THE ELEPHANT IN THE (CONVENTION) ROOM:

Even though the market seems brain dead the last few days of August, several surprising statistics are appearing: my cumulative NYSE Adv./Dec. total is at an all time high, although all markets have been in a Downtrend (lower highs and lows) since Jan. and Mar. And although there are some REITS, Closed-End Funds, etc. in the mix, most of these are on the AMEX, not NYSE. Leading New Highs are Banks and Finance stocks -REITs and CEFs, also a Bullish sign.
Also Bullish is the newsletter survey ratio, with the Investor's Intelligence Bulls down to 39.6 and the Bears up to 30.2 (Barron's Alan Abelson points out that these numbers were 38.9 in Oct.'02 and 34.8 in April '03, respectively). The VIX is at 14.7, a near term low, with its historic low at 8.8. Finally, the Rydex ratio is at a Bullish near term low of 17, a very accurate indicator recently.
The real fly in the ointment is that the esteemed Ned Davis has seen his indicators point to an imminent Bear market - hopefully we'll have a summer rally first!

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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THE ELEPHANT IN THE (CONVENTION) ROOM:

SENTIMENTAL JOURNEY

SENTIMENTAL JOURNEY: Ned Davis Research points out that since 1900 the second half of Election years are up double digits 81% of the time, with July/August being a good period for the market. Moving out, if Kerry looks strong, Sept./Oct. will be weak; if Bush is the favorite, Oct./Nov. will be positive for stocks.
This week's Sentiment standouts are the AAII survey with a tie at 34.9 for both Bulls and Bears after having crossed in previous weeks; the Public/Specialist shorting ratio hit a 5-year high of 2.57 and the Rydex Nova/Ursa low ratio of .16 are all Bullish for stocks. Near perfect over the past 3 years, highs of 50 to 70 have led to Tops; lows in the teens preceded Bottoms. With corporations, mutual funds and investors sitting on Cash, a strong rally could surprise many hedgers shorting ETFs bigtime (especially the SPY and XLF - finance Spider).

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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SENTIMENTAL JOURNEY

MEDAL ROUND -

For months now a unanimity of Talking Heads and Media Gurus have been touting favorite Industry Groups for this year as (GOLD) Energy, which might have just put in a double top, (SILVER) Healthcare, which has follwed the markets down, and (BRONZE) Cyclical stocks, which the revised XLY Spider exhibits heading for new lows. This action lends proof to the Contrarian theory, and Oil just might be following the runners-up into the dumpster after a double-tops in the OIH and XLE.
Exceptional Sentiment Indicators that are Bullish now are the CBOE put/call ratio at a high 83 (per Barron's), and the AAII Survey with still more Bears (40) than Bulls (38.8). At a '04 low is the Rydex Nova/Ursa ratio of .16 (Bullish) which has worked perfectly for high and low turning points. Also Bullish is the Public/NYSE Specialist ratio near a 5-yr. high of 2.46 as well as the multi-year high DJIA Dividend Yield of 3.3%, a great reason for buying, especially with the new tax advantage.

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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MEDAL ROUND -

DOWN Jones Averages

The DOWN Jones Average fell @ 3% last week, the NAZ 6% - that is the Sell signal that PNFers A.W.Cohen, Michael Burke and Tom Dorsey use ( 2-pt.box; 3-box reversal) for their benchmark. If it is a Wall of Worry that the Bulls need it is definitely there: imminent terrorism with the Republican Convention, Olympics, and the Election on the horizon. The Economy is at least taking a hiatus. Seasonally weak Sept. and Oct. loom just ahead, and the financial pages still look like the police blotter. Bulls can also point to a 17-year high in the Public/Specialist shorting ratio at 2.46; a recent record of 3.18% Dividend Yield on the DJIA (now tax-enhanced); and an IBD put/call ratio of 1.03 (83 on the CBOE Equity ratio). More importantly, the AAII Bull/Bear ratio CROSSED, with 31 vs. 33.8 numbers showing excess pessimism.
Using a timing strategy of 3 important market forces: Trend, Valuation and Sentiment, the 7-month Trading Range has finally been violated to the downside, which, unless it is a fakeout (Wyckoff Spring), would find no appreciable Support until the 9300s or 9000. The NAZ looks even weaker. Valuation is settling into the neutral range of high teens p/es ( a pendulum-swing washout first would be more traditional), and the Fed model of 10-year Treasuries actually points to undervalued stocks. Sentiment is mostly in the neutral range with only the few (above) extremes. Tricky times - it is best to use filters ( 3-day closes) for confirmations, and stops to manage the Volatility.

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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DOWN Jones Averages

ORANGE ALERT

Orange Alert: After a 10% decline on the Nasdaq (5% on the SPX) in July, one would expect more of a retracement rally ( so far less than .3%), even if it is August. Most Sentiment Indicators are resting comfortably in Neutral except for a crossing of the AAII Bulls/Bears at 34 & 36, respectively. This is usually a strong signal, even if it is only 1 Indicator. Even the ratio-adjusted McClellan Oscillator is exactly at zero. Perhaps the heightened Terror alert on the East Coast has frozen everybody's assets, providing a potential summer rally. Hardly boring, August will bring us the FOMC meeting on the 10th, the Olympics on the 13th and the Republican Convention in New York at the end of the month.
A Leuthold Group survey show the following effects of 6 interest rate increases on the market, in percentage.
Rate increase 7 days 22 days 126 days 252 days
1st .57% .76% 3.91% 9.87%
2nd .05 .96 3.93 .45
3rd .23 -.36 3.46 .72
4th .33 1.95 -1.37 -2.79
5th -1.44 -1.12 -5.38 -2.86
6th .13 -1.92 -5.20 -6.98

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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ORANGE ALERT

DAY OF THE DEMOS

Most Indicators are still coming down off Bullish/Contrary readings, so the downtrend is probably not quite over for the market as a whole. Exceptions are the VIX, which soared over 15% last week to 16.5 -@ 20 was the previous recent level for tops which provoked serious rallies both in mid-March and mid-May. Also, the Public to NYSE Specialist ratio jumped to 2.52,a 17-year high which, if you do the math, was 1987, a year of Infamy. The Dow dividend is at a recent high of 3.09%, also Bullish for stocks; and the SPX stocks are sitting on a high $1/2T of CASH. Some feel that spending this money ( on cash dividends, etc.)would lower credit ratings of the companies, hurting stocks. The IBD cites the SPX p/e ratio (operating earnings) at 17.7, just like March of '03. The 70-year average is 15.6, just below current.
Also hurting our markets are the lessening of Money Supply and the slowdown in Asian (especially Japan) investment here in recent months, probably due to similar worries of the Election, terrorism and interest rate creep.

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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DAY OF THE DEMOS

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: brentleonard.com 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 Amazon.com: Zero (IN)Tolerance

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Dow Doldrums