Hi All, Lengthy reading but a good article that just came out. My investools webbased program as of this morning shows that metal mining has moved to the 95!!!!!!!!!!!!!!! percentile of institutional buying rank. Green Green Green is this colour. I am looking forward to better times and a NEW BIKINI AND A TAN TO GO WITH IT!

• Stock markets are about to rebound sharply
• Can the stars predict share movements?
• RECOMMENDED ARTICLE: How commodities confirm the worst...
  
  From Dominic Frisby, in London

It is a characteristic of bull markets that sell-offs are short, sharp, violent and bigger-than-expected – so much so that people question whether the bull market is still intact.

The same applies to bear markets, only in reverse. You get these sudden, short-covering spikes up as traders who’ve been betting on falls rush to cover their positions. These spikes – if timed well – can be good money-making opportunities for those who have the spare cash to dabble in short-term trades.

I think we could be reaching one such opportunity – and it could come as soon as Thursday. Here’s why...


Why we should be expecting a bounce

Here is a long-term, log chart of the S&P. As you can see by the red trend lines, there is a clear, long-term channel in place. We have come back to the lower line of the channel. That is, technically, a likely place to find a bottom.

As trader Michael Hampton of Global Edge Investors (http://www.greenenergyinvestors.com) observes, what is interesting is that we have also retraced to the levels of late 1996 when the S&P broke out above that long-term channel. The markets have come back to ‘revisit the scene of the crime’.



What crime though? What happened in late 1996? Well, it’s worth noting that this break-out came just a month before Alan Greenspan’s famous ‘irrational exuberance’ speech of December 5th, 1996, when he said: “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy.”

Despite the warning in that speech, Greenspan did nothing to rein in credit growth – the credit growth which resulted in the greatest debt bubble of all time, the consequences of which we are all now suffering. And in fact, that break-out above the long-term trend-line marked the beginning of the era when the banks began to outperform the general markets – the era of cheap credit – an era which ended on February 26th 2007, when the banks began to underperform. It was the era of monetary irresponsibility. The stock markets have now lost all the gains that were made.

So that’s one reason to expect a bounce - we are at a nice technical level at which to find a low.

Why else should it come now? Well, bearish sentiment is now overwhelming and everywhere. It has flooded the mainstream. One example came in yesterday’s Daily Mail when Max Hastings wrote: “The stability and political fabric of entire societies are imperilled by the meltdown of capitalism’s institutions”. Sentiment doesn’t get much more bearish than that.

Is the US dollar at a new high?

It’s also possible that the US dollar is making a fresh high. In recent years, the dollar has risen as stock markets have fallen and has fallen as stock markets have rallied. Rarely have the two risen or fallen in unison. In last week’s Money Morning (How far will stock markets fall?) I wrote about double tops and the reversals they sometimes signify.

It looks like the dollar, the fundamentals of which get worse with every US policy announcement, could be making a double top here at the 89 area, where there is a lot of resistance (see chart below). A reversal in the dollar could signify a reversal in the stock markets. (It could also, even though they have been trading together in recent weeks, be bullish for gold).



Can the stars predict share movements?

Lastly, it’s in the stars. I’m not joking. Larry Pesavento is a “pattern recognition expert” from the US (http://www.tradingtutor.com/). He uses geometric patterns, Fibonacci ratios – and astrology. I would instantly dismiss the latter if not for the fact that I listened to his comments on the Tom O’Brien Show (http://tfnn.com/listen_live.php#tomo... ) throughout October and November last year and he called the markets with frightening accuracy almost to the day. His cycles-work, which I do not pretend to understand, and which, no doubt, you have to sign up for and pay a lot of money to be taught, is also calling for a low later this week.

He said, “I’ve been bearish for a long time. I’ve been bearish since July of ‘07. This is the first time I felt bullish. Oil stocks, copper, things like Apple. We could get the mother of all short-covering rallies. We have negative sentiment everywhere. There are very few people that are looking for this. These are astrological patterns and they’re set up.”

If a rally comes, it could be sweet - but this isn't the bottom yet

So I’m suggesting that this break below the November lows in most major indices is a bear trap – a snare for unwary traders who are still betting the market will fall. We got to the November lows hard and fast, then rallied. This re-test and break below has been a painful, inexorable, but more gradual slide down on lighter volume.

I could be very wrong, of course. It wouldn’t be the first time, and I don’t advise betting the house or anything like it on this. The economic fundamentals couldn’t be worse. But a rally, if it comes, could be short, sharp, sweet – and very painful if you’re on the other side of the market. But remember, this isn’t the bottom – it will only be a trade-able bounce in an ongoing economic disaster.

One more thing: if it does come and it lasts longer than people expect, watch policy-makers rush to take the credit for their ‘handling of the crisis’.

Turning to the wider markets...

The FTSE 100 took another big hit yesterday, losing 3.1% to 3,512. Banks slipped further down, with Lloyds falling 7.9%, Barclays 6.7%, and HSBC 1%. Standard Chartered bucked the trend, however, rising 7.3% after its profits matched forecasts. Energy stocks also fared poorly, with BG Group down 6%, Royal Dutch Shell losing 6% and BP falling 4.3%. For the latest stock market news and charts, click here.

In Europe, the Paris CAC 40 lost 27 points to end at 2,554. The German Xetra Dax, meanwhile, was down 20 points at 3,690.

On Wall Street, the Dow Jones Industrial Average fell 0.6% to 6,726. The S&P 500 lost 0.6% to close at 696 - its first close below 700 since 1996 - and the Nasdaq Composite fell 0.1% to 1,321.

Overnight in Japan, markets rose for the first time in three days. The Nikkei 225 was up 0.9% to 7,290, while the broader Topix index climbed 0.7% to 732.

Brent spot was trading at $43.72 early today, and in New York, crude oil was at $42.34. Spot gold was trading at $914 an ounce, silver was at $12.73 and platinum was at $1,045.

In the forex markets this morning, sterling was trading against the US dollar at 1.4077 and against the euro at 1.1233. The dollar was trading at 0.7983 against the euro and 99.14 against the Japanese yen.

And this morning, broadcaster ITV says it must make "significant" cost savings, including cutting 600 jobs, after being hit by a fall in advertising revenue. Profits were down 41% to £167m. The company said it would not be paying a dividend in 2009.

Our recommended article for today...

How commodities confirm the worst
- If anyone had any lingering doubts about the seriousnness of the global economy's collapse, recent moves in the commodities markets should firmly dispel them. To read more, click here: How commodities confirm the worst.

Until tomorrow,

Dominic Frisby