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TTT--9 Nov 05
Lack Of Conviction, Either Way. Today, C, I, and S Fund stock prices sagged moderately lower. The market ignored the good news of a decline in bond yields, which appeared to be only a counter-trend correction against a larger uptrend. Remember, when bond yield goes up, the F Fund goes down because of the negative correlation. In any event, minor counter-trend corrections typically don’t go far or last long. Breadth was mildly Bearish. The Cumulative Daily Advance-Decline Line has been lagging the price indexes in recent weeks. Lighter volume on the down move suggests lack of conviction. Positive price momentum has been slowing over the past four trading sessions. Nevertheless, short-term momentum is still hanging on to a positive reading with the exception of the EAFE Index. As a result, all shares of I Fund were sold today and put into G Fund.
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 9 Nov 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) Sell C Fund if SPY is < $121.77. Current portfolio allocation is 25%.
I Fund (EAFE Index) No buy possible on 9 Nov 05. Current portfolio allocation is nil.
S Fund (Wilshire 4500 Index) Sell S Fund if $EMW or DWCP is < $531.20. Current portfolio allocation is 50%.
G Fund (Money Market) Current portfolio allocation is 25%.
W@G2 QQQQ 11/09/05 for a 11/11/05 close
40.50 wonderboy
39.40 frenchee
38.85 swingman
Hello Strass,
If you request an interfund transfer on this Web site or the ThriftLine before 12 noon eastern time, your request will ordinarily be processed and posted to your account at the close of business on that day. Requests made after 12 noon eastern time, will ordinarily be processed and posted to your account at the close of business on the following business day.
http://www.tsp.gov/features/chapter10.html
Think 45.24 will be support Dr Worm?
Nice set of charts BULLarkey...
New Adds to My Watch List--Favorite is ABX
Hope this guy is wrong. However, the picture he paints probably isn't too far off...
Wake up, Europe, you've a war on your hands
November 6, 2005
BY MARK STEYN SUN-TIMES COLUMNIST
Ever since 9/11, I've been gloomily predicting the European powder keg's about to go up. ''By 2010 we'll be watching burning buildings, street riots and assassinations on the news every night,'' I wrote in Canada's Western Standard back in February.
Silly me. The Eurabian civil war appears to have started some years ahead of my optimistic schedule. As Thursday's edition of the Guardian reported in London: ''French youths fired at police and burned over 300 cars last night as towns around Paris experienced their worst night of violence in a week of urban unrest.''
''French youths,'' huh? You mean Pierre and Jacques and Marcel and Alphonse? Granted that most of the "youths" are technically citizens of the French Republic, it doesn't take much time in les banlieus of Paris to discover that the rioters do not think of their primary identity as ''French'': They're young men from North Africa growing ever more estranged from the broader community with each passing year and wedded ever more intensely to an assertive Muslim identity more implacable than anything you're likely to find in the Middle East. After four somnolent years, it turns out finally that there really is an explosive ''Arab street,'' but it's in Clichy-sous-Bois.
The notion that Texas neocon arrogance was responsible for frosting up trans-Atlantic relations was always preposterous, even for someone as complacent and blinkered as John Kerry. If you had millions of seething unassimilated Muslim youths in lawless suburbs ringing every major city, would you be so eager to send your troops into an Arab country fighting alongside the Americans? For half a decade, French Arabs have been carrying on a low-level intifada against synagogues, kosher butchers, Jewish schools, etc. The concern of the political class has been to prevent the spread of these attacks to targets of more, ah, general interest. They seem to have lost that battle. Unlike America's Europhiles, France's Arab street correctly identified Chirac's opposition to the Iraq war for what it was: a sign of weakness.
The French have been here before, of course. Seven-thirty-two. Not 7:32 Paris time, which is when the nightly Citroen-torching begins, but 732 A.D. -- as in one and a third millennia ago. By then, the Muslims had advanced a thousand miles north of Gibraltar to control Spain and southern France up to the banks of the Loire. In October 732, the Moorish general Abd al-Rahman and his Muslim army were not exactly at the gates of Paris, but they were within 200 miles, just south of the great Frankish shrine of St. Martin of Tours. Somewhere on the road between Poitiers and Tours, they met a Frankish force and, unlike other Christian armies in Europe, this one held its ground ''like a wall . . . a firm glacial mass,'' as the Chronicle of Isidore puts it. A week later, Abd al-Rahman was dead, the Muslims were heading south, and the French general, Charles, had earned himself the surname ''Martel'' -- or ''the Hammer.''
Poitiers was the high-water point of the Muslim tide in western Europe. It was an opportunistic raid by the Moors, but if they'd won, they'd have found it hard to resist pushing on to Paris, to the Rhine and beyond. ''Perhaps,'' wrote Edward Gibbon in The Decline And Fall Of The Roman Empire, ''the interpretation of the Koran would now be taught in the schools of Oxford, and her pulpits might demonstrate to a circumcised people the sanctity and truth of the revelation of Mahomet.'' There would be no Christian Europe. The Anglo-Celts who settled North America would have been Muslim. Poitiers, said Gibbon, was ''an encounter which would change the history of the whole world.''
Battles are very straightforward: Side A wins, Side B loses. But the French government is way beyond anything so clarifying. Today, a fearless Muslim advance has penetrated far deeper into Europe than Abd al-Rahman. They're in Brussels, where Belgian police officers are advised not to be seen drinking coffee in public during Ramadan, and in Malmo, where Swedish ambulance drivers will not go without police escort. It's way too late to rerun the Battle of Poitiers. In the no-go suburbs, even before these current riots, 9,000 police cars had been stoned by ''French youths'' since the beginning of the year; some three dozen cars are set alight even on a quiet night. ''There's a civil war under way in Clichy-sous-Bois at the moment,'' said Michel Thooris of the gendarmes' trade union Action Police CFTC. ''We can no longer withstand this situation on our own. My colleagues neither have the equipment nor the practical or theoretical training for street fighting.''
What to do? In Paris, while ''youths'' fired on the gendarmerie, burned down a gym and disrupted commuter trains, the French Cabinet split in two, as the ''minister for social cohesion'' (a Cabinet position I hope America never requires) and other colleagues distance themselves from the interior minister, the tough-talking Nicolas Sarkozy who dismissed the rioters as ''scum.'' President Chirac seems to have come down on the side of those who feel the scum's grievances need to be addressed. He called for ''a spirit of dialogue and respect.'' As is the way with the political class, they seem to see the riots as an excellent opportunity to scuttle Sarkozy's presidential ambitions rather than as a call to save the Republic.
A few years back I was criticized for a throwaway observation to the effect that ''I find it easier to be optimistic about the futures of Iraq and Pakistan than, say, Holland or Denmark." But this is why. In defiance of traditional immigration patterns, these young men are less assimilated than their grandparents. French cynics like the prime minister, Dominique de Villepin, have spent the last two years scoffing at the Bush Doctrine: Why, everyone knows Islam and democracy are incompatible. If so, that's less a problem for Iraq or Afghanistan than for France and Belgium.
If Chirac isn't exactly Charles Martel, the rioters aren't doing a bad impression of the Muslim armies of 13 centuries ago: They're seizing their opportunities, testing their foe, probing his weak spots. If burning the 'burbs gets you more ''respect'' from Chirac, they'll burn 'em again, and again. In the current issue of City Journal, Theodore Dalrymple concludes a piece on British suicide bombers with this grim summation of the new Europe: ''The sweet dream of universal cultural compatibility has been replaced by the nightmare of permanent conflict.'' Which sounds an awful lot like a new Dark Ages.
TTT--8 Nov 05
Lighter Volume Suggests Hesitation. Today, stock prices finished mildly higher, helped by easing crude oil prices and bond yields, both of which may be only counter-trend corrections against larger uptrends. Breadth was only mildly positive. The Cumulative Daily Advance-Decline Line has recovered less than half of its loss since September peak. Lighter volume on the upmove suggests hesitation. Positive price momentum has actually been slowing over the past 3 trading sessions, despite apparent price strength. None of this suggests a sustainable uptrend. Rather, the market may remain trapped in an indecisive choppy trading range for a while longer.
Historical seasonal tendencies have been mostly bullish in the month of November. Also, recent past earnings have grown about 15% year over year, which pleases fundamental analysts. Moreover, companies have plowed some of those earnings back into hoped for future growth, in the form of mergers and acquisitions and stock buybacks. But despite these signs of good times, stock prices have only managed to hold in a relatively narrow trading range. Why? Could the good news be discounted? Or, is the good news offset by a deteriorating longer-term outlook for the economy and stock prices? If stocks cannot go up on good news, what might happen when the good news runs out, as it always does, sooner or later, as normal business cycles unfold more or less as they always do? Both the business and stock market cycles seem to be overripe for a downturn, by historical standards. I'm as nervous as a long-tailed cat in a room full of rocking chairs...
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 8 Nov 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) Sell C Fund if SPY is < $121.77. Current portfolio allocation is 25%.
I Fund (EAFE Index) Sell I Fund if EFA is < $57.19. Current portfolio allocation is 25%.
S Fund (Wilshire 4500 Index) Sell S Fund if $EMW or DWCP is < $529.37. Current portfolio allocation is 50%.
G Fund (Money Market) Current portfolio allocation is nil.
Hello Burk,
Glad you like it.
It will be good to see your opinions since you use a different methodology.
Welcome,
Ton of resistance around 130-day EMA. 31.5--32.5 appears to be in the cards...
Week 10: CHI
Burk,
You are welcome to post on my QQQQ and TSP boards.
OT: Odd Lot Differencial
http://www.investorshub.com/boards/read_msg.asp?message_id=8386318
Hello LisaAu,
Looks like plenty of resistance around 36 on the weekly charts. I'm looking for the advance to stop between 36 and the 21-week SMA.
Price Resistance Between 39.91 & 41.29 on Weekly Charts
A close on 11 Nov greater than 41.29 with decisive volume puts me into the bull's breakout camp. Otherwise, the weight of the eividence is pointing to a potential double top being formed. Price and volume will tell the story...
Copperfield,
Here's a nice chart of CCJ for your viewing pleasure...
OT: CrossCurrents, 3 Nov 05
http://www.decisionpoint.com/TAC/NEWMAN.html
OT: Inflows Will Tell the Story
http://www.cross-currents.net/outlook.htm
Agree. They certainly aren't living up to their motto, "Simply the Web's Best Financial Charts."
Good stuff Gizmo...
Now we have to see price reflect a counter-trend rally...
Thanks Gizmo
ajtj99,
Where's the "wall of worry" for the uptrend to continue? It now seems like a "slop of hope" is now in the cards--at least short term. See http://traders-talk.com/mb2/index.php?showtopic=44460
OT:Major Trend Relative Strength Rankings Of Exchange Traded Funds by Robert Colby
Research studies suggest that ETFs ranked in the top quintile (highest fifth) of the list (with a rank of 80 and higher) may have a greater probability of outperforming the market in the months ahead. Conversely, ETFs ranked in the bottom quintile (lowest fifth), below 20, may have a greater probability of underperforming the market in the months ahead.
Interpretation:
99 to 80, Buy
79 to 60, Hold
59 to 40, Market Perform
39 to 20, Avoid
19 to 0, Sell
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Rank Name, Symbol
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
99 Brazil Index, EWZ
99 Latin Am 40, ILF
98 Mexico Index, EWW
98 Oil Services H, OIH
97 Biotech H, BBH
96 South Korea Index, EWY
96 Emerging 50 BLDRS, ADRE
95 Telebras H, TBH
95 Emerging Markets, EEM
94 Broadband H, BDH
93 TOPIX 150, ITF
93 Japan Index, EWJ
92 South Africa Index, EZA
92 Energy SPDR, XLE
91 Energy VIPERs, VDE
90 Natural Resource, IGE
90 Canada Index, EWC
89 Energy DJ, IYE
89 Energy Global, IXC
88 Asia 50 BLDRS, ADRA
87 Austria Index, EWO
87 Mid Growth Index M iS, JKH
86 Transportation Av DJ, IYT
86 B2B Internet H, BHH
85 Switzerland Index, EWL
84 Powershares Dynamic OTC, PWO
84 Powershares Dynamic, PWC
83 Networking, IGN
83 Global Financials, IXG
82 Growth BARRA MidCap 400, IJK
81 Mid-Cap VIPERs, VO
81 Extended Mkt VIPERs, VXF
80 S&P MD 400 iS, IJH
80 EAFE Index, EFA
79 Growth Russell Midcap, IWP
78 Semiconductor iS GS, IGW
78 MidCap SPDRs, MDY
77 Australia Index, EWA
77 Small Growth Index M iS, JKK
76 Internet H, HHH
75 Small Cap Growth VIPERs, VBK
75 Growth BARRA Small Cap 600, IJT
74 Russell Mid Cap, IWR
74 Technology MS sT, MTK
73 S&P MidCap 400/B Value, IJJ
72 Biotechnology, IBB
72 NASDAQ 100, QQQQ
71 S&P SmallCap 600, IJR
71 Small Cap VIPERs, VB
70 Utilities H, UTH
69 Growth Small Cap DJ, DSG
69 Pacific ex-Japan, EPP
68 Value MidCap Russell, IWS
68 S&P SmallCap 600/B Value, IJS
67 Info Tech VIPERs, VGT
66 Developed 100 BLDRS, ADRD
66 Small Core Index M iS, JKJ
65 Growth 2000 Russell, IWO
65 Technology DJ US, IYW
64 Technology GS, IGM
63 S&P Europe 350 Index, IEV
63 Fidelity Commonwealth, ONEQ
62 Russell 2000 Small Cap, IWM
62 Financial SPDR, XLF
61 Financial DJ US, IYF
60 Small Cap Value VIPERS, VBR
60 Gold Shares S.T., GLD
59 Hong Kong Index, EWH
59 Germany Index, EWG
58 Financials VIPERs, VFH
57 Software, IGV
57 Rydex S&P Equal Weight, RSP
56 Mid Value Index M iS, JKI
56 United Kingdom Index, EWU
55 Russell 2000 Value (Small), IWN
54 STOXX 50 DJ, FEU
54 Mid Core Index M iS, JKG
53 NYSE Composite iS, NYC
53 Spain Index, EWP
52 Value Small Cap DJ, DSV
51 Growth 1000 Russell, IWF
51 Growth 3000 Russell, IWZ
50 Telecom Services VIPERs, VOX
50 Growth VIPERs, VUG
49 France Index, EWQ
49 EMU Europe Index, EZU
48 Europe 100 BLDRS, ADRU
47 Vanguard Total VIPERs, VTI
47 Large Growth Index M iS, JKE
46 Fortune 500, TMW
46 Utilities SPDR, XLU
45 Small Value Index M iS, JKL
44 Large Cap VIPERs, VV
44 Russell 3000 (Cap W), IWV
43 Industrials VIPERs, VIS
43 Total Market DJ, IYY
42 Russell 1000 Big Cap, IWB
41 EAFE Growth MSCI, EFG
41 Sweden Index, EWD
40 Technology SPDR, XLK
40 Financial Services DJ, IYG
39 REIT Wilshire, RWR
38 Technology Global, IXN
38 Belgium Index, EWK
37 S&P 500/BARRA Value, IVE
37 Singapore Index, EWS
36 EAFE Value MSCI, EFV
35 Utilities DJ, IDU
35 S&P 1500 iS, ISI
34 Utilities VIPERs, VPU
34 SPDR O-Strip, OOO
33 Value 3000 Russell, IWW
32 Global 100, IOO
32 China 25 iS, FXI
31 Value 1000 Russell, IWD
31 Healthcare Global, IXJ
30 Growth Large Cap, ELG
29 S&P 500 SPDRs, SPY
29 S&P 500 iS, IVV
28 Cohen & Steers Realty, ICF
28 Large Value Index M iS, JKF
27 Value VIPERs, VTV
26 Netherlands Index, EWN
26 Industrial DJ US, IYJ
25 Large Core M iS, JKD
25 Semiconductor H, SMH
24 Value Large Cap DJ, ELV
23 Internet Infrastructure H, IIH
23 Malaysia Index, EWM
22 Health Care VIPERs, VHT
22 Regional Bank H, RKH
21 Growth S&P 500/BARRA, IVW
20 Euro STOXX 50, FEZ
20 Healthcare DJ, IYH
19 Retail H, RTH
19 Basic Materials DJ US, IYM
18 Telecommunications Global, IXP
17 Consumer Staples VIPERs, VDC
17 REIT VIPERs, VNQ
16 NYSE 100 iS, NY
16 Real Estate US DJ, IYR
15 Industrial SPDR, XLI
14 Global Titans, DGT
14 Consumer Cyclical DJ, IYC
13 Dividend DJ Select, DVY
13 Consumer Staples, XLP
12 Internet Architecture H, IAH
11 DIAMONDS (DJIA), DIA
11 Materials VIPERs, VAW
10 Telecom DJ US, IYZ
10 Consumer Non-Cyclical, IYK
9 Consumer D. VIPERs, VCR
8 Italy Index, EWI
8 S&P 100, OEF
7 Health Care, XLV
7 Microcap Russell, IWC
6 Materials SPDR, XLB
5 Consumer D., XLY
5 Bond, 1-3 Year Treasury, SHY
4 Bond, TIPS, TIP
4 Bond Aggregate, AGG
3 Telecom H, TTH
2 Taiwan Index, EWT
2 Bond, 10 Year Treasury, IEF
1 Bond, 20+ Years Treasury, TLT
1 Bond, Corp, LQD
0 Pharmaceutical H, PPH
OT: Trading the Oil-Stock Bull
http://www.321energy.com/editorials/hamilton/hamilton110605.html
Gizmo,
I think your forecast is right on. I don't trade RYGBX but I do trade TLT and my forecast for it shows more downward pressure. http://www.investorshub.com/boards/read_msg.asp?message_id=8359187
Take Care,
W@G2 QQQQ 11/09/05 for a 11/11/05 close
40.50 wonderboy
38.85 swingman
W@G1 QQQQ 11/07/05 for a 11/09/05 close
41.21 WinLoseOrDraw
39.40 frenchee
39.75 rayrohn
Many Markets, Few Values
By JACK ABLIN
JUST BECAUSE MARKETS get out of whack -- and trust me, they always do -- doesn't mean investment portfolios must also be out of whack. In volatile times smart investors strive to diversify as a means of reducing risk. History has shown the wisdom of such efforts: Allocating more funds to undervalued asset classes or markets, and avoiding expensive ones, not only can reduce risk but enhance long-term returns.
What's more, the opportunity to add value can be enormous, as the return differential between top- and bottom-performing markets can range from 25% to 75% in any calendar year. Over the 12 months ended Sept. 30, for instance, an investor who shifted 5% out of the Lehman Aggregate Bond Index, which delivered a 2.68% return, and allocated these funds to the MSCI Emerging Free Index, which gained 45.58%, would have picked up 2.15% in portfolio performance.
Shoulda, woulda, coulda? Identifying undervalued and overvalued markets is not as difficult as it sounds -- if you use the proper metrics. Take the so-called Fed model, thought to be favored by Alan Greenspan's Federal Reserve, which compares the earnings yield on the Standard & Poor's 500 stock index (12-month forward earnings divided by price) with the 10-year Treasury yield. Based on the difference between the two, the S&P was 70% overvalued as of January 2000, the market's peak.
I evaluate most markets from five perspectives, starting with fundamentals, which I gauge by comparing earnings and bond yields, or the market's price/earnings ratio relative to other markets' P/Es. Second, I study the general direction of the economy, which helps me determine whether or not we're in a conducive investment environment. The slope of the yield curve is a handy measure of investor expectations of economic growth.
Liquidity, the measure of ready cash available to propel a market, helps predict the market's capacity to advance. Comparing the year-over-year growth rate in the M3 money supply to the year-over-year growth rate of gross domestic product (GDP) is a good liquidity measure.
I also study investor psychology, or perceptions of the market, which has proven a good contrary indicator. There are many useful sentiment gauges, including the Consensus Index and Market Vane, which you'll find in the Market Laboratory. If bearish sentiment has climbed to levels indicating investors wouldn't touch the market with a proverbial ten-foot pole, it's likely there is nobody left to sell. Conversely, if bulls abound, there may be no one left to buy.
Lastly, I analyze momentum. It is not enough for a market to be cheap, as cheap markets, like cheap stocks, often remain so, creating what is commonly referred to as a value trap. Momentum measures confirm that a market is moving in the right direction. If a market (or stock) moves above its 50-day or 200-day moving average, that's one good indicator of positive momentum.
I take a 12-to-18-month view of markets. Trying to predict the behavior of one market versus another on a quarterly basis is one step away from reading entrails. Short-term market moves are driven by investor psychology, which is often irrational. Beyond a year, market movements tend to respond more favorably to fundamentals and other measurable inputs.
So, where can an investor add value today?
I'm neutral on U.S. equities, as valuations are reasonable but the backdrop is dimming. The Fed model suggests the market could be as much as 20% undervalued, although subbing riskier BBB-rated corporate-bond yields for the 10-year Treasury yield suggests it's fairly priced. At the same time, future earnings -- the model's numerator -- are set to slow. The economic outlook isn't encouraging either. The Fed's moves to raise interest rates eventually will crimp growth, restrain retail spending and trim corporate profits.
The stock market thrives when the yield curve is steep and short-term rates are trending lower. At the moment, the opposite is true. Short rates are expected to more than quadruple to 4.25% by the end of this year from their low of 1% in June 2003. Meanwhile, on the longer end, the difference in yield between two-year and 10-year Treasuries has declined from 1.55% to 0.15% over the past 12 months.
Typically, the Fed takes rates too high, precipitating a financial crisis and a flight from risky assets. It is precisely when the crowd has given up that valuation and economic measures begin to turn attractive. The time to buy stocks aggressively will be when momentum turns positive. For now, valuations are reasonable enough to support my agnostic view of the asset class. But if interest rates rise substantially or profit expectations falter, I would scale back my equity exposure.
Within the equity market, small-capitalization stocks, as represented by the Russell 2000, have outpaced large stocks (the Russell 1000) by more than 43% over the past five years. While large-caps' underperformance was justified from a valuation perspective, the scales are tipping toward the big guys again. At the outset of the small-cap rally, the P/E of the Russell 2000 was a full eight points below that of the Russell 1000; now, small stocks trade at a 15% premium to their larger brethren.
Consider the circumstances, such as easy credit and a strong dollar, that long favored small-caps. Credit is tightening, and investors are beginning to require a higher yield premium to lend to lesser-quality issuers. Large-cap companies usually enjoy easy access to the credit markets, so they would gain a relative advantage here.
Too, large companies tend to be exporters, while smaller ones generally stay home. Dollar strength has hurt the market's largest issues, but it's likely the buck will reverse course as the Fed's rate-raising regimen ends. Momentum is beginning to confirm the sectors' reversal in fortune; since the start of August, small stocks have underperformed by more than 3%.
S&P Depositary Receipt (ticker: SPY), is an exchange-traded fund representing the S&P 500. iShares S&P 100 (OEF) represents about 57% of the market cap of the S&P 500. Both ETFs afford a low-cost way to play the large-cap market.
Looking abroad, developed international markets, as represented by the MSCI EAFE index, are reasonably valued relative to the S&P 500. The broad foreign index trades at 16.7 times trailing earnings, a 7% discount to our market, and at 2.3 times book value, a 21% discount to the S&P. EAFE earnings are expected to grow by 10%, S&P earnings by 12%.
On the economic front, global central banks are somewhat more accommodative than our ever-tightening Fed. Since monetary accommodation is more conducive to an equity advance, score one for the foreign marts. That the EAFE has gained close to 6% in a year in which the dollar has rallied against most major currencies further signifies the strength of international markets. Should the dollar weaken, as it's likely to do, the EAFE markets would enjoy a tailwind. iShares MSCI EAFE (EFA), a widely traded ETF, is a good way to play these markets.
Emerging-market equities remain attractive on an absolute and relative basis, in spite of their impressive gains over the past three years. They trade at a 25% discount to their U.S. counterparts on a price-to-earnings basis, and at a 26% discount on a price-to-book basis. While current emerging-market valuations are higher than historical trends, the underlying credit quality of economically emergent nations has improved markedly. Considering more than half of emerging-market economies have attained an investment-grade credit rating, current valuations are well within reason.
Liquidity firmly supports these stocks. Cash flows into emerging-market mutual funds have been largely positive since early 2003. Too much hot money can be a cause of concern, however, so this is a condition worth monitoring.
The moves we've seen in emerging markets likely are part of a multi-year revaluation relative to the U.S. market, and are apt to continue as investors search for incremental value and return. Exposure to this sector can be attained through iShares MSCI Emerging Markets Index (EEM).
THE BOTTOM LINE:
While rising rates and slower profit growth suggest trouble ahead for U.S. stocks, foreign markets are likely to keep gaining ground. Commodities' upcycle could end this year.Leaving stocks, I continue to hold commodities, a position I added two years ago. But I expect we're in the eighth or ninth inning of the commodity cycle. Unlike all of the other markets I track, commodities possess no fundamental value. Since coffee doesn't offer investors dividends or earnings, there's nothing to discount to determine its current market value. Therefore, we need to rely more heavily on the economic environment for clues.
The real rate of Treasury bills is a valuable metric for commodities, as short-term investors have a choice: they can invest in real assets (commodities) or financial assets (Treasury bills) to protect their purchasing power over time. When T-bills yields are offered sufficiently above the rate of inflation, financial assets will adequately protect purchasing power. But, when T-bill rates are set below the rate of inflation, as they were at the end of 2001, real assets will do a better job.
From the fourth quarter of 2001 through September of this year, T-bill yields were below the rate of inflation and the Dow Jones AIG Commodity Index advanced more than 90%. By year end, however, short rates are likely to top inflation, creating an advantage for financial assets. Our bet: the commodity cycle will end at the close of 2005. There is no ETF that tracks the Dow Jones AIG Index, but the Pimco CommodityRealReturn Strategy Fund (PCRDX), which combines inflation-indexed Treasuries and derivatives, is a decent proxy.
Investors can hold expensive assets as long as their value keeps growing. The minute a market loses momentum, however, it's time to pare your position. Think of a market cycle as a clock, where six o'clock is the bottom and 12 o'clock is the peak. Using metrics will help you get in at 7:00 and out at 1:00.
swing man,
Thanks for the tip on Quicksilver. I'm putting it on my watch list.
I think you might get it lower between 31.50 and 35.25. It's not oversold yet.
$NAMO followed up with a sell signal. NAMO closed inside the upper Bollinger Band from riding the band up and RSI closed down. Typically, this set up is profitable from the short side. Time will tell...
W@G2 QQQQ 11/09/05 for a 11/11/05 close
39.40 frenchee
TTT--7 Nov 05
Conflicting Indications Make For An Indecisive, Choppy Pattern
On Friday, stock prices finished mixed in indecisive, narrow-range trading on lighter volume. Strong seasonals, reports of past earnings, and merger news have been offsetting a deteriorating longer-term outlook for the economy and stock prices. The market could continue in an indecisive choppy pattern for a while longer. Bond prices have been going down fairly steadily since 8/31/05 and are at their lowest price levels since 3/28/03. This means that interest rates are making new 7-month highs. This trend is bearish for both bonds and stocks. With the Fed apparently much more concerned about accelerating inflation than about the economy, the trend toward rising interest rates seems likely to continue.
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 7 Nov 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) Sell C Fund if SPY is < $121.35. Current portfolio allocation is 25%.
I Fund (EAFE Index) Sell I Fund if EFA is < $56.98. Current portfolio allocation is 25%.
S Fund (Wilshire 4500 Index) Sell S Fund if $EMW or DWCP is < $527.09. Current portfolio allocation is 50%.
G Fund (Money Market) Current portfolio allocation is nil.
swing man,
Just established a short on qqqq @ 40 with a stop of 40.80. Hoping for regession to the mean relative to the q's 21-day SMA.
Thanks bob3--the link was excellent reading...
AnderL,
Appreciate the analysis and forecast. You are most likely correct...
***PBW*** Update
Current target $16.65
OT: The blood of capitalism -- oil
Richard Russell
Dow Theory Letters
November 2nd, 2005
Extracted from the November 1st, 2005 edition of Richard's Remarks
Next, what about the blood of capitalism -- oil? I just received a report from my old friend, Charlie Maxwell (Maxwell@Weeden). Charles is one of the top, of not THE top, oil analyst in the nation. Here are some of Charlie's latest comments.
"Today, we are in a new period of tightening oil supplies along with correspondingly-high oil prices. Our situation is now seen to have its principle origin in geologic realities that have been only recently recognized. This 'energy crisis' may not go away in a year or even in five years. Perhaps not in my lifetime. Crude oil is more difficult and more costly to find every year because easy-to-access oil has already been exploited. Demand around the world keeps rising, some 1.5% to 2.5% per year. We are using 31 billion barrels annually now, and finding 8-10 billion barrels at the most.
This is the old crisis story -- made permanent. We are in a new era, all right, and I project that one will support a continued average WTI (West Texas Intermediate)crude oil price above $50 per barrel going out in time. And I anticipate prices will move (generally) higher until we reach Hubbert's Peak perhaps in the 2015-2020 period.
"Closer to home, what should we expect as a pattern of oil price over the next five years? It can only be a guess. My rounded WTI numbers are set out below. A = average, E = estimate.
2003A $31
2004A $41
2005E $57.
2006E $54.
2006E $54.
2007E $56
2008E $62
2009E $68.
2010E $75.
"No forecaster can be confident about figures as exact as the ones displayed above. But they are presented, nonetheless, because they constitute what I consider to be a likely trend. I assume that by 2015, WTI oil will be in the $130-160 range. Oil will be too valuable by then to be consumed in many of the common tasks that it is called on to perform today.
"I see energy conservation as not just a way out of our energy dilemma, but at least for the next 20 years, the main way out. No other "source" of energy is proportionately large enough or flexible enough to handle the size of our problem. . . . Crude oil is our largest source and about 39% of our country's energy needs are met through oil products derived from it."
Buy CCJ!
TTT--4 Nov 05
Hawkish Fed Bearish For Stocks And Bonds
On Thursday, the C Fund gapped higher but appears to be reversing again, continuing its choppy pattern. Comments by Fed Chairman Alan Greenspan seemed to reinforce the perception that the Fed is much more concerned about accelerating inflation than about stimulating the economy. Bond prices have been going down fairly steadily since 8/31/05 and are at their lowest price levels since 3/30/03. This means that interest rates are making new 7-month highs while the F Fund is making new 7-month lows. This trend is Bearish for both bonds and stocks. As a result, I'm keeping stops tight if this recent short-term trend reverses.
Current Action Limits & Allocation Percentages:
F Fund (Long-term Treasury Bond Index) No buy possible on 4 Nov 05. Current portfolio allocation is nil.
C Fund (S&P 500 Index) Sell C Fund if SPY is < $120.89. Current portfolio allocation is 25%.
I Fund (EAFE Index) Sell I Fund if EFA is < $56.82. Current portfolio allocation is 25%.
S Fund (Wilshire 4500 Index) Sell S Fund if $EMW or DWCP is < $523.51. Current portfolio allocation is 50%.
G Fund (Money Market) Current portfolio allocation is nil.
Thanks swing man!
Week 9: JAC