TimingCrystal

[teabull]

Editorial

In a joyous sequel to last week's strong stock market action, this week's stock market, at least on the surface, proved more then the most ardent Bear could handle. With the Bulls fully in control, the three major Indices we cover continued to gather strength and march ever higher. In fact, the Nasdaq 100 Index jumped 2.51%. This was even outdone by the Russell 2000 Index that sprang forward 3.09%. And, although lagging a tad, the large cap S&P 500 still garnered another 1.19% to its credit.

- Our Primary Trend Indicator is Bullish.
- Our Sentiment Indicator is Bullish.
- Our Interest Rate Indicator is Neutral.
- Our Valuation Indicator is Bearish.

Our Primary Trend Indicator as one would expect, strengthened throughout the week. Our Primary Trend Indicator measures the stock market's overriding directional trend. In fact, it is not really very useful as a forecasting tool. This is primarily because it is a reactive rather then a proactive Indicator. However, it is still extremely effective in helping us detect in which direction the stock market is trending. Importantly in investing, the trend is your friend. Therefore, we want to be invested as early as possible in the direction that Institutional money is flowing. Currently, this Indictor is suggesting that not only are Institutions buying the market, but, in fact, private investors are beginning to warm up to idea that we may be in the early innings of new bull up leg.

Our Sentiment Indicator is currently situated in Bullish Mode. In fact, it is verging on being overly Bullish. You may ask; if this Indicator is so bullish, why shouldn't the stock market put in another stellar gain next week? The simple answer is that just as the general investing populace becomes convinced that a market is going to either climb to the moon, or conversely, crash into smithereens, the stock market does not oblige and quickly moves in the opposite direction. This is not to say that the current Bullish Trend will not continue. Rather, we would suggest that the market is setting itself up for either a swift, short sell off or an extended period of consolidation.

Our Interest Rate Indicator continued to worsen throughout the week as stronger then anticipated US domestic economic reports were released. However, we would assert that the action in the Bond pits was one that was stimulated by the need for profit taking after some heady gains garnered there over the past two months. We believe this rather then something that foreshadows a more sustained decline in prices and rise in yields. This is underscored by the most recent report issued by the Economic Cycle Research Institute on Friday. The report continued to point to a sluggish US economy going forward. This is welcome news for the bond market and we would suggest that with the US 30-year bond yielding 4.94% a steady bid may come into the debt market to support prices at around current levels. Provided, that the long bond's yield remains below 5.00%, the stock market should continue to offer Asset Allocation managers a solid investing alternative vis-à-vis. the bond market.

Our Valuation Indicator closed Friday, once again, in Bearish Mode. In fact, with the yield on the US 30-year Bond now approaching 5.00% the stock market is beginning to look much more expensive then it was just two weeks ago. However, provided that the debt market can stabilize next week, and stocks either pullback or consolidate around current levels for at least the next week or two, our Valuation Indicator has the chance to move to a more Neutral stance. Conversely, the stock market may continue to inch forward given the strength of our Primary Trend Indicator. If this comes to fruition, it could make the inevitable stock market pullback all the more painful.

In conclusion, you may get the stark impression that we are becoming increasingly uncomfortable with the substantial gains in the US Stock Indices over the course of the past two months. In fact, we are concerned that the pace and magnitude of the recent two month stretch cannot be sustained without a stock market pullback or extended period of consolidation taking place. Of course we would prefer the latter. That is, we would prefer that the stock market moves up and down in a tight range over the next week or two in an effort to eliminate the speculative juices that have been pouring into the market of late. Last week, we asserted that we felt the stock market was transitioning itself from a Value Investor supported market to one that was becoming increasingly driven ever higher by Momentum Investors. We believe this past weeks market action highlighted this possibility. However, these momentum types of markets are historically pronounced with strong pullbacks that are met with a "buy on the dip" mentality from those underinvested in equities.

We wish you continued good luck with your investments next week.

Sincerely,

The TimingCrystal Team

http://www.timingcrystal.com