Zbigniew Piekarski advises going short on the WIG 20 once downward trend has been re-established

My first article published in the Business Journal appeared at the end of September and warned that what we had started to experience since 2000 was a secular bear market which would be interrupted by cyclical bull markets.
At the time of writing, the WIG20 index had declined from its January high of 1,464.06 and double, bottomed at 1,039, providing a return of 40%. Whether that return was a plus or a minus depended on which way you had bet - long or short.
Then the predicted "bear market rally" followed to peak at 1,201 with a close of 1,190. That was another 14% return. The interesting thing is what happens now?
I must admit that I am partial to indexes. They are the footpaths through the quagmire of individual shares. They are the measuring rod by which investment managers are judged. They and only they can provide a detailed history of the market.
Charles Henry Dow (1851-1902) was responsible for the first index. He was a reporter in the USA and started Dow Jones & Co. with two partners. Their first publication in early 1883 was a two-page daily called the Customer's Afternoon Letter. By 1889, the Customer's Afternoon Letter had evolved into the The Wall Street Journal.
At the time, information about the state of a company was not revealed. It would not be until the Securities Act of 1934 that companies would be required to file quarterly and annual reports, which all investors could look at. So for more than 50 years, the only place that the individual investor could get information on company financials was The Wall Street Journal.

The Dow Jones Industrial Average started with just 12 stocks in 1886 and grew to its current 30-stock roster in two big jumps: in 1916 the average was expanded from 12 to 20 stocks and in 1928 the final move from 20 to 30 stocks was made.
Over the years the DJIA has continued to change. New companies have been added, on average, every three years to ensure that the index continues to reflect the current business climate.
That is what all indexes do. They add the most successful companies and eliminate the failures. Because they accentuate the positive and eliminate the negative, they can never go to zero. Unlike an individual company which can actually go bankrupt.
So what do indexes reveal? Different folks have different strokes, but for me an index reveals the pulse and psychology of the market. It reveals countless decisions by irrational individuals based on the balance between greed and fear and the unknown and explained away through either "technical" or "fundamental" jargon.
Each market within each nation state imagines itself to be an individual expression of the aspirations of its citizens and a reflection of the stage that it has attained in its economic cycle. It is. But within Western Europe only a few hours separate it from the heartbeat of the capitalist system - the good old USA.

I have timed the various markets. The independence of the UK is about 90 minutes. At the start it reflects what has happened in the US, then it does its own thing for about 90 minutes and then waits until the US markets open in order to follow their direction.
Germany - well, its citizens are far more emotional than their reputation maintains. They have called this week the "Black Week" after discovering a black hole in the budget and Deutsche Telekom providing a loss of €2.6 billion - the largest in German corporate history. And what did the market do? Oh, it went up on the back of the US.
France - always contradictory. After all its national mascot is a cockerel, and France Telecom (just like Deutsche Telekom) will have to be saved from the government by the government. The Swiss - sinking in silence and secrecy and ready to surrender their sterility. Poland - as ever, resilient in adversity and adopting the "oy vey" philosophy that it knows so well. However, whether they like it or not, if America sneezes the rest of the world catches a cold.
Remember Yale Hirsch and his two seasons? He found that the months from November to April tended to be most productive, generally speaking. Therefore, the bear market rally that we have experienced over the past four weeks may have another go, but not for long.

This chart indicates why. To feature time symmetry in any market is dangerous as it is the most difficult to predict and most prone to breaking down. However, I cannot resist this. It does make you wonder.
And what would be the implications for the WSE if the DJIA hits fresh lows? I, for my money, would go short on the WIG20 once the downward trend has been re-established.
Remember, our sole purpose is to make money regardless of market conditions, regardless of whether the market rises or falls and with limited downside. So we shall explore the mechanics next week.
"Once you have taught a man to fish, then run away. Otherwise, he'll bore you to death talking about the one that got away." - Anonymous