Follow Our Four Indicators To Call The Stock Market Bottom

Japan cut its main interest rate overnight.

The country’s central bank slashed its benchmark rate from 0.5% to 0.3%.

In practice, it won’t do much for markets, but it’s good of them to join the worldwide rate cutting drive. It’s good for sentiment and it sets a precedent for the rest of the developed world to keep chopping rates to negative levels in real terms.

Now, normally we wouldn’t be talking about what Japanese central bankers did overnight.

But now is anything but normal.

We need to think global.

The credit crunch did not start in the UK and it will not end in the UK. To call the next moment to get into stocks we can’t solely rely on traditional stock market valuations.

On many occasions the market has just collapsed... fallen out of the sky... and seemingly for no reason. There is a reason. It’s just not easy to find.

The investment game has become more complex, and that means that we need to become explorers. We need to look beyond dividends and price-to-earnings (P/E) ratios and investigate the real causes of the credit crunch.

This is exactly what we are doing at The Fleet Street Letter. As investors, we know better than anyone that times are hard. When the leading index is trading at five year lows, that much is pretty apparent.

What we want, and need to know is:

a) When sustainable market confidence will return, and...
b) What it will take to get there.

So, over the last four weeks, The Fleet Street Letter has introduced four indicators that might just give us the green light to know when confidence is coming back to the market.

Look beyond stocks

Those indicators are, predictably, showing red lights at the moment. The bear market does have further to go.

Since July, the FTSE 100 has fallen so far that it has joined the "missing decade club" in that it has made no gains in the last ten years.

In our newsletter, we have not issued any new stock recommendations since July. However, we have introduced a different type of investment. And these are currently showing a profit.

Don’t get me wrong. I do like stocks, and there are some positions that I am very keen on.

These are defensive stocks but had I actually recommended any of these three companies they would all be in loss today.

These are companies that are growing as companies. Nonetheless, they are declining as shares. Hence we are holding back and waiting before revealing these recommendations. However, do not fear, we will not wait until the next bull market to tip stocks again. Those recommendations will come soon.

It is not yet time to be a bargain hunter. It is time to be truly defensive and hedge your bets.

Hedge your bets

If you’ve not yet seen it, do watch my interview of Lord Rees-Mogg, the Editor in Chief of The Fleet Street Letter.

In it Lord Rees-Mogg talks about the prospects for recession in the UK:

"I think we’re already in recession, both in the UK and the US. This is now being recognised by the Governor of the Bank of England who describes it as a recession for the first time.

"I think the recession will last for a three year period and I wouldn’t look for a bull year before 2012."

We’ve been saying this for a long time, and that is why The Fleet Street Letter has branched out into non-stock investments.

In fact one of our profitable hedges is a direct play on the health of the UK economy. As the economy slides into the abyss and the currency falls to new lows our play flies into profit. And surely following Japan’s example will be the Bank of England next week.

When we cut interest rates to 4%, as I am predicting, it will be another reason to sell the pound and another opportunity to profit from this position.

If you’d like to get this recommendation, you can do so right now, by joining up for a no-obligation three-month trial. Click here to find out more about The Fleet Street Letter and we’ll send you our latest issue in an email by return.

Until tomorrow,

Theo Casey
For Fleet Street Daily

Selected Articles:

The Battle for Global Resources is Heating Up — by Manraaj Singh

The Next Big Thing — by Tom Bulford

The Daily Reckoning — Everything is happening as it should

"US consumers cut back sharply," says the front page of today’s International Herald Tribune.

"Decline is biggest since ’80; data show a shrinking GDP."

Well... what did they expect?

We are in an especially cheerful mood here at the Paris headquarters of the Daily Reckoning. Why? Because everything is happening as it should. God is in his Heaven. The Queen is on her throne. And the Big Boom is turning into a Big Bust.

As predicted in this space, many times, consumer spending is falling hard. But what else could it do?

Let’s look back over our shoulder to see how we got to this place.

The feds goosed up the slumping economy in 2002 with history-making inputs of new cash and extra-easy credit. What followed was a once-in-a-lifetime bubble in housing... which lifted up the entire world economy. Americans bought things they couldn’t really afford with money they didn’t really have. And the whole world rejoiced.

But when housing prices got so far out of whack that the average person couldn’t dream of buying the average house, something had to give.

Housing began to fall... taking the mortgage-backed speculative finance business down with it.

At first, few people took it seriously; so it took a long time for homeowners to react. But they had to cut spending sooner or later.

In an economy that is nearly 80% based on consumer spending, less spending is bound to cause a recession.

And when businesses take in less revenue, their stock prices are sure to fall.

All that has happened, just like it should.

But what should happen next?

You can read the Daily Reckoning in full here.

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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