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Opening Whisper - Are You Listening?

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
* Note - Our Newsletter is published on Thursday eveningsso we make an attempt to "predict" the signal at the end of Friday. You shouldnot base your trading on this or any prediction, but I can trade 10 minutes priorto the close on Fridays (or other days during the week) when I see that one ormore of the signal indicators have changed signals. This is particularly importantif I am going to a CASH position in order to preserve capital. The above tableshows the results of the WEEKLY - FRIDAY SIGNALS with the exception of the latestweek, which only shows the END-OF-DAY THURSDAY SIGNAL POSITIONS. The latest signal positionmay change in next week's newsletter due to a dramatic move on Friday after theNewsletter is issued.

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 gmiller27@austin.rr.com.

Links: Rydex Funds: www.RydexFunds.com
Stock Charts: www.StockCharts.com

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