Tom Scollon
Tom Scollon
Chief Editor

I am sure SharesBulletin subscribers will not mind me sharing an interesting email from one subscriber - Glynn.

‘Hi Tom,

I have to ask for your view or comments made some time back re the ferris wheel, have you had a chance to revisit the wheel as yet, I would be interested in your up to date view. As an option trader, if we are around the lower section of the wheel, some possible option strategies may be the play of the day.

Cheers Glynn.’

I say interesting because as one might expect in uncertain times such matters can be just about as clear as mud. And I say uncertain because even though markets are charging ahead I am not sure the bad news is all over.

Thanks Glynn for the prompt as it is always useful to re-visit the Ferris Wheel.

click chart for more detail
click to enlarge

And Glynn I am inclined to agree with your assessment. We are at the bottom but let’s try and drill down a little more and see what elements are present. There may be some debate on some of these but let me give you my assessment.

Moving from the bottom right hand curve – say 4 o’clock we can see rising unemployment. Now some may argue that the unemployment rate is easing. Perhaps - although I think not but in any case we need some more data to confirm that.

Business foreclose is still at a solid pace.

Falling interest rates. Well rates most likely have bottomed although I will not bet on that yet. But I will agree rates will rise in the coming six months and that will put a dampener on economic activity for a while.

Bust’ is right at the bottom and we are going through that now even though in Australia it has not felt like a recession. But I am not sure the real ‘bust’ is here. More about that next week.

We certainly have high unemployment – relatively speaking – and I think it will rise further.

Economic shakeout’ has certainly happened.

So it does appear we have most of the indicators that are associated with the bottom of the Ferris Wheel.

But if you go around a little further we see rising property and share prices. The big question though is: are these price levels here to stay? That is key and I will talk more about that next week also.

So Glynn your assessment is ‘on the money’ and yes a great time for options. My strategy is to look for ‘shorting’ opportunities in the coming weeks and then ‘long’ opportunities when a new pullback base is found. But that could be some months away.

So in balance I would say that most factors point towards the ‘bottom’ – 6 o’clock rather than say 8 o’clock. The big question is how long are we likely to stay around the bottom?

Anyway, Mat Baker is your man on option strategies. I would suggest you re-visit his numerous and high quality articles as I am sure there will be strategies that are very relevant.

Enjoy the ride

Tom Scollon
Chief Analyst