[RT] Fw: Rules Worth Remembering, RealTraders Email List Archive

----- Original Message -----

From: Nicholas Horowitz

Sent: Thursday, November 13, 2008 11:44 AM

Subject: Rules Worth Remembering

Exerpt from Dennis Gartman's newsletter Tom sent around earlier:

We offer the following ten rules from Mr. Robert Farrell, who

was until 1992, and had been since 1967, Merrill Lynch's

chief market strategist. He had ten market rules that we

remember always keeping nearby "back in the day," and

those rules were brought to our attention yesterday and

deserve to be reproduced here this morning.

Remembering them, and using them will serve, and have

served, us and our clients well over the years:

Bob Farrell?s Ten

Market Rules to Remember

1) Markets tend to return to the mean over time. This

is especially noteworthy now, for the housing market is

returning to its mean by plunging, as are equity market,

the dollar, the Yen, et al.

2) Excesses in one direction will lead to an opposite

excess in the other direction. They always do, and the

excesses of the housing bubble and excessive, lenient

bank lending, are giving way to the housing collapse and

inordinately tight lending practices.

3) There are no new eras ? excesses are never

permanent. And how strongly does that speak to us

now, for the supposed era of unending housing price

increases and of globalisation has given way to weak

housing and growing protectionism.

4) Exponential rapidly rising or falling markets usually

go further than you think, but they do not correct by

going sideways. Markets correct by going in the

opposite direction, falling sharply after sustained, broad

rallies, and rallying after sustained broad weakness. The

world ebbs and the world flows; it has always been thus,

and shall always be thus.

5) The public buys the most at the top and the least at

the bottom. Of course they do; they always have and

they always shall. The public buys when euphoria reigns,

and it sells when depression does years later.

6) Fear and greed are stronger than long-term

resolve. We are human beings dealing with rational and

irrational markets; to believe that "fear" and "greed" can

ever be lost is naive for they are the most fundamental of

human traits.

7) Markets are strongest when they are broad and

weakest when they narrow to a handful of blue chip

names. Just as volume must follow the trend, so too

must good markets have broad support and weak

markets have broad weakness... and at the moment, the

market is very, very broadly weak.

8) Bear markets have three stages ? sharp down ?

reflexive rebound ?a drawn-out fundamental

downtrend. This really is how this bear market shall end;

not with a hoped for "V" bottom, but with a great

washing-out... a capitulation... and then months, or even

years, of base building.

9) When all the experts and forecasts agree ?

something else is going to happen.... or as we like to

say, "When they are yellin', you should be sellin,' and

when they are cryin,' you should be buyin.' "

10) Bull markets are more fun than bear markets.... or

as a friend of ours from Raleigh, N. Carolina used to say

many years ago, "Bears don't eat; bulls party!"

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