Editorial
As we alluded to the possibility last week, the past five days of stock market action were characterized by see saw trading. In fact the Nasdaq 100 Index showed the greatest variance by declining 1.02%. Meanwhile the Russell 2000 Index inched lower by 0.07% and the S&P 500 Index actually climbed a meager 0.22%.
- 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 meandered throughout the week. However, by Friday's close had not changed to any significant degree to last week's finish. In fact, our Primary Trend ended trade on Friday once more engulfed in Bullish Mode. We had anticipated this type of action going into the open of trade on Monday morning. Moreover, one can take comfort that on each attempt by the Bears to push the market lower, the Bulls pushed back with equal intensity throughout the week to thwart off any significant decline.
Our Sentiment Indicator continued most of the week in Bullish Mode and in fact finished there on Friday. However, as was the case last week, our Sentiment Indicator is becoming increasingly overly bullish. This type of behavior is often the precursor to a continuation of a consolidating market or worse yet a warning that a sudden surprise sell off is on the short-term horizon. At this point, we would hazard to guess, that a continuation of the consolidation that we saw this past week to be the more likely outcome. This assertion is based on the fact that we continue to witness relative strength in our Primary Trend Indicator. To wit, this Indicator is showing no signs of deterioration in the current market up-leg.
Our Interest Rate Indicator strengthened a tad this week. However, it continues to vacillate in Neutral Mode, and is showing no overt signs of turning decidedly Bullish over the near-term. However, the US Federal Reserve is set to meet this coming Tuesday and Wednesday to discuss short-term interest rates and issue their much anticipated accompanying Statement. If the Federal Reserve hint that they may have to loosen monetary policy sometime in the first quarter of 2007 the Bond Market should rally strongly. Conversely, and this is what we anticipate, the Federal Reserve may, once again, reaffirm it's primary concern at this point in the business cycle to one that is vigilant against the possibility of rising inflationary pressures. This, we would suggest, would hamper any possible rally in the Bond Market and may in fact cause a short-term decline there.
Our Valuation Indicator closed again this past Friday in Bearish Mode. We are not unhappy with this circumstance as it portrays a stock market with a strong underpinning bid. This is verified by the fact that the S&P 500 Index could only breach the 1360 pt mark on one day during the past five day market stretch. While a Bullish Valuation Mode reading is most often a welcome happenstance for those underinvested in equities, perversely, for those already fully invested, Valuation Indicator readings consistently in Bearish Mode coupled with an Interest Rate Indicator Bullish Mode reading is often a tonic for an outright raging Bull Market.
In conclusion this week, we would anticipate that we should not be surprised by another week of back and filling in the three stock indices we cover. However, if the Federal Reserve surprises and issues a "dovish" stance on short term interest rates, the Bond Market may explode higher, and in turn, pull the stock market up for the ride. Corporate Earnings for the fiscal 3rd quarter continue to pour in and are surprisingly strong. In fact, with about a third of the Company's in S&P 500 Index having already reported their earnings for the quarter, fully 74% have reported above estimates, 16% have matched and just 10% have missed their targets. Moreover, the average earnings year over year growth rate has jumped an impressive 16%. So much for the Bear's low single digit forecast assertions some months ago.
We wish you continued good luck with your investments next week.
Sincerely,
The TimingCrystal Team
