Sunday, October 16, 2005


Back from vacation in Southern California with family and friends, missing all the ugliness so typical of Sept./Oct. markets. For decades market lows have mostly occurred sometime in October, and although this may not be the final low of the year, several Indicators are at Pessimistic ( read Bullish) extremes - enough so to take a partial position for a year-end rally, with stops, hedges, etc.).Breadth figures, thanks to profit-taking by hedge funds,, and window dressing by mutual funds selling losers, has been ugly - last week the NYSE Adv./Decl. was nearly 1 to 4 with New Highs 1 to 10 vs. New Lows, a cathartic Climax. CBOE Equity put/call numbers (and IBD's graph of same) were 76 and off the charts, respectively. Although I am leery of small samplings often used by Technicians, when several seem to "nest" together, it gets my attention: the VIX hit 16 for the first time since this year's rally started in the April/May timeframe; the McClellan Oscillator bounced off a minus 75 low last week and the ratio-adjusted Summation went negative for the first time since April. The I.I. Bullish survey's Bears hit 29 for the first time since April and the AAII Bears crossed up over the Bulls 48 to 39, a very reliable signal. UBS and Univ. of Michigan Confidence numbers are way low. Rydex's Nova/Ursa ratio hasn't hit the 15 of last week for over a year, hitting 16 last Aug. and Oct. of '04 lows. Barron's new Panic/Euphoria Index hit -.59, lowest since June's -.65 ( it was -1.0 in May). So if we're not putting in a low in the next couple of weeks, we're at least within striking distance. Failing to make it unanimous are the Bullish percent numbers ( low, but still on a Sell signal) and mutual fund cash. However, if the housing market peaks out, we may see a rush into stocks like the rush out of them in 2000, going into low interest rate mortgages. Another small sampling - in 11 of 11 decades since the DJIA was born, the market had an up year in the 5th year. Can we please make it 12 of 12?

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