight easy: Yes thats right, I guess you have to believe me that these signs were easy to see, however if you take the time to look back at the types of charts I mentioned you will see them too and will mean that next time you will more likely to spot them in advance. The main thing is to never be too stock-specific focused - always be aware of what markets in general are doing and that includes non-US markets. As I mentioned previously, if you look at charts for say, the FTSE, DAX and Nikkei you will see they fell before the US and All Ords markets, clearly giving aware investors the opportunity to get into cash and therefore this should prove to anybody with doubts that this is a Global issue not a US issue (as many people dont seem to understand).

Alternatively, you could have identified this was coming to the day by simply viewing the XJO thread - this was one of the most highly posted during this period - their posters are high quality and they were making people aware of this correction/crash for several weeks before the drop off. I would suggest everybody regularly read this thread as IMO its easily the best on HC.

One other leading indicator i forgot to mention which everybody shouldve recognised was former high flying spec stocks falling over the last couple of months - eg. Uranium stocks - any sign of weakness in spec stocks always indicates weakness to come for the broader mkt - followed by weakness in the medium caps, large caps and finally the largest large caps.

5. Volatility: Volatility is now the highest its been on CMOE since this bull run began. High volatility is the classic end of a bull run sign - bears vs bulls trying to break support and resistance levels. Another sign that this long uptrend is finished.

6. Too much technical focus: Fair enough, probably right - but technicals always provide you with the sell (and buy) signs. Fundamentals may appear good but the charts rarely lie - aside from some games on the edges - they represent the forward looking view of everybody in the market.

7. Corporate Profits/PEs/International Mkts: Yes, these seem fine at the moment. However, consider that share prices are just the value of discounted future cash flows divided by number of shares. Profits and PEs for this year may be fine but if the market has factored in future cash flows based on very optimistic assumptions - as is typical in a very bullish market - (eg. metals prices, demand, fx rates etc) and suddenly these assumptions are dramatically reduced, the impact on share prices will be significant. So, so-called fundamentals can often become wrong and this market is aggressively telling everybody that right now. China, India, Brazil etc yes will grow over time but all economies suffer growing pains - its not all straight line up up up - so a global recession will have a major impact on eg. the demand for raw materials etc - you also have trade imbalances, inflation, FX, interest rate issues, which can all temporarily affect their growth.

A few final comments:
- All the signs are there at the moment saying this is a major change of trend. Obviously its up to everyone to make their own mind up - however I would suggest that if you are a little unsure then better to be out of this market than in it at the moment. Even if this market were to recover it will retest the lows like any stock.
- I continually read of posters saying I havent lost yet - I havent sold yet - this is completely the wrong mentality for any trader - if the value of your portfolio and cash today is down from before you have lost. Using this approach any trader will end up with a portfolio of underwater and downtrending stocks. In this market you will get wiped out if your portfolio is all spec stocks. Rule no 1 -You must protect your capital so you can fight again another day. Just sell and it is always possible to recover. If you hold in a downtrend you will rarely recover.
- Most people here not yet in cash will be holding spec stocks. I was too while the bull run lasted - spec stocks since late last year were clearly in a massive bubble of hype very similar to the tech mkt in 1999. In fact a large part of the broader mkt was in a bubble as well - consider iron ore stocks generally the last few mths, PDN, FMG etc etc - there are some very steep spikes there. Spend a little while looking at the charts of the spec stocks and it is very very clear where these prices are going - down down down. Have a look what happened with the tech crash - this will happen again and if you are holding these stocks you will lose most of what you have left. Why? - most will now be unviable with low metals prices, will be unable to get more funding, and future demand assumptions will be lowered.
- The current bounce is based on what - a cut in rates? Hmmm doesnt that mean the economy's in trouble??? From a technical point of view, yes we may bounce around these levels for up to a week before the next leg down, however there is also a considerable risk that even monday night we could see a very sharp aggressive move down - ala the 387 point drop after the first dead cat bounce - however this one would be more likely 500+
- Purely from a technical point of view, here's just a small sample of likely future stock prices - have a look at the charts and make up your own mind. Then look at the charts for any spec stocks you have now and you will see where they are going.
WMT: 8c possibly 2c
MLS: 2c
AUZ: possibly 2c
BLR: 7c possibly 2c
AAR: 5c possibly 2c
PDN: $4 possibly $2
FMG: $20 possibly $10


Finally, If you do nothing else, if you think this "correction" is over, take a look at the weekly charts for just a sample of stocks below:
BHP/RIO - note big spikes, MACD have long way still to drop
NAB/ANZ - long term trendline clearly broken
WPL - double top, MAD very high still
then have a look at others in the ASX 20/50
If you can't see the clear signs then thats fine - however you will never see any more signals than you are getting at the moment so if you stay long/increase your long positions then all i can say is good luck.

Cheers

Zanzy