"The English masses are lovable: they are kind, decent, tolerant, practical and not stupid. The tragedy is that they are too many of them, and that they are aimless, having outgrown the servile functions for which they were encouraged to multiply. One day these huge crowds will have to seize power because there will be nothing else for them to do, and yet they neither demand power nor are ready to make use of it; they will learn only to be bored in a new way." - Cyril Connolly 1903-1974, British Critic
Short term out look
The masses have jumped onto the bullish bandwagon a bit to fast and so we think that some sort of pull back is in the works, probably in the order of 300-500 points. This pull back will drive the fear of God into the new eager bulls and provide those who are willing to take a risk one last time to get on board before we kiss the 10k range good bye for several months.
|DJIA Median Guess||10315||10062||9942||9906||9950||10100||10000|
As you can see from the above table the jump from the low of 11% to the high of 53% in bullish sentiment in under a month represents an extreme move and so a pull back is in the works. What might happen is that the bulls might take the Dow past the February 11th, 2004 high just to flush out all the remaining bears. Every index has broken past its 52 week high, the only one left to accomplish this feat is the Dow.
|DJIA Median Guess||10419||10412||10500||10315||10062||9942|
If you look at the above numbers you will see that the suddenly the number of bulls have dropped but what is more interesting is that the number of neutral has jumped up significantly. Netural individuals are simply lost individuals; they don't know whether the market is going up or down and usually they tend to be seriously wounded bears. If we add the neutrals to the bears we see that 70% of individuals are either bearish or lost; this means that the market has a lot more upside potential in the longer run.
A closer look at Gold
We are going to put a small table below it should basically explain the strange feeling we have had all this time as far as Gold is concerned
|Symbol||DEC 2, 2003||Dec 3, 2004|
We would like to state up front now so that there is no mistake, we are not bearish on Gold. In fact we were strongly pounding the table on Gold from November 2002 to April 2003 and on Silver we pounded the Table until July 2003. However we do not think it's a good time to be taking new positions right now. If you look at the above table you will notice something strange, that most gold stocks are actually very far away from their highs despite the fact that Gold bullion has been hitting new highs on a daily basis for the last few weeks.
We advised our subscribers to sell 1/2 their positions last year around Nov 2003 and hold the remaining 1/2 until the very long term trend is broken; we are nowhere close to that point currently. We would have to dip below the 360 ranges before we came close to breaking the long term up trend line. If you look at the above table for the most part it was a wise decision to take partial profits last year in the November - December time period; Gold bullion is really the only place where we can see some gains. ?We will only take another new position in Gold after Gold bullion experiences a nice correction. We feel that currently Gold bullion is in the last hyper stages (short and intermediate term outlooks but not long term) and that a correction is not to far off. However this correction should be viewed as buying opportunity because the next up move will be even stronger.
We are not bearish on Gold and never were (we have never recommended shorting this sector) but feel that a decent correction is close at hand. This correction/consolidation could last several months but will actually provide an ideal opportunity to take new positions. One can never predict the exit top or bottom with Gold but what can easily be seen is topping and bottoming action. From roughly 2002 to early 2003 Gold was bottoming and it was good time to take new positions; right now it appears to be topping and so taking new positions at these levels does not seem to be wise decision, especially given the fact that there are so many other sectors that are oversold (some of these sectors are in the commodities markets).
We did an extensive analysis on the Dollar, palladium and gold several months ago. One of the scenarios we envisioned was that after initially taking off, the dollar could spike to new lows and it could test the 80 ranges before taking off. If you would like to read this analysis again, you can do so here. The Dollar is still locked in a down trend, we played it well the first time going long in the 84 range and selling out close to 90; it then proceeded to correct very hard. The current action in the dollar is signaling that most of this selling is forced selling, people are selling out of pure fear and we are very close to seeing a pure fear based selling frenzy which will mark a 6-12 month bottom for the dollar. Don't mistake our views we are not very long term bullish on the dollar and just see this rally as a very strong bear rally. After this rally is over, the dollar will carry on plunging but this rally will be strong enough to make those who are on sitting on the wrong side of this trade feel some serious pain. Just remember nothing trades in one direction forever, some sort of strong counter reaction is to be expected before the long term trend resumes its course.
Palladium represents a unique long term buying opportunity. The only problem with Palladium is that one has to know when to jump in and when to jump out as the moves are very fast and furious. Take a look at the above chart; the real explosive move up took place between 1999 and 2000, then palladium plunged and corrected for almost 4 years. Certain stocks in this sector will also do very well, though one has to be very careful about taking positions in those small bulletin board stocks.
Platinum Leads Gold and it appears to have already started to correct; it has broken through its 4th and 3rd up trend lines. A break below the 2nd up trend line could result in a fast and violent move downwards to the 550-600 ranges. Platinum took off before Gold and it now appears to be correcting before Gold bullion. This further reinforces the view that Gold bullion is close to experiencing some sort of correction in the near future. Once again both the correction in Platinum and Gold bullion should be viewed a buying opportunities and not as signs to dump ones holding in these sectors. We could momentarily trade over 900 just to terrify the early shorts into closing out their positions before a 3-6 month correction takes hold.
Sectors that we think will benefit in the next 6-12 months
The Oil sector is currently experiencing a minor correction, this correction could in turn into a 1-4 month consolidation; therefore right now its not a great time to be taking new positions except in certain key stocks. If you are familiar with basic trend analysis, you can look for stocks that have just broken out and therefore are not to far away from their main trend lines; use 1-2 year charts. Once this correction/consolidation is over, watch many of these oil stocks explode to new highs.
The biotech sector should see some really great gains. If you look at IBB which is the biotech ETF, you will see that it has broken it's down trend line and has established a new up trend line. Taking positions in key small cap biotech's could be very profitable. Again simply perform a sector scan and look for those stocks that have just broken their down trend lines and established new up trend lines. The Nano tech sector will also do rather well for the next 6-12 months.
It's hard to say just how long the correction will last once it begins, but as we stated before any serious pull backs should be viewed as buying opportunities. The dollar has simply been smashed to pieces and has dropped rather to fast; fundamentally the dollar is dead but we all know that there are times when the markets simply ignore fundamentals. We believe that the dollar will experience a rather strong bear market rally and the amount Gold bullion corrects will depend on how strong this rally will be. If you are versed with TA and have a working knowledge of trend analysis then you will be able to time your entry pretty well when this correction ends. Under no circumstances should one sell their entire Gold position at most one should take some profits off the table which is the prudent thing to do with any investment.
ETF's that look Interesting
We are only going to list some ETF's today. We believe that IBB and PPH should do very well over the next few months.