A Bear Market Rally Finally - Waiting for Shorting Opportunities

An excerpt from Robin's blog:

Fundamental Perspective - The world have just averted a Systemic Financial Meltdown, thanks to the US $700 Billion rescue package, UK's plan to nationalise ailing banks and EU's co-ordinated effort to inject liquidity in financial system and guarantee bank deposit. While the markets is celebrating the aversion of a Systemic financial meltdown with the Dow rebounding from the lows of 7882, a long and severe recession lasting 5 to 6 yrs and possibly a great depression awaits the world. This will be the first time the world has to deal with so many `bubbles' bursting at the same time, housing, mortgage, equity, bonds, credit, commodity, private equity,hedge funds. Not only companies but countries are defaulting on their loan. We are now witnessing the biggest de-leveraging of the real estate and financial sectors since the great depression. It's neither a V or U shaped recession, it's going to be L shaped decade long recession where many corporate , companies, financial institutions will fail, and the stock markets will experience crashes after crashes. Most bear markets in the US lasted between 2-3 yrs and they fell an average of 35% to 50%. We are hardly a year into this crisis and the Dow has fallen 45% (11 Oct 07 to 10 Oct 08), please see the attached chart. The speed and magnitude of the market collapse is a telling sign that the road ahead is dark and scary. This crisis has no precedence, except for the period during the great depression when the Dow was down 84% between 1930 to 1932. We must make a trip back to history, to see the similarity between the great depression that was started in 1929 and the present crisis, because when it comes to money, I realised that history tends to repeat itself.

Technical Perspective - The markets around the world take their cues from the US market, that is why it's so important for us to understand the technicals of the Dow Jones. The Dow completed the full channel retracement cycle from the high, established on 11 Oct 07 (14198) to the low (7882) on 10 Oct 08. I believe that we might have hit an intermediate bottom with Dow at 7882 bottom but not a long term bottom, and this bottom could be retested in the short term but should be able to hold for about 2 months and this rebound should eventually take the Dow to the 10100 to 10400 range. There are a lot of talk recently that the market could have capitulated and hit reached a long term bottom. Don’t believe it!. This rebound after it has run it’s course will come down again to test the 10 Oct low of 7882. Many people are looking at the Great Depression in 1929 to 1932 for clues on how this downturn will fan out. Let’s go back, and analyse how the market behaved during these period. If the great depression is any precedent, we could have reached a intermediate bottom but the DOW long term bottom could go as low as 4500 to 5000.

Great Depression 1929 to 1932DJIA increase in value fivefold over 5 yrs; prices peaked at 381.17 on Sep 3 1929Interim bottom occurred on Nov 13 at 198.6.Market recovered with Dow reaching 294.0 in April 1930, (ie, dead cat bounce).Market embarked on steady slide until 1932 to close at41.22 on July 8 (89% decline from peak).9 of the 10 biggest rebound in Dow history happened during this period

What I will do: Wait by sidelines for shorting opportunities. If possible, I also want to clear some long-term positions in STI ETF and Yangzijiang.

Shorting Cadndidate #1:
DJ MARKET TALK: NOL Expected To Fall; Warns Of Prolonged Downturn
2350 GMT [Dow Jones] NOL's (N03.SG) 82% on-year fall in 3Q08 net profit, warning of 4Q08 loss may weigh on share price below S$1.00 (last tested earlier this week). Earnings at US$35.1 million vs US$191.4 million year earlier, despite 16% rise in revenue, due to higher bunker fuel costs, weaker demand for container ships. Load factors for almost all major trade lanes down, reflecting deteriorating conditions in global economy. "It is reasonable to expect a more pronounced and prolonged downturn than previously forecast for the container shipping industry," company says, blaming global economic uncertainty following recent troubles in world financial markets. Stock closed +6.4% at S$1.17 yesterday. (FKH) Resistance: $1.52, support level during the bull run. Wait to short closer to this level.