ContraryInvestor.com has published a very interesting commentary on inflation and the Consumer Price Index (CPI) in its March 1 issue. You can view their article at http://www.safehaven.com/article-2672.htm. We are living in an age when many kinds of financial derivatives are being used by the financial masters to serve their own profit and protection motives (at an ever-increasing rate, I may add). I fear that this has taken us to a brink of financial system collapse which will be exposed when the next "trigger" gets pulled by a financial institution failure or geopolitical event.
I believe that good things are happening in Iraq, Iran, Libya, Lebanon, Saudi Arabia and Syria. But it only takes a few whackos to tear down the fragile freedoms being built in the Muslim world. Because of the pace of change, the next trigger may come soon.
The Nasdaq 100 chart for the last six month period is eerily similar to that of the similar 2001/2002 period. I have also looked at the SPX/VIX ratio for that same period and find that that ratio also made a double top just before it began six months of dramatic sell-off. Will this year turn out to be a similar washout? It may, if we are coming to the end of the sweet spot in this business cycle. We cannot shift our business cycle bias to bearish until we get some more confirmation. The telltale sign will be if we fall substantially below the August 2004 lows in the next 2 months. (NDX =1300)
Our Trading Charts - What The Numbers Are Telling Us
The current signal is still on "SELL" so we have bought Rydex RYVNX fully in our trading account. This sell signal was given at the close on Jan. 7, 2005. All four of our indicators (Stoch./StochRSI/MACD/ROC) are still on sell. In addition, you can see that the 9x18 Moving Averages are about to do a bearish cross. When this happens in a short cycling market, typically, we need to get ready to "cycle" back the other way (buy-long signal) by going to cash for a short period until we get better definition on the next 3-5 week trend. The other possibility is that we are on the verge of a near-term "market phase shift" which might take us down to October 2004 lows of Dow 9700 or August lows of 1300 on the NDX. Let's just let the market tell us what it wants to do. Don't anticipate your indicators!
What Is The Current Sentiment?
Let's look at a couple of our Sentiment Charts to get some indication of where this market is currently positioned.
3 year NDX / INDU Ratio - Nasdaq 100 Leading Lower
This 3 year chart shows the NDX/INDU relative tech ratio. The Nasdaq tech has led us higher over the last three years, but now appears to be rolling over since the first of December 2004.
This is bearish and supports our sell signal.
4 Yr Ratio QQQQ / QQV Volatility
This chart shows the ratio of QQQQ to QQV (volatility) for four years. This ratio is very near an all-time high and appears to also be rolling over.
We will continue to watch this as this will tell us when the QQQQ speculators move from complacency to fear.
Material / Financial Sector Ratio - 3 Yr.
The Materials/Financial sector ratio chart is telling us that we are in an uptrend. This trend is fairly strong and is signaling inflation is coming.
This trend is good for gold, metals and commodities. Should the stock market tank at some point this year, we may see the big players jumping on the gold mining stocks BIG TIME ! I'm watching the XAU, HUI and NEM for an entry point.
Oooopps - Broker Dealers (XBD) are even weaker than the Nasdaq 100 !!!
Broker Dealer / NDX 100 Ratio - 6 Mo.
The Broker Dealer sector (XBD) has recovered this week relative to the NDX.
The fact that the NDX is weaker than the XBD is not a good sign and may be an indication of an early recession signal. We need to keep watching this one to see if the recent 3 month up trend continues.
Where Do We Go From Here and How To Listen For the Next Signal?
Listener Summary for the Week
We are looking for a major change of direction in the next few days. Our "Sell" signal on the NDX has strengthened this week, but we might yet get a counter-trend rally that causes us to move temporarily to cash. Until we get some better clarity of which way the market wants to go, I suggest that the "sell" signal is the best place to hide.
The NDX continues to weaken relative to the Dow Industrials. If this relative underperformance continues, at some point, the NDX will drag down the Dow 30 and it will no longer be a temporary haven for money which must be in the market.
Friday's (March 4) jobs numbers may give the markets something else to worry about if it does not meet expectations.
The VIX has moved off of its major double-bottom low at 10.90 and is now reflecting the fact that option traders are back to buying some protective puts. Watch it.
The Market is whispering now, but may be getting ready to shout. Fasten your seatbelts. It may be a wild year,&. similar to 2002 ???
Are you listening?
The Market Listener Indicators
|Week Ending||Slo. Stoch.||StochRSI||MACD||ROC||Signal|
|Thurs Mar 3||Sell||Sell||Sell||Sell+||Sell|
|Feb 25, 2005||Sell||Sell||Sell||Sell||Sell|
|Feb 18, 2005||Sell||Sell||Sell||Sell||Sell|
|Feb 11, 2005||Sell||Sell||Sell||Sell||Sell|
|Feb 04, 2005||Sell||Cash||Sell||Sell||Cash|
|Jan 28, 2005||Sell||Sell||Sell||Sell||Sell|
|Jan 21, 2005||Sell||Sell||Buy-||Sell||Sell|
|Jan 14, 2005||Sell||Sell||Buy||Sell||Sell|
|Jan 07, 2005||Buy||Sell||Buy||Sell||Sell|
|Dec 31, 2004||Buy||Buy||Buy||Sell||Cash|
|Dec 23, 2004||Buy||Buy||Buy||Buy-||Buy|
|Dec 17, 2004||Buy||Buy||Buy||Buy||Buy|
|Dec 10, 2004||Buy||Buy||Buy||Buy||Buy|
|Dec 03, 2004||Buy||Buy||Buy||Buy||Buy|
|Nov 26, 2004||Buy||Buy||Buy||Buy-||Buy|
|Nov 19, 2004||Buy||Buy||Buy||Buy||Buy|
|Nov 12, 2004||Buy||Buy||Buy||Buy||Buy|
|Nov 05, 2004||Buy||Buy||Buy||Buy||Buy|
|Oct 29, 2004||Buy||Buy||Buy||Buy||Buy|
|Oct 22, 2004||Buy||Buy||Buy||Buy-||Buy|
|Oct 15, 2004||Buy||Buy||Buy||Buy-||Buy|
|Oct 08, 2004||Buy||Buy||Sell+||Buy||Buy|
|Oct 01, 2004||Buy||Buy||Sell+||Buy||Buy|
|Sep 24, 2004||Buy||Buy||Sell+||Buy-||Buy|
|Sep 17, 2004||Buy||Buy||Sell+||Buy||Buy|
|Sep 10, 2004||Buy||Buy||Sell||Buy||Buy|
|Sep 03, 2004||Buy||Buy||Sell||Sell+||Buy|
|Aug 27, 2004||Buy||Buy||Sell||Sell||Buy|
|Aug 20, 2004||Sell||Buy||Sell||Sell+||Cash|
|Aug 13, 2004||Sell||Sell||Sell||Sell||Sell|
|Aug 06, 2004||Sell||Sell||Sell||Sell||Sell|
|Jul 30, 2004||Sell||Buy||Sell||Sell+||Cash|
|Jul 23, 2004||Sell||Sell||Sell||Sell||Sell|
|Jul 16, 2004||Sell||Sell||Sell||Sell||Sell|
Listen To What He Says
From Luke 9:23-26 (NKJV):
Then He said to them all, "If anyone desires to come after Me, let him deny himself, and take up his cross daily, and follow Me. "For whoever desires to save his life will lose it, but whoever loses his life for My sake will save it. "For what profit is it to a man if he gains the whole world, and is himself destroyed or lost?
"For whoever is ashamed of Me and My words, of him the Son of Man will be ashamed when He comes in His own glory, and in His Father's, and of the holy angels."
I am still working on the Art of Listening, and hope that you are also!
P.S. - You may freely distribute this email or report to anyone who might like to have it. If you have any questions, or would like to be added to my subscriber list (which is free for now), you can email me at firstname.lastname@example.org.
Links: Rydex Funds:
Stock Charts: www.StockCharts.com