Editorial
This week pleasantly surprised us to the upside in the Nasdaq 100, Russell 2000 and S&P 500 Indices. In fact the Nasdaq 100 Index jumped 1.96%, the Russell 2000, while lagging a smidge; trod forward 0.97% and the S&P 500 outdid this, moving up a solid 1.60%.
Our Primary Trend Indicator is Bullish.
Our Sentiment Indicator is Neutral.
Our Interest Rate Indicator is Bullish.
Our Valuation Indicator is Bearish.
Our Primary Trend Indicator finished Friday solidly in Bullish Mode. In fact, this Indicator is situated in very good position. By this we mean that it is not overly Bullish, where a significant market top can occur. This is not to guarantee that the market can't move down from current levels, only that the likelihood of such an occurrence is weakened. It is interesting to note that institutional money seems to streaming into the large cap sector, in particular. This is evidenced by the relative out performance of the S&P 500 when compared to the Russell 2000, which had been the year 2005's best performing Index, at least to the long side.
Our Sentiment Indicator continues to vacillate between Neutral and outright Bullish Mode. This Indicator finished Friday in a cautionary Neutral stance. We would interpret this as somewhat Bullish, as the market needs, at least a semblance of risk aversion from the majority of market players, to continue to move stocks higher in the weeks ahead.
Our Interest Rate Indicator remains firmly entrenched in Bullish Mode. With the yield on the US 30-year Government Bond still hovering around 4.75%, the US residential housing market has at least the opportunity to stabilize over the coming weeks. Low interest rates are also a boon for Corporate America, particularly the Telecom sector, which is highly sensitive to moves in the debt market. We note, that the prices paid component released in the Chicago Purchasing Managers Index ticked lower. This is welcome news as moderating inflationary pressures help to ensure interest rates do not ratchet up to levels that would choke off the broad US economy.
Our Valuation Indicator closed Friday in Bearish Mode. Based solely on this Indicator we would expect the stock market to at least consolidate its heady gains of late over the short-term. In fact, some market back and filling would be welcome news in order to work off more of the short term optimism that has gently re-entered the market. However, we must be cognizant of the fact that this Indicator must continually be analyzed in conjunction with the relative position of our Interest Rate Indicator. Therefore, we would assert that the stock market still offers a competitive investment alternative to the bond market.
In conclusion, we would caution investors that 3rd quarter Corporate Earnings warning season should enter into full force next week. This could well have the net effect of leaving equities struggling to build on this past week's stellar gains. Conversely, with each passing day that a significant earnings warning is absent, Institutional investors may well continue to gather confidence that Corporate Earnings can approach double digit figures for yet another quarter. We note that the Dow Jones Industrial average continues to flirt with an all time high. We would suggest that a convincing break through the 11,725 pt mark in this Index will only come with a correspondingly convincing positive 3rd quarter Corporate Earnings season. Should the general market get early, reinforcing, strong Corporate Earnings, coupled with a continued moderation in inflationary pressures, October may well follow on September's footsteps and produce solid gains in the three Stock Indices we cover.
We wish you continued good luck with your investments next week.
Sincerely,
The TimingCrystal Team
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