Monday, October 24, 2005


For a Contrarian, an ascending market requires a "Wall of Worry" so that the smart money gets in early, while the later adopters (mutual funds, retail investors) finally ride the momentum wave trying to catch the last 10%. Last week's RALLYTIME column opined that there was enough negative Sentiment around to stop the downturn - at least temporarily. One "Brick" in the wall is that there was no Selling Climax on large Volume. Other bricks include reports that although foreign investors (85% of them private) and U.S. money managers are repatriating money back to the U.S., possibly because of a rising dollar due to rising rates. Unfortunately, with the American stock market ranked 21 out of 35 in value, almost all of this money is reportedly going into BONDS - Corporate, Treasury and Agency.Sans a Selling Climax, the coming weeks ( usually the best of the year) may just "limp in" - as they say on the World Poker Tour - making for a positive close in this 5th year of the decade. Here are what my indicators are saying: The CBOE Equity put/call ratio is at a high 70 with the VIX on Friday measuring 16, up over a point. The McClellan Oscillator is -17, but the Summation is quite low at -560, previous lows this past June and August bode for good rallies within a few weeks. The Bullish per cent at 50, again is not at an extreme nadir, but is at a previous Resistance, or nesting point. Surveys of newsletters remain negative as far as the complacency Bulls vs. Bears. Both the UBS/Gallop poll of Investors' optimism and the Univ. of Michigan Confidence Index are at 5-year lows. Barron's Panic/Euphoria Index from Smith/Barney is at a low -.62; Specialist shorting vs. Public is at a 5-year high of 4.98. Finally, the Nasdaq vs. NYSE Volume does not reflect speculation and the VIX vs. VXN is unusually strong as OTC big caps mature.

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