Monday, July 19, 2004

Dow Doldrums

Both Barron's and CNBC's talking heads are commenting about the narrow Trading Range the market has been in most of this year - unfortunately, most of the Sentiment Indicators are likewise quiescent. With the leading Indices at or below support levels (previous horizontal and 200-day MAs), we can only hope for a possible Inverse Head-and-Shoulders bottom, although unusual in a Re-Accumulation phase near the top of a trend. So far Volume seems to confirm one, if we do not break below the Head of mid-May on increasing Volume.
One safeguard would be to buy shares of a Bear fund such as URPIX which has a 2:1 leverage, meaning you have to buy 1/2 as much to hedge your portfolio ( USPIX would be better to hedge Nasdaq stocks).
Of my favorite Sentiment Indicators, only the Public/Specialist shorting is near an extreme (effective in Jan and June this year, with the Public being right); IBD's Short Interest chart is near  the highs where it correctly forecast tops last Sept. and Jan.'04. Bullish signs include an overall IBD put/call ratio at 1 and a Bullish divergence of the Advance/Decline line improving with the market descending. Also enticing, the DJIA dividend yield is just below $3, a recent record. 

With record numbers of dollars coming out of Money Market Funds, mostly into the crowded trade of short term bonds, anyone who has a minimal knowledge of covered call options and/or an interest in hedging stock market exposure might want to check out: for an alternative strategy that is low-risk as well as highly rewarding. For those of you wanting more details and actual trading results, a new book is available for $14.95 at Zero (IN)Tolerance

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