LONGING THE DOW + FTSE = MASSIVE RALLY AHEAD-part 6(into the new year)

Here's an interesting article..probably a very realistic viewpoint.

Live in hope time

Ian Foster - 2 January 2002

This past two years have not been very happy hunting grounds for many investors trading in either side of the Atlantic, with the FTSE 100 falling some 25% over this period and the Dow approx 13%. Just looking at these figures alone and one can easily see that as bad as America has been, it has performed better than the UK, even though the UK economy is expected to not have near as severe economic slowdown.
It has been recognised that all trading countries are in a bear market. It did take many analysts some time to admit this fact. However, once it was seen that every rally was been sold and then indexes had retraced by ‘x’ number of percentage points from their highs, it could be denied no longer by these “always bullish” analysts that a bear market was certainly upon us.

From a private investor point of view, it is always easier to be successful in bull markets compared to bear markets. The reason for this is probably due to the fact that many private investors base their trading decisions on information received in newspapers, from friends and brokers et cetera. This can be very fine in good times, but not so good in bad times.

Advice only on ‘gut’ feeling
This has been the case in many of the sad stories that one hears about over this past year in particular. Let’s face it: during good bullish times literally anyone could pick a portfolio of shares of which at least half would perform well, unless they were exceptionally unlucky. Therefore, many of these newspaper columnists, friends et cetera who have given this information in the first place, are not basing their advice on proper researched information, but rather more on a basis of ‘gut’ feeling.

The big problem with this, as has been the case in many situations, is: where does one come out of the stock, when it begins to fall? How many times do you read or listen to analysts whom have previously tipped a stock that has now fallen 20, 30 and 40% still saying to hold, because of this or because of that? As a private investor you are now holding a substantial loss and you are being told to hold. Is this really what one wants to hear? This is what I call ‘live in hope time’.

Hope approach
I strongly believe the successful way forward from a private investors point of view is to take their own trading decisions based on their own analysis. This could be a mix between fundamental and technical. The big advantage, as regards technical analysis, is concerned, is the fact that you should exactly know when you need to exit a stock if the price is falling. Not this ‘live in hope approach’.

For this year 2002 I believe the volatility will remain in the first, perhaps second quarter, before any sustained upward moves will be made. In fact the indexes could retrace much lower than the levels that they are presently trading at.

The economies of the world are not looking very good for the immediate future and although the stock market works on future and not present outlooks, it will probably be at least the middle of this year before some confidence returns. Off course there will be individual shares that will out perform the general market and it is those stocks that we will try and pick out in these columns.