April 24, 2005 Indicant.Net Weekly Update

Volume 04, Issue 4 ISSN 1526 6516 © The Indicant Stock Market Report

Are We in the Early Stage of a 1970’s Market – Part X

Before embarking on the fundamentals that lend itself to a 1970’s market, a few things need to be mentioned. Some of the daily reports indicated the assignment of new MTI-RYS Trip Lines this weekend. That was an error. Trip Lines are assigned at the conclusion of seasonal mini-bear cycles. There are two mini-bear cycles each year. They are seasonal and constant each year. They are noted with the white segment on the charts. Click the following link to familiarize yourself with them.

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-01-DJIA-Curr.htm

One occurs in the spring and one occurs in late summer. The first mini-bear cycle started this past week. You will notice the pink line change to white in a week or two. The springtime mini-bear cycle only last four weeks. A 1900 investor would have lost over half of their investment if invested only in this particular four-week cycle. Of course, like all empirical stock market data, there are exceptions. If you took the MTI-RYS tour, you will notice there are periods when these white segments go up. To start the tour from 1900, using the DJIA as the benchmark, please click the following link.

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-0005-01-DJI.htm

These mini-bears do not automatically receive a bear signal within the MTI-RYS heuristic even though the 1900 investor would have lost money from investments made at this time of year. However, Trip Lines are always assigned at the conclusion of these constant seasonal mini-bear periods. The Trip Line from the current mini-bear cycle will be assigned in a few weeks.

The second major point is that last Thursday’s 200-point Dow bullish spurt was phony. The Dow gained over two-hundred points on that day. The daily report advised you last Thursday evening that this bullish bounce was phony. The exact quote from last Thursday evening’s report is as follows: “Today’s bullish expression is without substance. It is most likely emotional based. Such action has no follow-through. Although this is most likely not a sucker play, it has the same configurations as one. Do not bite. If the configurations suggest otherwise, you will be informed.”

The Dow closed down 60 points on Friday. Such response to a 200+-point gain reinforces the phony perspective. The Indicant has been suggesting that each bullish spurt since January 4 of this year has been without substance. The eight major indices are down by an average of 4.6% since the Quick-term Indicant signaled bear on January 4, 2005. The NASDAQ is down 7.1% since the Short-term Indicant signaled bear on January 11, 2005. This is the nature of a presidential post election year. That does not mean with 100% confidence the market will be down for the year, but historical performance lends credence to that prognosis. Remember, the Indicant does not forecast the market. It provides guidance on its bearish or bullish biases and direction.

You may have noticed the Dow is hovering just above its Trip Line on the MTI-RYS chart. If you did not notice that, take another look, by clicking the following link.

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-01-DJIA-Curr.htm

If the Dow falls below that Trip Line (in orange), the MTI-RYS model will signal bear. If that, in fact, does occur, the Mid-term Indicant will bias an increase in sell signals. Most of the other major indices are also hovering just above their respective Trip Lines. Your hold positions do not want all of them to fall below their respective Trip Lines.

Although the market was somewhat volatile last week with healthy bullish and bearish expressions, the market did finish up on the week. If you peruse the website, you will notice quite a few of the indices are near their Trip Lines. The market is resisting falling below them. Several of the indices are rather mature bulls. Some still possess the original bull signal to this particular bull cycle, which was born in March 2003. You will notice most of the mutual fund buy signals occurred then.

The Dow’s average MTI-RYS Bull legs last 32.1 weeks. Some of the major indices have been MTI-RYS Bulls for over 100-weeks. The longest bull cycle though, lasted 213-weeks back in the Dirty Thirties. Take a quick look at that particular bull by clicking the following links.

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-01-DJI-1932-1936.htm

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-01-DJI-1936-1940.htm

You will notice the longest MTI-RYS Bull was born on this same week, the first week of the mini-bear period, in 1933. It coincided with the conclusion of the recession at that time. Of course, many people were victimized by that recession for several years beyond its conclusion. Recessions end when the economy finds a bottom and enjoys increased economic activity. It can take several months and even years for it to return to its previous levels.

The Dow Jones Composite Index has been a bull since October 22, 2002. To get a feel for that bull leg, click the following link.

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-08-DJC-2000-2004.htm

To put it in current perspective, please click the following link. You can see it has fallen below the bullish red curve. It is rapidly approaching the Trip Line. It is 130-weeks old or about four times older than the average bull leg on the MTI-RYS model.

http://www.Indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-08-DJC-2000-2004.htm

Do not be surprised if the major indices fall below their respective Trip Lines this year. Do not be surprised if this year proves to be a typical bearish presidential-post-election-year. The fundamentals are in place to support that. Interest rates are rising. Inflation is threatening by virtue of rising fuel costs. Corporate earnings are not that impressive. Political leadership is lame duck and not sensitive to the pocket books of the populace. The Mid-term Election Year is next year and that is when the market typically finds bottom.

The market is putting up a good fight against bearish fundamentals. This bull has been tenacious at withstanding record high oil prices, which contrasts with the weakness of a 1970’s type of market, where it succumbed twice with violent bear legs. This bull has been tremendously strong and contrarian to the average investors’ views. Most did not get into the market in late 2002 with the Indicant’s first buying spree unfolded. Many of you did after avoiding the market, for the most part, between 2000 and late 2002.

The new variable that did not exist in the 1970’s is the sudden increase in capitalists. Although not mentioned often, it is something we should not forget. The long-term stock market trend is up. The long-term trend will accelerate as the new capitalists become more productive and innovative. The stock market loves hard working capitalist. It will reward them and their supporters (us investors) for their efforts.

The problem is the cycles around the trends. Deep bearish cycles will always occur from time to time as the market over-anticipates its optimism about the future. Also, political intervention hurts the market from time to time. The depth of bear cycles can occur at the wrong time for many individuals. For example, many retirees did not have the opportunity to enjoy their retirement in the thirties and early this century due to severe market crashes. This is why the Indicant exists. So, you can monitor market conditions with your personal frame of reference and needs.

You will notice quite a few mutual funds are approaching their respective bullish red curves after rising for the past two years. There have been a few sell signals the past several weeks for funds, but most are holding up well to the current Quick-term Bear.

Do not attempt to forecast the market. The various Indicant models will keep you posted on its intentions. It may twist and turn all year long with meandering behavior, but bias your thoughts and get use to the idea of converting your equities to cash in the next few weeks. If this turns out to be bad advice, nothing will be lost, as you will notice the market not falling below Trip Lines and not seeing a slew of sell signals. However, it does not hurt to prepare mentally for a rough road ahead even if it does not have to be executed.

Weekly Buy/Sell Summary

The Mid-term Indicant generated no buy signals and five sell signals for stocks and funds.

In addition to the sell signals, the Mid-term Indicant is avoiding 110 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 28.7% since the Mid-term Indicant signaled sell an average of 52.4 weeks ago.

There were only 25 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 26.5% since their respective sell signals an average of 39.3 weeks earlier. Two years ago, on April 25, 2003, the Mid-term Indicant was avoiding 34 stocks and funds that were down an average of 28.4% since their respective sell signals an average of 28.2 weeks earlier. There were six sell signals and nine buy signals two years ago.

Although there were no buy signals this weekend, the Mid-term Indicant is signaling hold for 205 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 94.7%. That annualizes to 57.6%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over two years ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 205 stocks and funds for an average of 85.4 weeks.

One year ago, the Mid-term Indicant was holding 265 stocks and funds out of the 296 tracked at that time for an average of 49.7 weeks. They were up 71.8% (annualized at 75.1%). The Mid-term Indicant was signaling hold for 247 stocks and funds two years ago on April 26, 2003. They were up by an average of 26.1% (annualized at 87.7%) since their respective buy signals an average of 15.5 weeks earlier.

Secular Market Blend

This section is a repeat from the last several months with a few modifications, reflecting recent secular influences. The current Mid-term Bull market and buying barrage in late 2002 followed the predicted market bottom in 2002. The mid-term presidential election year phenomenon was consistent with history. Even more impressive was how the market synchronized with near perfection to normal seasonality in 2002.

The Dow30 found bottom on October 9, 2002 at 7286.27. The NASDAQ found bottom on the same day at 1114.11. As earlier stated, the Indicant began its buying barrage in October – November 2002 just after the market bottomed from the severe 2000-2002 Bear Market.

Some of you recall the Short-term Indicant Bear for the NASDAQ was the longest in history. It even exceeded the Dow’s 1929-1932 Short-term Indicant Bear in breadth and approached it in magnitude. The good news is that the NASDAQ’s decline did not lead to a depression, which is a clear indication of how little influence the tech stocks have on the economy. Remember, real economic wealth is delivered in only three ways - manufacturing, agriculture, and extraction. All other industries are merely transfer agents of wealth. The only positive political influence on the economy is to undo its prior damage.

The remainder of this section, Secular Market Blend, is repeated, in part, from the past several months, but it does not hurt to reread it each week. As time progresses and conditions change, there will be modifications to it to maintain a balanced frame of reference.

You will notice many of the mutual fund buy signals occurred in March 2003. Many of you recall how the market did not synchronize with the heart and soul of bullish seasonality from November 2002 through February 2003. After the asynchronous behavior in the November 2002 rolling third of the year, the market turned bullish in March 2003 and again did not synchronize with normal seasonality. The Mid-term Indicant continued signaling bull during bearish seasonality during most of 2003. The market continued moving north during that time, contrary to historical standards. As stated in most of 2004, bearish expressions on a Mid-term basis between May and October 2004 should not be surprising. That is exactly what occurred.

The year, 2004, was consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule in 2004. However, the bullish expressions, which solidified in October 2004, synchronized beautifully with historical standards with a bullish outburst. The Quick-term Indicant accurately revealed an early start to bullish seasonality in late 2004. The early part of December was not consistent with the normal Santa Clause rally. However, bullish expressions resumed in late December 2004. Some quick-term attributes suggested there would be a Santa Clause rally and that is exactly what happened. The market is still elevated as a function of the typical fourth quarter rally in 2004. Unfortunately, the Quick-term Bear that plagues normal bullish seasonality for the second consecutive year is challenging this elevated position. Bullish seasonality ends on April 30, 2005.

Although not surprising, 2005 began with unfavorable performance to bullish seasonality standards. The Quick-term Indicant signaled bear in early January 2005. Bearish expressions followed. At first, these bearish expressions were mild, but eleven weeks ago, bearish behavior revealed greater aggression. However, that aggression was muted with a bullish response. That bullish response was weak but possessed enough bullish steam to thwart increasing aggressive bearish behavior. However, residual components of the prior Quick-term Bull and the constitution of the current Mid-term Bull are exhausted from having to thwart bearish ambition.

All the Quick-term attributes remain biased with bearish tendencies even though the bull demonstrated significant resistance to bearish ambition. That bullish resistance weakened the past seven weeks. As stated the past few weeks, there are some quick-term attributes shifting in support of even more bearish expressions on a quick-term basis.

The presidential post election year is, historically, the most bearish year on the four-year presidential election cycle. Like all things, there are exceptions to historical normalcy. As this year progresses, the various Indicant models will advise if 2005 is an exception or normal. So far, this year appears normal; that is bearish. The Short-term Indicant continues signaling bear. The Mid-term and Long-term Indicant models continue to signal bull. The short cycles are dominating now, but your longer-term hold positions still appear safe. Unfortunately, those safe positions are being seriously challenged right now.

http://www.indicant.net/Members/Updates/History-Seasonal/HS0001.htm

Make certain you read the entire pages on the above link. You will see there are exceptions.

Stop Loss Management

The Mid-term Indicant continues recommending a stop loss of 8% because of the Quick-term Bear. The Quick-term Indicant’s configuration is enough to outweigh bullish seasonality.

If you are up by 50% or more you may find it advantageous to set your stop-loss at 15% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use a 10% trailing stop loss or the yellow or green values you will find on the tables. If your stock or fund is above the bearish yellow curve and below the green curve, set your stop loss equal to the greater of the yellow curve and the trailing stop loss. If your stock or fund is above the green curve, set your stop loss at no less the value of the green curve or 10% trailing, whichever is greater. If your stock or fund is above the red curve and you bought at the Mid-term Buy signal, you should use the 10% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 20% trailing stop loss or the slow moving blue curve price. If you really enjoy holding the stock, keep a close eye on the management. Dilettante managers have a way of worming into the business. Watch closely for cronyism and lazy-hazy management dialog. Keep your eye on lavish spending and excessive concerns about social issues. Those types are more interested in burning your money for their pleasures, as opposed to making you money. High performing companies remain focused on honoring the investments made by their shareholders.

In a few instances, you will see a hold signal for a stock or fund that is down from its buy signal or below one of the above conditions for selling. If you are more of a trader than an investor, feel free to buy stocks and funds with those “bearish” attributes. They are configured for a possible rebound, while at the same time, it is important to set the stop losses mentioned in this report. Use the Quick-term Indicant as a guide in your decision-making processes. If the stock price is falling in a Quick-term Bear market, it is not advisable to buy.

Do not short on stocks if they are up from an avoid signal. Stocks go up more often than they go down. Stocks have a tendency to march to their own drumbeat when rising. Some stocks rise and continue to rise in the most severe of bear markets. Short selling opens up an opportunity for the snakes on Wall Street to take everything you own. They can cause a stock to rise at their whim and without any regard to fundamental reason. It usually does not make sense to bet against the sweat and toil of hard-working people. There are some instances where stocks rise during bear markets due to legitimate fundamental reasons.

Stock and Fund Update

Click the following link to see sorted performance of stocks and funds with hold/avoid signals. In the past, we included them in this email message but now display them on the website. This is available to the public, while the specific buy and sell transactions are limited to members only.

http://www.indicant.net/Non-Members/Performance/Top-Bot.htm

Summary of Stocks and Funds with Buy and Sell Signals This past Week

To maintain appropriate security, you can see the Mid-term Indicant "buy/sell" signals for stocks and funds for this week by clicking the following link. It is in the member’s only section.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/Buy-Sell%20Summary%20This%20Week.htm

As repeatedly stated, do not hold more than 10% of your investment resources in a single stock and do not hold more than 20% of your investment resources into a single mutual fund. Also, never fall in love with a stock or fund. Only love the value of your portfolio. Never love its contents. Management stupidity can wreak havoc on any stock or fund at any time.

All update information can be found from a single page at Indicant.Net. Click the below link to that page. You will need your login ID and password.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Summary.htm

Divergence versus Convergence

Mild bullish behavior last week generated a convergent movement in all sectors. That convergence may provide some solidification of a bottom support level for a short period. The good news is there was non-bearish convergence. Although this in no way suggests a bull market is on the horizon, it does suggest that the bull still has some fight in it.

Economic Conditions – Inflation, Currency, Interest Rates

The U.S. Dollar remained in the neutral zone for the second consecutive week. Strengthening configurations remain. That is a presidential post-election-year design in that it is generally unfavorable to the U.S. economy. These unfavorable and unpleasant tactics and strategies are, quite often, implemented in the presidential post-election-year. There is no political reason not do the unpleasant with no political careers at stake.

As stated last week, the relative position remains bullish for the U.S. Economy, it appears to be past a cyclical bottom. As long as Greenspan continues his “measured” increases in interest rates, recognize the cyclical bottom has past us. If Greenspan discontinues his rate hikes, expect the dollar to resume its bearish direction.

Also, as stated last week, commodity prices continue to weaken, but keep in mind they remain at stratospheric levels. They need to fall considerably to excite any potential equity market bull. It is encouraging to observe what is believed to be a current topping of commodities. If the political community continues its exercises along historical standards, commodity prices should be significantly down by the mid-term election year, 2006. The next major bull leg may not start until then.

http://www.indicant.net/Members/Updates/Economic/E03.htm

As stated the past six weeks and originating last August, current cyclical behavior appears adjusting to trends similar to that of the 1970’s. The cyclical rise in commodities is not passive. This cyclical movement has now converted to a trend. This trend provides bearish confidence in the stock market. This increasing bearish confidence can yield swift and significant punishment to the passive, long-term investor. As stated the past six weeks, the bull can contribute to the least-worse case of a meandering market. However, the strongest of bulls cannot standup to excessive inflation or deflation or extremely high interest rates. A bull traditionally does not survive a combination of inflation/interest rates in excess of 8/0%. Right now, the threat is inflation and its serious nature is growing.

http://www.indicant.net/Members/Updates/Economic/E01.htm

This paragraph remains unchanged from the past twenty weeks with a few modifications. Interest rates continue their rise, but still from historically low levels. Right now, the stock market is not being bothered by this unfavorable direction on a mid-term basis, while at the same time; equities will not take their suspicious eye off it. The bearish bias by the Quick-term Indicant may be an early indication of the market’s intolerance to these unfavorable trends. There is some point where equities will not like the “position” of interest rates if Greenspan continues his northward trek. It is not uncommon to over-cool the economy in post election years, which is now underway.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Econ.htm

Fear Metrics: Economics and Terrorism

Vanguard Gold and Precious Metals (VGPMX) - #19 was up 75.2% one-hundred and forty-eight weeks ago since the MTI buy signal in April 2001. One-hundred and forty-one weeks ago, it closed up 30.1%. Last week it closed up 130.7%, which is higher than the 75.9% reported 92-weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 32.0%, which is higher than 23.1% reported 92 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. The fund was up last week after moving significantly to the south two weeks ago.

Fidelity Gold, Fund #28, is up 2.7% since last week’s sell signal. The last buy/sell cycle was short-lived and resulted in a small loss. This fund should do well in the event this market turns into a 1970’s type of market. This fund has simply lacked the strength and consistency as its Vanguard cousin.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 174.1% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 63.9%. Vanguard Energy #18, VGENX, is up 90.8% (annualized at 43.7%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 59.8% (annualized at 42.8%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 67.5% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 39.5%.

All of the above funds moved sharply to the north last week after an equally sharp drop two weeks ago. Last week’s movement regained a 1970’s market configuration. The drop two weeks ago was influenced by a combination of profit taking and a perception that oil prices are at or near its peak.

The Gold/Silver Index is up 2.3% since the Mid-term Indicant signaled bear last weekend. This index also should express bullish behavior with a 1970’s influence on the market.

As repeatedly asked, is this the 1970’s all over again? This report has repeatedly stated the market does not look like the 1970’s again, but there are shifts in market configurations that appear biasing in favor of a 1970’s type of market. Increasing bullish expressions in the energy sector will lead to increased bearish expressions in general equities. This may continue in this presidential post election year. The political system is not sensitive to democratic desires during lame-duck presidencies and especially in the presidential post election year. Again, forecasting the market is okay for hallway conversations, but never provide your broker instructions based on a forecast. The Indicant will keep you posted on the market’s cyclical and trend inclinations.

These funds and the gold and silver index should convey the market’s perception of terrorism, inflation, and the economy. As long as they are in solid hold/bull positions, there remains some pessimism regarding the future of the economy. Until recently, the aforementioned sentence has held up. There is a point, though, where even these prices can fall with pessimism. That would be due to a severe and deep recession.

Quick-term and Short-term Indicant Update

The Quick-term Indicant Bear that was born on January 4, 2005 has now survived for over seventeen weeks. As stated the past several weeks, that is a long period of survival in the midst of the heart and soul of bullish seasonality. The market is more comfortable flirting with the bearish yellow curve.

As earlier stated the eight major indices are down an average of 4.7% since the Quick-term Indicant signaled bear on January 4, 2005. All eight indices are below their respective bearish yellow curves. As stated last week, that intensifies bearish bias.

Most quick-term bears do not survive this long during bullish seasonality. This quick-term bear was on the verge of expiration eleven weeks ago, but the potential burgeoning bull expended too much energy preventing complete bearish dominance. As stated for the past several weeks, there is simply not enough bullish energy for a new Quick-term Bull to dominate the market at this time.

Read the daily emails for more about the Quick-term Indicant. It is still a Quick-term Bear.

Please review the daily reports for more details regarding the Quick-term Indicant.

To view the Quick-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/QT.htm

The NYSE Indicant Volume Indicator is biased in support of continuing bearish expressions on a quick-term basis. The NASDAQ Indicant Volume Indicator discontinued its lethargic pattern and has now shifted in full bearish support with its dynamic move to the north.

http://www.indicant.net/Members/Updates/STI-Mkts/IVI.htm

The Dow is down 3.0% since the Short-term Indicant signaled bear on January 20, 2005. The NASDAQ is down 7.1% since the Short-term Indicant signaled bear on January 11, 2005. Both indices are Short-term Bears.

To view the Short-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/STI.htm

A link to the Dow’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20DJIA1995-2002.htm

A link to the NASDAQ’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20NAS1995-2002.htm

Perspectives

There has been quite a shift in this configuration. The major indices are now approaching their respective breakdown lines. Contact with them will support bearish behavior. All bullish spurts off the breakdown lines are short-lived and typically do not exceed the peak of the last bullish spurt. That is the nature of bear markets.

Read your daily emails.

To view the Perspective Charts (Quick-term Indicant, please click the following.

http://www.indicant.net/Members/Updates/STI-Mkts/QTP.htm

Refer to the daily reports for more information about the Quick-term Indicant.

For more information about the Quick-term Indicant, refer to last week’s daily reports.

Mid-term Indicant Positions - Major U.S. Market Indices

There were no new bull signals and no new bear signals.

The eight major indices are up an average of 22.2% since the Mid-term Indicant signaled bull an average of 78.8 weeks ago. That annualizes to 14.6%. The Dow Transports is the strongest bull. It is up 52.0% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 19.2% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 36.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 54.3% since the Mid-term Indicant bull signal on August 16, 2003. The utilities are holding up the strongest with these recent bearish onslaughts.

Only one of the eight major indices continue as a red bull, which is down from six, six weeks ago. It is the Dow Utilities, which has been the second strongest index since this Mid-term Bull was born. Just when the survivability of these bulls was in question several weeks ago, they responded with a bullish fervor in the face of the Quick-term Bear. That was a testament to the strength of this Mid-term Bull market. However, as stated the last few weeks, they are being threatened with the potential of rising inflation and interest rates.

Now, these Mid-term Bulls are being threatened again. It is unlikely they will survive this bearish onslaught with the impending bearish seasonal cycle. Rising interest rates, increased oil prices, and the presidential post election year is a powerful set of parameters that support bearish behavior and the death of these long-standing Mid-term Bulls.

To view Mid-term Indicant charts for U.S. Market Indices, please click the following link.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI-Mkts-US.htm

Mid-term Indicant Positions – MTI-RYS – Ten U.S. Indices

Mid-term Indicant Positions - International Markets

There were no new bull signals and no new bear signals.

Although there were no new bull signals, twenty-one of the twenty-two foreign indexes tracked by the Indicant are Mid-term Bulls. They are up an average of 105.9% since the Mid-term Indicant signaled bull an average of 109.7 weeks ago for an annualized gain of 50.2%, which is less than the 72.9% reported 96-weeks ago. International indices moved south last week for the second week in a row.

The lone bear is down 6.1% since the Mid-term Indicant signaled bear 15-weeks ago. It is the Chinese market that endures this bear signal. As you can see, the Chinese economy is pressured to continue cooling their economy. That may dampen the demand for natural resources on a cyclical basis, but the long-term trend is obvious.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI%20Intl%20Mkts.htm

April 17, 2005 Indicant.Net Weekly Update

Volume 04, Issue 3 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

Are We in the Early Stage of a 1970’s Market – Part IX

The petroleum sector fell the past three weeks. This typically induces a contrarian bullish movement in the overall market. Unfortunately, the current perception is that the economy is sickening. A sick economy dampens demand for all things, including petroleum=based products. Bearish convergence is an ominous configuration.

This is not an untypical perception (economic bearishness) during presidential post election years. The post election year is the most bearish on the four-year presidential election cycle. An 1832 stock market investor would have lost money for nearly 150-years if only invested in the presidential post election year. That changed in 1980 where the great bull legs of the 1980’s and 1990’s changed that. Nevertheless, though, the presidential post election year continues as the most bearish.

The political establishment recognizes their power retention requires economic health. People vote their pocket books. The only problem for the economy is that a lame duck, post election year political power base does not need any votes until 2008. Therefore, the political strategy is to set economic friendly policy with the appropriate lead times to ensure continuation of their political strength.

Do not be surprised with a weak economy this year and next. The reason the mid-term election year commonly finds a market bottom is the perception that political leaders are setting economic friendly policies in time for the next election. Economic friendly policies take some time before actually impacting the economy. The stock market figures all of that out and complicates matters with its six to nine month anticipation cycle.

As always stated, political leaders contribute absolutely nothing to the economy. They create nothing. They produce nothing. And their decisions do not require their own money. Their political campaigns contribute financial gain to advertisers, but remember economic wealth is not delivered by the advertising media. Economic wealth is driven only by manufacturing, agriculture, and extraction. All other business entities are mere transfer agents of that wealth.

The only positive impact politicians can contribute to the economy is to undo their prior damage. It is not uncommon to implement social causes during post election years. These social causes add burden to the real producers. More is taken from the producers and given to the non-producers. That is spreading the wealth. That dampens the stock market. Politicians do not like wealth redistribution from bullish stock markets as that would erode their importance. That is immoral, but politicians need votes. The producer is working hard and does not always have time to vote. Real producers are focused on creating their values. Some do it for money, while others are simply expressing their passion. They produce and earn. The politicians take from them.

The political establishment consists of some pretty weird people. They tend to think they are chosen. Actually, the non-producers choose them. The Pareto principle holds that 20% of the people do 80% of the work. That means 80% of the people do not do real work. Therein lies the principle of tyranny by the majority. The stock market senses that and thus the recent bearish expressions. Politicians and the stock market compete for serving the purpose of wealth redistribution. The stock market more or less knows it cannot participate in this in post election years.

OPEC leaders include many Ivy League educated economists. Rest assured they will react to recent news about a softening economy. They will accelerate production and dampen price increases. That will add some bullish fuel to the stock market. However, depending on the stability of their production and pricing strategy, that bullish fuel may only be enough for short bullish spurts in the face of bearish severity. That could disrupt the potential of a 1970’s type of market. The market last week looked more like a 1930’s type of market with everything going down. You would much prefer a 1970’s configuration, as there were plenty of alternative moneymaking opportunities.

The Indicant will be establishing trip lines next weekend for the MTI-RYS model. The bull and bear signal points will be reestablished, consistent with the algorithm that has been employed since 1900. The Indicant’s MTI-RYS model outperforms buy and hold by nearly 2000% since 1900 for the Dow. As you can see, the various major indices have approached the current trip line. If they fall below the current trip line next weekend, the MTI-RYS model will signal bear. That will bias an increasing number of sell signals, including the selling of some of your triple digit gains in stocks and funds. Do not be surprised at accelerated sell signals in the next few weeks.

However, do not be surprised if the Utilities do not incur a high level of sell signals. Those of you who bought on the buy signal are enjoying nice dividends on your investments in addition to your triple digit capital gains. Those dividend checks are hard to give up. That will dampen selling utility stocks provided the economy is just soft and not a major recession. The law of supply and demand should mitigate falling utility stocks since few will be willing to give up nice dividend yields. The Mid-term Indicant will signal sell if the configurations suggest as dividend yields are not in the model. However, that does not mean you should sell. Your decision should be based on your personal objectives. If the company is a good one with honest management, then a longer-term perspective should be considered.

The Mid-term Indicant signaled buy for ProFunds Ultra Short. If the market turns aggressively bearish that fund will perform well. In 2002, it made us 76% in one buy/sell cycle, while losing 30% in another one. So, it can be volatile. The market may bounce north this coming week and if so, that fund will go down. The Mid-term Indicant will not hesitate signaling sell next weekend if that occurs.

Weekly Buy/Sell Summary

The Mid-term Indicant generated one buy signal and 23 sell signals for stocks and funds.

In addition to the sell signals, the Mid-term Indicant is avoiding 88 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 31.5% since the Mid-term Indicant signaled sell an average of 53.0 weeks ago.

There were 19 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 28.7% since their respective sell signals an average of 42.5 weeks earlier. Two years ago, on April 12, 2003, the Mid-term Indicant was avoiding 42 stocks and funds that were down an average of 26.6% since their respective sell signals an average of 27.2 weeks earlier. There was one sell signals and 27 buy signals two years ago.

In addition to the buy signal this weekend, the Mid-term Indicant is signaling hold for 209 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 88.6%. That annualizes to 55.5%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over two years ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 209 stocks and funds for an average of 83.0 weeks.

One year ago, the Mid-term Indicant was holding 266 stocks and funds out of the 296 tracked at that time for an average of 49.9 weeks. They were up 69.6% (annualized at 74.0%). The Mid-term Indicant was signaling hold for 226 stocks and funds two years ago on April 19, 2003. They were up by an average of 25.5% (annualized at 84.1%) since their respective buy signals an average of 15.8 weeks earlier.

Secular Market Blend

This section is a repeat from the last several months with a few modifications, reflecting recent secular influences. The current Mid-term Bull market and buying barrage in late 2002 followed the predicted market bottom in 2002. The mid-term presidential election year phenomenon was consistent with history. Even more impressive was how the market synchronized with near perfection to normal seasonality in 2002.

The Dow30 found bottom on October 9, 2002 at 7286.27. The NASDAQ found bottom on the same day at 1114.11. As earlier stated, the Indicant began its buying barrage in October – November 2002 just after the market bottomed from the severe 2000-2002 Bear Market.

Some of you recall the Short-term Indicant Bear for the NASDAQ was the longest in history. It even exceeded the Dow’s 1929-1932 Short-term Indicant Bear in breadth and approached it in magnitude. The good news is that the NASDAQ’s decline did not lead to a depression, which is a clear indication of how little influence the tech stocks have on the economy. Remember, real economic wealth is delivered in only three ways; manufacturing, agriculture, and extraction. All other industries are merely transfer agents of wealth. The only positive political influence on the economy is to undo its prior damage.

The remainder of this section, Secular Market Blend, is repeated, in part, from the past several months, but it does not hurt to reread it each week. As time progresses and conditions change, there will be modifications to it to maintain a balanced frame of reference.

You will notice many of the mutual fund buy signals occurred in March 2003. Many of you recall how the market did not synchronize with the heart and soul of bullish seasonality from November 2002 through February 2003. After the asynchronous behavior in the November 2002 rolling third of the year, the market turned bullish in March 2003 and again did not synchronize with normal seasonality. The Mid-term Indicant continued signaling bull during bearish seasonality during most of 2003. The market continued moving north during that time, contrary to historical standards. As stated in most of 2004, bearish expressions on a Mid-term basis between May and October 2004 should not be surprising. That is exactly what occurred.

The year, 2004, was consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule in 2004. However, the bullish expressions, which solidified in October 2004, synchronized beautifully with historical standards with a bullish outburst. The Quick-term Indicant accurately revealed an early start to bullish seasonality in late 2004. The early part of December was not consistent with the normal Santa Clause rally. However, bullish expressions resumed in late December 2004. Some quick-term attributes suggested there would be a Santa Clause rally and that is exactly what happened. The market is still elevated as a function of the typical fourth quarter rally in 2004. Unfortunately, the Quick-term Bear that plagues normal bullish seasonality for the second consecutive year is challenging this elevated position. Bullish seasonality ends on April 30, 2005.

Although not surprising, 2005 began with unfavorable performance to bullish seasonality standards. The Quick-term Indicant signaled bear in early January 2005. Bearish expressions followed. At first, these bearish expressions were mild, but ten weeks ago, bearish behavior revealed greater aggression. However, that aggression was muted with a bullish response. That bullish response was weak but possessed enough bullish steam to thwart increasing aggressive bearish behavior.

All the Quick-term attributes remain biased with bearish tendencies even though the bull demonstrated significant resistance to bearish ambition. That bullish resistance weakened the past six weeks. As stated the past few weeks, there are some quick-term attributes shifting in support of even more bearish expressions on a quick-term basis. The market endured its worst day in over two years last Friday.

The presidential post election year is, historically, the most bearish year on the four-year presidential election cycle. Like all things, there are exceptions to historical normalcy. As this year progresses, the various Indicant models will advise if 2005 is an exception or normal. So far, this year appears normal; that is bearish. The Short-term Indicant continues signaling bear. The Mid-term and Long-term Indicant models continue to signal bull. The short cycles are dominating now, but your longer-term hold positions still appear safe.

http://www.indicant.net/Members/Updates/History-Seasonal/HS0001.htm

Make certain you read the entire pages on the above link. You will see there are exceptions.

Stop Loss Management

The Mid-term Indicant continues recommending a stop loss of 8% because of the Quick-term Bear. The Quick-term Indicant’s configuration is enough to outweigh bullish seasonality.

If you are up by 50% or more you may find it advantageous to set your stop-loss at 15% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use a 10% trailing stop loss or the yellow or green values you will find on the tables. If your stock or fund is above the bearish yellow curve and below the green curve, set your stop loss equal to the greater of the yellow curve and the trailing stop loss. If your stock or fund is above the green curve, set your stop loss at no less the value of the green curve or 10% trailing, whichever is greater. If your stock or fund is above the red curve and you bought at the Mid-term Buy signal, you should use the 10% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 20% trailing stop loss or the slow moving blue curve price. If you really enjoy holding the stock, keep a close eye on the management. Dilettante managers have a way of worming into the business. Watch closely for cronyism and lazy-hazy management dialog. Keep your eye on lavish spending and excessive concerns about social issues. Those types are more interested in burning your money for their pleasures, as opposed to making you money. High performing companies remain focused on honoring the investments made by their shareholders.

In a few instances, you will see a hold signal for a stock or fund that is down from its buy signal or below one of the above conditions for selling. If you are more of a trader than an investor, feel free to buy stocks and funds with those “bearish” attributes. They are configured for a possible rebound, while at the same time, it is important to set the stop losses mentioned in this report. Use the Quick-term Indicant as a guide in your decision-making processes. If the stock price is falling in a Quick-term Bear market, it is not advisable to buy.

Do not short on stocks if they are up from an avoid signal. Stocks go up more often than they go down. Stocks have a tendency to march to their own drumbeat when rising. Some stocks rise and continue to rise in the most severe of bear markets. Short selling opens up an opportunity for the snakes on Wall Street to take everything you own. They can cause a stock to rise at their whim and without any regard to fundamental reason. It usually does not make sense to bet against the sweat and toil of hard-working people. There are some instances where stocks rise during bear markets due to legitimate fundamental reasons.

Stock and Fund Update

Click the following link to see sorted performance of stocks and funds with hold/avoid signals. In the past, we included them in this email message but now display them on the website. This is available to the public, while the specific buy and sell transactions are limited to members only.

http://www.indicant.net/Non-Members/Performance/Top-Bot.htm

Summary of Stocks and Funds with Buy and Sell Signals This past Week

To maintain appropriate security, you can see the Mid-term Indicant "buy/sell" signals for stocks and funds for this week by clicking the following link. It is in the member’s only section.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/Buy-Sell%20Summary%20This%20Week.htm

As repeatedly stated, do not hold more than 10% of your investment resources in a single stock and do not hold more than 20% of your investment resources into a single mutual fund. Also, never fall in love with a stock or fund. Only love the value of your portfolio. Never love its contents. Management stupidity can wreak havoc on any stock or fund at any time.

All update information can be found from a single page at Indicant.Net. Click the below link to that page. You will need your login ID and password.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Summary.htm

Divergence versus Convergence

As stated the past six weeks, the market continues expressing a bearish surge of convergence. That is increasing bearish intensity. If this convergent behavior continues, the bear will accelerate its influence on the market’s direction.

As stated the past six weeks, your “new money” behavior should be consistent with a bearish bias, even though the Mid-term and Long-term Indicant’s continue to signal bull.

Economic Conditions – Inflation, Currency, Interest Rates

The U.S. Dollar moved to neutral zones with some early signs of strengthening. Although the relative position remains bullish for the U.S. Economy, it appears to be past a cyclical bottom. As long as Greenspan continues his “measured” increases in interest rates, recognize the cyclical bottom has past us. If Greenspan discontinues his rate hikes, expect the dollar to resume its bearish direction.

Commodity prices continue to weaken, but keep in mind they remain at stratospheric levels. They need to fall considerably to excite any potential equity market bull. It is encouraging to observe what is believed to be a current topping of commodities. If the political community continues its exercises along historical standards, commodity prices should be significantly down by the mid-term election year, 2006. The next major bull leg may not start until then.

http://www.indicant.net/Members/Updates/Economic/E03.htm

As stated the past five weeks and originating last August, current cyclical behavior appears adjusting to trends similar to that of the 1970’s. The cyclical rise in commodities is not passive. This cyclical movement has now converted to a trend. This trend provides bearish confidence in the stock market. This increasing bearish confidence can yield swift and significant punishment to the passive, long-term investor. As stated the past five weeks, the bull can contribute to the least-worse case of a meandering market. However, the strongest of bulls cannot standup to excessive inflation or deflation or extremely high interest rates. A bull traditionally does not survive a combination of inflation/interest rates in excess of 8/0%. Right now, the threat is inflation and its serious nature is growing.

http://www.indicant.net/Members/Updates/Economic/E01.htm

This paragraph remains unchanged from the past nineteen weeks with a few modifications. Interest rates continue their rise, but still from historically low levels. Right now, the stock market is not being bothered by this unfavorable direction on a mid-term basis, while at the same time; equities will not take their suspicious eye off it. The bearish bias by the Quick-term Indicant may be an early indication of the market’s intolerance to these unfavorable trends. There is some point where equities will not like the “position” of interest rates if Greenspan continues his northward trek. It is not uncommon to over-cool the economy in post election years, which is now underway.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Econ.htm

Fear Metrics: Economics and Terrorism

Vanguard Gold and Precious Metals (VGPMX) - #19 was up 75.2% one-hundred and forty-seven weeks ago since the MTI buy signal in April 2001. One-hundred and forty weeks ago, it closed up 30.1%. Last week it closed up 124.5%, which is higher than the 75.9% reported 91-weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 30.6%, which is higher than 23.1% reported 91 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. The fund was down significantly last week.

The Mid-term Indicant signaled sell for Fidelity Gold Fund #28. The last buy/sell cycle was short-lived and resulted in a small loss. The previous buy/sell cycle was from December 7, 2001 to April 30, 2004 resulted in a 52.9% gross profit. As stated the past several months, if Greenspan gets aggressive in his fight against inflation, this fund will most likely not provide the nice profit it did on the previous buy/sell cycle. This fund fell significantly last week, triggering a sell signal.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 158.4% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 58.6%. Vanguard Energy #18, VGENX, is up 82.5% (annualized at 40.1%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 50.1% (annualized at 36.4%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 58.0% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 34.4%.

All of the above funds fell sharply last week. That does not express a 1970’s type of market. However, profit taking and concerns about economic health are at issue.

The Mid-term Indicant signaled a new bear for the Gold/Silver Index. Inflationary threats are obviously not being considered threatening now. The paradigm has shifted to economic health or lack thereof.

As repeatedly asked, is this the 1970’s all over again? This report has repeatedly stated the market does not look like the 1970’s again, but there are shifts in market configurations that appear biasing in favor of a 1970’s type of market. Increasing bullish expressions in the energy sector will lead to increased bearish expressions in general equity markets. This may continue in this presidential post election year. The political system is not sensitive to democratic desires during lame-duck presidencies and especially in the presidential post election year. Again, forecasting the market is okay for hallway conversations, but never provide your broker instructions based on a forecast. The Indicant will keep you posted on the market’s cyclical and trend inclinations.

These funds and the gold and silver index should convey the market’s perception of terrorism, inflation, and the economy. As long as they are in solid hold/bull positions, there remains some pessimism regarding the future of the economy. Until recently, the aforementioned sentence has held up. There is a point, though, where even these prices can fall with pessimism. That would be due to a severe and deep recession.

Quick-term and Short-term Indicant Update

The Quick-term Indicant Bear that was born on January 4, 2005 has now survived for over sixteen weeks. As stated the past several weeks, that is a long period of survival in the midst of the heart and soul of bullish seasonality. Bullish resistance to this quick-term bear occurred when the indices approached the bearish yellow curve a few weeks ago. Unfortunately, the market has found comfort at or below the bearish yellow curve. That increases bearish intensity, especially as we near the conclusion of bullish seasonality.

The eight major indices are down an average of 3.5% since the Quick-term Indicant signaled bear on January 4, 2005. All eight indices are below their respective bearish yellow curves. That intensifies bearish bias.

Most quick-term bears do not survive this long during bullish seasonality. This quick-term bear was on the verge of expiration ten weeks ago, but the potential burgeoning bull expended too much energy preventing complete bearish dominance. As stated for the past several weeks, there is simply not enough bullish energy for a new Quick-term Bull to dominate the market at this time.

Read the daily emails for more about the Quick-term Indicant. It is still a Quick-term Bear.

Please review the daily reports for more details regarding the Quick-term Indicant.

To view the Quick-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/QT.htm

The NYSE Indicant Volume Indicator is biased in support of continuing bearish expressions on a quick-term basis. The NASDAQ Indicant Volume Indicator is expressing a lethargic pattern, which is not favorable in support of any bullish inclinations at this time. The overall configurations support bearish bias.

http://www.indicant.net/Members/Updates/STI-Mkts/IVI.htm

The Dow is down 3.7% since the Short-term Indicant signaled bear on January 20, 2005. The NASDAQ is down 8.2% since the Short-term Indicant signaled bear on January 11, 2005. Both indices are Short-term Bears.

To view the Short-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/STI.htm

A link to the Dow’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20DJIA1995-2002.htm

A link to the NASDAQ’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20NAS1995-2002.htm

Perspectives

This paragraph is unchanged from the past eight weeks. The indices have retracted from their bullish breakout lines. They are not yet threatening their respective breakdown lines. Although there is a Quick-term Indicant Bear in progress, the perspectives reveal no deep bears on the immediate horizon. The small caps continue resisting bearish influences. They have recently been engaging its breakout line, which is bullish for that particular group of stocks. The Quick-term modeling requires consistent signaling and thus cannot signal bull even though one of the indices is expressing bullish behavior in the face of the Quick-term Bear.

Read your daily emails.

To view the Perspective Charts (Quick-term Indicant, please click the following.

http://www.indicant.net/Members/Updates/STI-Mkts/QTP.htm

Refer to the daily reports for more information about the Quick-term Indicant.

For more information about the Quick-term Indicant, refer to last week’s daily reports.

Mid-term Indicant Positions - Major U.S. Market Indices

There were no new bull signals and no new bear signals.

The eight major indices are up an average of 20.5% since the Mid-term Indicant signaled bull an average of 77.8 weeks ago. That annualizes to 13.7%. The Dow Transports is the strongest bull. It is up 49.5% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 18.4% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 34.8% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 50.2% since the Mid-term Indicant bull signal on August 16, 2003. The utilities are holding up the strongest with these recent bearish onslaughts.

Only one of the eight major indices continue as a red bull, which is down from six five weeks ago. Just when the survivability of these bulls was in question several weeks ago, they responded with a bullish fervor in the face of the Quick-term Bear. That was a testament to the strength of this Mid-term Bull market. However, as stated the last few weeks, they are being threatened with the potential of rising inflation and interest rates.

Now, these Mid-term Bulls are being threatened again. It is unlikely they will survive this bearish onslaught with the impending bearish seasonal cycle. Rising interest rates, increased oil prices, and the presidential post election year is a powerful set of parameters that support bearish behavior and the death of these long-standing Mid-term Bulls.

To view Mid-term Indicant charts for U.S. Market Indices, please click the following link.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI-Mkts-US.htm

Mid-term Indicant Positions – MTI-RYS – Ten U.S. Indices

Mid-term Indicant Positions - International Markets

There were no new bull signals and no new bear signals.

Although there were no new bull signals, twenty-one of the twenty-two foreign indexes tracked by the Indicant are Mid-term Bulls. They are up an average of 108.0% since the Mid-term Indicant signaled bull an average of 108.7 weeks ago for an annualized gain of 50.7%, which is less than the 72.9% reported 95 weeks ago. International indices moved south last week, but not as much as U.S. markets

The lone bear is down 2.2% since the Mid-term Indicant signaled bear 14-weeks ago.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI%20Intl%20Mkts.htm

April 10, 2005 Indicant.Net Weekly Update

Volume 04, Issue 2 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

Are We in the Early Stage of a 1970’s Market – Part VIII

The petroleum sector fell the past two weeks, while general stocks rallied slightly. Greenspan fueled this result with his comments about inflation, oil, and the economy. The herky-jerky day traders reacted to that with a dumping of petro-related securities and buying general equities. In the end, the herky-jerky will lose, as always.

At the end of last week, oil prices fell, but there was no bullish response, like in the recent past. Quite the contrary, the market expressed bearish behavior on days where oil prices fell. That behavior is different from the recent past, when stocks would rise whenever oil prices fell. The problem is that falling oil prices can be viewed as being driven by a weakening economy. Although there is no evidence of that at this time, the market’s focus is on events six to nine months from now.

The market’s recent disregard for oil price drops suggests it is learning that each drop is followed with an increase in oil prices. The aggregation of those incremental increases is exceeding their preceding drops. In other words, the trend for oil prices is up. The market will not fight the trend when the inflationary threat looms. That threat is growing. The market does not like inflation, deflation, weak economies, or high interest rates. Right now, the only threat is inflation. The presidential post election year phenomenon continues to threaten the economy.

The meteoric rise in petroleum related securities the past three years was due, in part, to Middle Eastern unrest and China’s explosive thirst for crude. The market rewarded those involved in extracting oil. U.S. rotary rigs are popping up all over the U.S. The Saudi Kingdom is willing to allow U.S. production to unfold. It is allowing increased capital investments in Canada’s athabasca tar sand oil. Oil prices are a function of supply and demand. The supply side is increasing rapidly. However, it is much more difficult to produce oil than use it.

The market smells the potential of $80 oil within the next six to nine months. It also is uncomfortable with rising interest rates. Although the CPI (Consumer Price Index) has been somewhat immune to skyrocketing oil prices, it is only a matter of time before infiltration.

Interestingly, the market’s resilience to skyrocketing oil prices is impressive. The market is having difficulty assessing these new fundamentals. One billion new capitalists is very appealing to capital markets. The market senses worldwide productivity increases and an ever-expanding increase in new products and services. The market does not know how many Bill Gates/Henry Ford types will emerge from the “all of a sudden” one billion new capitalists.

The market will continue to struggle with deciding on a proper direction with these dynamics. That explains its meandering behavior for over a year, except for the seasonal bullish spurt late last year.

However, there has been one consistent fundamental that has always generated bearish behavior. The combined interest rates and the absolute value of inflation/deflation in excess of eight percent have always led to bearish behavior. Maybe it will not this time around, if in fact, those numbers manifest. Rising productivity can offset this phenomenon this time around. Capitalists increase productivity. The stock market likes productivity increases since that directly increases profits and cash flow.

This editorial appears wishy-washy. The market is wishy-washy. This is justification for the editorial. The market’s profound resiliency to rising oil prices is impressive. Rising interest rates, although from low levels, have not promulgated the typical bearish behavior. The Middle Eastern war and terrorist threats is a direct confrontation to the bull part of the market.

The current Mid-term Bull was born in March 2003. The war with Iraq started in March 2003. Capitalists rewarded the stock market for that war. Capitalists are not soft-hearted, although many are generous. They recognize the importance of aggression and many believe there are only two positions to take; passive or aggressive. Setting back and not attacking terrorists in their neighborhood would have been passive. That would have been bearish. In hindsight, one could offer a compelling argument that the attack on Iraq helped stimulate a bullish stock market and with each defeat of terrorists, the bull continued its steady rise. U.S. troops guarding Middle Eastern oil wells are a comfortable feeling to have with respect to equity investments.

Overall, the fundamentals are in place to stimulate a 1970’s type of market. However, the market itself is not complying with this expectation. It is struggling with the potential of one-billion new capitalists who can add tremendously to economic values against their need for energy. Therein lays the problem for the stock market.

As always, speculative interest in such matters is intriguing, but this intrigue is irrelevant. What is important? Make money. Although, this intrigue is interesting and somewhat fun to think about, the various Indicant models do not care about why. They only care about direction and will keep you informed if the direction will make you money or lose money. That is the spirit of capitalism.

Weekly Buy/Sell Summary

The Mid-term Indicant generated two buy signals and no sell signals for stocks and funds.

Although there were no sell signals, the Mid-term Indicant is avoiding 88 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 28.8% since the Mid-term Indicant signaled sell an average of 52.8 weeks ago.

There were 21 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 28.0% since their respective sell signals an average of 41.3 weeks earlier. Two years ago, on April 12, 2003, the Mid-term Indicant was avoiding 49 stocks and funds that were down an average of 17.3% since their respective sell signals an average of 16.0 weeks earlier. There were 20 sell signals and five buy signals two years ago.

In addition to the buy signals this weekend, the Mid-term Indicant is signaling hold for 230 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 88.8%. That annualizes to 59.6%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over two years ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 230 stocks and funds for an average of 77.5 weeks.

One year ago, the Mid-term Indicant was holding 275 stocks and funds out of the 296 tracked at that time for an average of 47.2 weeks. They were up 71.0% (annualized at 78.4%). The Mid-term Indicant was signaling hold for 233 stocks and funds two years ago on April 12, 2003. They were up by an average of 21.4% (annualized at 74.3%) since their respective buy signals an average of 15.0 weeks earlier.

Secular Market Blend

This section is a repeat from the last several months with a few modifications, reflecting recent secular influences. The current Mid-term Bull market and buying barrage in late 2002 followed the predicted market bottom in 2002. The mid-term presidential election year phenomenon was consistent with history. Even more impressive was how the market synchronized with near perfection to normal seasonality in 2002.

The Dow30 found bottom on October 9, 2002 at 7286.27. The NASDAQ found bottom on the same day at 1114.11. As earlier stated, the Indicant began its buying barrage in October – November 2002 just after the market bottomed from the severe 2000-2002 Bear Market.

Some of you recall the Short-term Indicant Bear for the NASDAQ was the longest in history. It even exceeded the Dow’s 1929-1932 Short-term Indicant Bear in breadth and approached it in magnitude. The good news is that the NASDAQ’s decline did not lead to a depression, which is a clear indication of how little influence the tech stocks have on the economy. Remember, real economic wealth is delivered in only three ways; manufacturing, agriculture, and extraction. All other industries are merely transfer agents of wealth. The only positive political influence on the economy is to undo its prior damage.

The remainder of this section, Secular Market Blend, is repeated, in part, from the past several months, but it does not hurt to reread it each week. As time progresses and conditions change, there will be modifications to it to maintain a balanced frame of reference.

You will notice many of the mutual fund buy signals occurred in March 2003. Many of you recall how the market did not synchronize with the heart and soul of bullish seasonality from November 2002 through February 2003. After the asynchronous behavior in the November 2002 rolling third of the year, the market turned bullish in March 2003 and again did not synchronize with normal seasonality. The Mid-term Indicant continued signaling bull during bearish seasonality during most of 2003. The market continued moving north during that time, contrary to historical standards. As stated in most of 2004, bearish expressions on a Mid-term basis between May and October 2004 should not be surprising. That is exactly what occurred.

The year, 2004, was consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule in 2004. However, the bullish expressions, which solidified in October 2004, synchronized beautifully with historical standards with a bullish outburst. The Quick-term Indicant accurately revealed an early start to bullish seasonality in late 2004. The early part of December was not consistent with the normal Santa Clause rally. However, bullish expressions resumed in late December 2004. Some quick-term attributes suggested there would be a Santa Clause rally and that is exactly what happened. The market is still elevated as a function of the typical fourth quarter rally in 2004. Unfortunately, the Quick-term Bear that plagues normal bullish seasonality for the second consecutive year is challenging this elevated position. Bullish seasonality ends on April 30, 2005.

Although not surprising, 2005 began with unfavorable performance to bullish seasonality standards. The Quick-term Indicant signaled bear in early January 2005. Bearish expressions followed. At first, these bearish expressions were mild, but nine weeks ago, bearish behavior revealed greater aggression. However, that aggression was muted with a bullish response. That bullish response was weak but possessed enough bullish steam to thwart increasing aggressive bearish behavior.

All the Quick-term attributes remain biased with bearish tendencies even though the bull demonstrated significant resistance to bearish ambition. That bullish resistance weakened the past five weeks. As stated the past few weeks, there are some quick-term attributes shifting in support of even more bearish expressions on a quick-term basis, but the Mid-term Bull remains solid.

The presidential post election year is, historically, the most bearish year on the four-year presidential election cycle. Like all things, there are exceptions to historical normalcy. As this year progresses, the various Indicant models will advise if 2005 is an exception or normal. So far, this year appears normal; that is bearish. The Short-term Indicant continues signaling bear. The Mid-term and Long-term Indicant models continue to signal bull. The short cycles are dominating now, but your longer-term hold positions still appear safe.

http://www.indicant.net/Members/Updates/History-Seasonal/HS0001.htm

Make certain you read the entire pages on the above link. You will see there are exceptions.

Stop Loss Management

The Mid-term Indicant continues recommending a stop loss of 8% because of the Quick-term Bear. The Quick-term Indicant’s configuration is enough to outweigh bullish seasonality.

If you are up by 50% or more you may find it advantageous to set your stop-loss at 15% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use a 10% trailing stop loss or the yellow or green values you will find on the tables. If your stock or fund is above the bearish yellow curve and below the green curve, set your stop loss equal to the greater of the yellow curve and the trailing stop loss. If your stock or fund is above the green curve, set your stop loss at no less the value of the green curve or 10% trailing, whichever is greater. If your stock or fund is above the red curve and you bought at the Mid-term Buy signal, you should use the 10% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 20% trailing stop loss or the slow moving blue curve price. If you really enjoy holding the stock, keep a close eye on the management. Dilettante managers have a way of worming into the business. Watch closely for cronyism and lazy-hazy management dialog. Keep your eye on lavish spending and excessive concerns about social issues. Those types are more interested in burning your money for their pleasures, as opposed to making you money. High performing companies remain focused on honoring the investments made by their shareholders.

In a few instances, you will see a hold signal for a stock or fund that is down from its buy signal or below one of the above conditions for selling. If you are more of a trader than an investor, feel free to buy stocks and funds with those “bearish” attributes. They are configured for a possible rebound, while at the same time, it is important to set the stop losses mentioned in this report. Use the Quick-term Indicant as a guide in your decision-making processes. If the stock price is falling in a Quick-term Bear market, it is not advisable to buy.

Do not short on stocks if they are up from an avoid signal. Stocks go up more often than they go down. Stocks have a tendency to march to their own drumbeat when rising. Some stocks rise and continue to rise in the most severe of bear markets. Short selling opens up an opportunity for the snakes on Wall Street to take everything you own. They can cause a stock to rise at their whim and without any regard to fundamental reason. It usually does not make sense to bet against the sweat and toil of hard-working people. There are some instances where stocks rise during bear markets due to legitimate fundamental reasons.

Stock and Fund Update

Click the following link to see sorted performance of stocks and funds with hold/avoid signals. In the past, we included them in this email message but now display them on the website. This is available to the public, while the specific buy and sell transactions are limited to members only.

http://www.indicant.net/Non-Members/Performance/Top-Bot.htm

Summary of Stocks and Funds with Buy and Sell Signals This past Week

To maintain appropriate security, you can see the Mid-term Indicant "buy/sell" signals for stocks and funds for this week by clicking the following link. It is in the member’s only section.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/Buy-Sell%20Summary%20This%20Week.htm

As repeatedly stated, do not hold more than 10% of your investment resources in a single stock and do not hold more than 20% of your investment resources into a single mutual fund. Also, never fall in love with a stock or fund. Only love the value of your portfolio. Never love its contents. Management stupidity can wreak havoc on any stock or fund at any time.

All update information can be found from a single page at Indicant.Net. Click the below link to that page. You will need your login ID and password.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Summary.htm

Divergence versus Convergence

As stated the past five weeks, the market continues expressing a bearish surge of convergence. That is increasing bearish intensity. If this convergent behavior continues, the bear will accelerate its influence on the market’s direction. Oil prices dipped a couple of times last week, but the market did not respond with bullish fervor as before. The recent dips in oil prices are occurring on a higher plane. The market is looking six to nine months into the future and may be prognosticating future dip for $70/Bbl or more. In other words, last week looked like the 1970’s.

As stated the past five weeks, your “new money” behavior should be consistent with a bearish bias, even though the Mid-term and Long-term Indicant’s continue to signal bull.

Economic Conditions – Inflation, Currency, Interest Rates

Commodity prices softened last week. That is a bearish expression in two out of the last three weeks. However, as stated last week, this aberrant behavior is irrelevant with respect to the continuation of the unfavorable and underlying trend. The current trend supports continuing bearish stock market behavior. This recent meandering behavior in commodity prices will not justify a rising stock market. The mid-term cycle must shift to induce a new Quick-term Bull to be born during bearish seasonality.

http://www.indicant.net/Members/Updates/Economic/E03.htm

As stated the past four weeks and originating last August, current cyclical behavior appears adjusting to trends similar to that of the 1970’s. The cyclical rise in commodities is not passive. This cyclical movement has now converted to a trend. This trend provides bearish confidence in the stock market. This increasing bearish confidence can yield swift and significant punishment to the passive, long-term investor. As stated the past five weeks, the bull can contribute to the least-worse case of a meandering market. However, the strongest of bulls cannot standup to excessive inflation or deflation or extremely high interest rates. A bull traditionally does not survive a combination of inflation/interest rates in excess of 8/0%. Right now, the threat is inflation and its serious nature is growing.

The U.S. Dollar remains weak, but continues to remain above cyclical minimums. The dollar will strengthen provided Greenspan continues increasing interest rates. A strengthening dollar is generally anti-inflationary. The dollar is attempting to struggle to strength. One economic opinion with some substance is that interest rates will not decline again until the U.S. Dollar is again the dominant currency. That could be years from now.

http://www.indicant.net/Members/Updates/Economic/E01.htm

This paragraph remains unchanged from the past nineteen weeks with a few modifications. Interest rates continue their rise, but still from historically low levels. Right now, the stock market is not being bothered by this unfavorable direction on a mid-term basis, while at the same time; equities will not take their suspicious eye off it. The bearish bias by the Quick-term Indicant may be an early indication of the market’s intolerance to these unfavorable trends. There is some point where equities will not like the “position” of interest rates if Greenspan continues his northward trek. It is not uncommon to over-cool the economy in post election years, which is now underway.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20Econ.htm

Fear Metrics: Economics and Terrorism

Vanguard Gold and Precious Metals (VGPMX) - #19 was up 75.2% one-hundred and forty-six weeks ago since the MTI buy signal in April 2001. One-hundred and thirty-nine weeks ago, it closed up 30.1%. Last week it closed up 138.1%, which is higher than the 75.9% reported 90-weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 34.3%, which is significantly higher than 23.1% reported 90 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. The fund was down slightly last week.

The Fidelity Gold Fund #28 is down 1.4% since the Mid-term Indicant signaled buy on August 20, 2004. The last buy/sell cycle was from December 7, 2001 to April 30, 2004 resulted in a 52.9% gross profit. As stated the past several months, if Greenspan gets aggressive in his fight against inflation, this fund will most likely not provide the nice profit it did on the last buy/sell cycle. This fund fell significantly last week.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 179.3% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 66.8%. Vanguard Energy #18, VGENX, is up 95.0% (annualized at 46.6%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 62.1% (annualized at 45.7%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 70/8% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 42.4%.

All of the above funds rebounded significantly last week after falling sharply in the prior week.

The Gold Index is up 1.1% since the Mid-term Indicant signaled bull on July 9, 2004. This index has been flat for three quarters of a year. This index fell slightly this past week, consistent with increased inflationary threats.

As repeatedly asked, is this the 1970’s all over again? This report has repeatedly stated the market does not look like the 1970’s again, but there are shifts in market configurations that appear biasing in favor of a 1970’s type of market. Increasing bullish expressions in the energy sector will lead to increased bearish expressions in general equity markets. This may continue in this presidential post election year. The political system is not sensitive to democratic desires during lame-duck presidencies and especially in the presidential post election year. Again, forecasting the market is okay for hallway conversations, but never provide your broker instructions based on a forecast. The Indicant will keep you posted on the market’s cyclical and trend inclinations. There is definite behavior supporting a 1970’s type of theme.

These funds and the gold and silver index should convey the market’s perception of terrorism, inflation, and the economy. As long as they are in solid hold/bull positions, there remains some pessimism regarding the future of the economy.

Quick-term and Short-term Indicant Update

The Quick-term Indicant Bear that was born on January 4, 2005 has now survived for over fifteen weeks. As stated the past few weeks, that is a long period of survival in the midst of the heart and soul of bullish seasonality. Bullish resistance to this quick-term bear occurred when the indices approached the bearish yellow curve a few weeks ago. Unfortunately, the market has found comfort at or below the bearish yellow curve. That increases bearish intensity, especially as we near the conclusion of bullish seasonality.

The eight major indices are down an average of 1.3% since the Quick-term Indicant signaled bear on January 4, 2005. One of the eight is below its bearish yellow curves. The market rebounded slightly last week, but recent rebounds have been originating from below the bearish yellow curve. That supports a continuing bearish bias.

Most quick-term bears do not survive this long during bullish seasonality. This quick-term bear was on the verge of expiration nine weeks ago, but the potential burgeoning bull expended too much energy preventing complete bearish dominance. As stated for the past several weeks, there is simply not enough bullish energy for a new Quick-term Bull to dominate the market at this time.

Read the daily emails for more about the Quick-term Indicant. It is still a Quick-term Bear.

Please review the daily reports for more details regarding the Quick-term Indicant.

To view the Quick-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/QT.htm

The NYSE Indicant Volume Indicator is biased in support of continuing bearish expressions on a quick-term basis. The NASDAQ Indicant Volume Indicator is expressing a lethargic pattern, which is not favorable in support of any bullish inclinations at this time.

http://www.indicant.net/Members/Updates/STI-Mkts/IVI.htm

The Dow is down 0.1% since the Short-term Indicant signaled bear on January 20, 2005. The NASDAQ is down 3.9% since the Short-term Indicant signaled bear on January 11, 2005. Both indices are Short-term Bears.

To view the Short-term Indicant charts, please click the following hyperlink:

http://www.indicant.net/Members/Updates/STI-Mkts/STI.htm

A link to the Dow’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20DJIA1995-2002.htm

A link to the NASDAQ’s Short-term Indicant table is as follows:

http://www.indicant.net/Non-Members/Tours/STI%20Tour/ST-Table%20NAS1995-2002.htm

Perspectives

This paragraph is unchanged from the past seven weeks. The indices have retracted from their bullish breakout lines. They are not yet threatening their respective breakdown lines. Although there is a Quick-term Indicant Bear in progress, the perspectives reveal no deep bears on the immediate horizon. The small caps continue resisting bearish influences. They have recently been engaging its breakout line, which is bullish for that particular group of stocks. The Quick-term modeling requires consistent signaling and thus cannot signal bull even though one of the indices is expressing bullish behavior in the face of the Quick-term Bear.

Read your daily emails.

To view the Perspective Charts (Quick-term Indicant, please click the following.

http://www.indicant.net/Members/Updates/STI-Mkts/QTP.htm

Refer to the daily reports for more information about the Quick-term Indicant.

For more information about the Quick-term Indicant, refer to last week’s daily reports.

Mid-term Indicant Positions - Major U.S. Market Indices

There were no new bull signals and no new bear signals.

The eight major indices are up an average of 25.3% since the Mid-term Indicant signaled bull an average of 76.8 weeks ago. That annualizes to 17.1%. The Dow Transports is the strongest bull. It is up 58.9% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 22.8% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 40.2% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 52.4% since the Mid-term Indicant bull signal on August 16, 2003. The utilities were the only bullish sector last week, as there was a flight to safety.

Only two of the eight major indices continue as a red bull, which is down from six four weeks ago. Just when the survivability of these bulls was in question ten weeks ago, they responded with a bullish fervor in the face of the Quick-term Bear. That was a testament to the strength of this Mid-term Bull market. However, as stated the last few weeks, they are being threatened with the potential of rising inflation and interest rates.

To view Mid-term Indicant charts for U.S. Market Indices, please click the following link.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI-Mkts-US.htm

Mid-term Indicant Positions – MTI-RYS – Ten U.S. Indices

Mid-term Indicant Positions - International Markets

There were no new bull signals and no new bear signals.

Although there were no new bull signals, twenty-one of the twenty-two foreign indexes tracked by the Indicant are Mid-term Bulls. They are up an average of 111.5% since the Mid-term Indicant signaled bull an average of 107.7 weeks ago for an annualized gain of 53.8%, which is less than the 72.9% reported 94 weeks ago. International indices moved north slightly the past two weeks after being down significantly the prior two weeks.

The lone bear is up 0.3% since the Mid-term Indicant signaled bear 13-weeks ago.

http://www.indicant.net/Members/Updates/All%20Update%20Forms/UD%20MTI%20Intl%20Mkts.htm

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