Dec 26, 2004 Indicant.Net Weekly Update

Volume 12, Issue 4 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

Economic Modeling and Quick-term Indicant

Rising interest rates are fulfilling their economic obligation so far. Commodity prices are falling. The theory holds that higher interest rates reduce purchasing power by companies and individuals. That depressed ability to buy goods and services reduces demand. The dampened demand thus stimulates lower prices. That supposedly reduces inflationary threats. The question now is, will commodity prices continue to fall if Greenspan relaxes his obvious intentions of “cooling” the economy, which has never really gotten hot.

On the surface, it appears Chairman Greenspan’s model is working just fine. Commodity prices, although historically high are falling.

Greenspan admits the Federal Reserve Board does not really know how to prevent recessions. He once joked that the Board forecasted nine out of the last five recessions. One of the Federal Reserve Board’s purposes is to stabilize money supply and fend off inflation and deflation. Sometime their exuberance to do so contributes to recessions. Some could say the Fed is sometimes guilty of irrational exuberance in the execution of their duties. Even if the Fed knew how to prevent recessions, they would not in favor of fending off inflation.

Although rising interest rates dampens demand and correspondingly depresses the producer price index, it has compounding effect on the stock market. Remember, stock prices increase when demand for stocks outstrips supply. Extremely high rates invite investors to avoid equities by investing in interest bearing securities, such as CD’s, Treasury Notes, Money Market Funds, etc. Stock prices fall when the demand for stocks diminish by virtue of this shift in investor’s interest. Rising rates will attract more investing dollars to interest bearing instruments. That will reduce the demand for stocks depress the prices of stocks.

The stock market does not like hyperinflation. Investors appropriately believe that stock prices cannot keep up with hyperinflation. Also, during periods of hyperinflation, interest rates are high, inviting investing dollars away from equities and to interest bearing instruments. Hyperinflation and high interest rates induce a double-whammy on stock prices. That is what occurred in the 1970’s.

The stock market does not like deflation more than hyperinflation. That is what happened during the 1930’s when the market plummeted by nearly 90% from peak to low. During periods of deflation, investors completely avoid stocks knowing that prices today will be less tomorrow. There is no point in buying stocks during deflationary periods.

Just prior to the recession of 2000, many economists were citing deflationary threats. That did not make much sense while China was creating a billion new capitalists. During that time, Greenspan was rapidly reducing interest rates to stave off deflationary threats. That was a false threat, but the timing was perfect for Greenspan he was able to implement moderate increases without disrupting the presidential election cycle. At any rate, there is no deflationary threat and there never was.

Although capitalist will add to supply and help put a lid on producer prices, they also accelerate consumption of natural resources. That will elevate the price for raw materials and other commodities. That dynamic prevented deflation from occurring and will continue to do so until the fusion problem is resolved.

With all that, the greatest threat is inflation. However, Greenspan is fighting it. The problem for equity investors is that the stock market does not like inflation, deflation, and high interest rates. There is no need to speculate where these three potential negative economic consequences are heading. The various Indicant models will keep you posted on the market’s interpretation of these potential bearish inducing economic phenomena.

The Quick-term Indicant was configured to support a Santa Clause rally. That is exactly what happened. January is historically a bullish month. The Mid-term Indicant is signaling bull. The MTI-RYS model is signaling bull. The Long-term Indicant continues signaling bull. The Quick-term’s bullish red curve is acting as a floor to falling stock prices. That is bullish.

Although the Indicant has been concerned about a 1970’s market, there is nothing you have to do at this time. The various Indicant models will keep you posted.

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 16 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 39.6% since the Mid-term Indicant signaled sell an average of 58.2 weeks ago.

There were only 10 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 26.6% since their respective sell signals an average of 37.2 weeks earlier. Two years ago, on December 28, 2002, the Mid-term Indicant was avoiding only 16 stocks and funds that were down an average of 25.6% since their respective sell signals an average of 21.9 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 302 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 72.3%. That annualizes to 66.4%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year and a half ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 302 stocks and funds for an average of 56.7 weeks.

One year ago, the Mid-term Indicant was holding 283 stocks and funds out of the 296 for an average of 35.0 weeks. They were up 55.8% (annualized at 82.9%). The Mid-term Indicant was signaling hold for 274 stocks and funds two years ago on December 28, 2002. They were up by an average of 14.2% (annualized at 54.7%) since their respective buy signals an average of 13.5 weeks earlier.

Secular Market Blend

This paragraph is a repeat from the last several months with a few modifications. The current 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 with 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. 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 next paragraph is repeated from the past several months, but it does not hurt to reread it each week. As we approach the close of this year, there will be some modifications to it.

You will notice many of the mutual fund buy signals occurred in March 2003. Many of you recall how the market did not synchronize very well 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. As stated most of this year, bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. That is exactly what occurred. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. However, the bullish expressions, which solidified in October 2004, are synchronizing beautifully with historical standards. The Quick-term Indicant accurately revealed an early start to bullish seasonality. The early part of December was not consistent with the normal Santa Clause rally. However, bullish expressions resumed. Some quick-term attributes suggests there will be a Santa Clause rally and that is exactly what happened.

This paragraph has been repeated most of this year. The second most bullish year along the presidential election cycle is the election year, which is underway in 2004. The Indicant anticipated a bullish response just before or just after the election in 2004. That is exactly what happened. The following link will take you to charts that explain this phenomenon, which is currently underway. It is in a “members only” section. This paragraph will repeat throughout this year.

Although the Indicant does not officially forecast, the above paragraph, which has repeated during most of 2004, has been accurate to date.

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. With one week remaining, 2004 has not been an exception.

Stop Loss Management

The Mid-term Indicant is now recommending a stop loss of 10% because of 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. Right now, the Quick-term Indicant is signaling a solid bull, as opposed to those shaky quick-term bulls throughout most of this year.

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.

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. Be patient with this download. It takes a few minutes.

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 is on a single page in the web site. 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

Not much changed this past week. Although the pattern did not shift last week, a divergent configuration continues. That is not favorable for long-term bullishness. However, as long as the Quick-term Indicant continues to signal bull, there is no concern. Also, this pattern can shift back to bullish convergence at some future point. This is continually monitored to get a “feel” for the market’s longer-term intentions.

As stated the past two weeks, these positions and volatile behavior is a divergent pattern. That is non-bullish. The bull lacks confidence when expressing divergent behavioral patterns. That does not necessarily mean the bull is about to give in to bearish inclinations. It is simply a lack of confidence.

Economic Conditions – Inflation, Currency, Interest Rates

It is encouraging that commodities are holding in the neutral zone. The obstinate CRB Bridge Futures are very near falling into neutrality after an extremely long cycle of bullish behavior. Equities will respond with bullish bias if the commodity prices continue falling.

The dollar continues to weaken, which is bullish for domestic equities. Continued erosion will threaten some international markets.

As stated the past two weeks, keep your eye on China and Greenspan. Those two entities can and have the ability to induce a bear market.

This paragraph remains unchanged from the past five weeks. Interest rates continue their rise, but still from historically low levels. Right now, the stock market is not being bothered by this unfavorable direction, while at the same time; equities will not take their suspicious eye off it. 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 around the corner.

Currently, there are some dichotomized directions, but without conflict. Rising interest rates and falling commodity prices. That is the economic design. The question is, how will equities respond? If inflation softens and the economy continues to improve, bullish behavior will continue to unfold. The various Indicant models will keep you posted on the answer to that question.

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 thirty-one weeks ago since the MTI buy signal in April 2001. One-hundred and twenty-four weeks ago, it closed up 30.1%. Last week it closed up 137.7%, which is higher than the 75.9% reported 75 weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 36.7%, which is significantly higher than 23.1% reported 75 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund was up significantly last week.

The Fidelity Gold Fund #28 is up 8.1% (annualized at 23.3%) 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 few weeks, 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 was up slightly the past two weeks.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 142.9% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 59.8%. Vanguard Energy #18, VGENX, is up 69.2% (annualized at 39.6%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 41.9% (annualized at 39.4%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 47.3% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 34.4%.

After falling significantly the past few weeks, these energy related funds rebounded last week. As stated last week, the $40+ position is still bullish for those companies who serve the petroleum industry.

There is more about mutual funds, including contrarian ProFunds Ultra Short, later in this report and the links to the mutual fund tables can be found there.

The Gold Index is up 8.1% (annualized at 17.5%) since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? The remainder of this paragraph will remain unchanged until such time conditions change. So far, it does not look that way, but increasing bullish expressions in the energy sector will lead to more bearish expressions in general equity markets. This may occur in the upcoming presidential post election year. Again, forecasting the market is okay for hallway conversations, but never give 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.

Quick-term and Short-term Indicant Update

The eight major indices are up by an average of 8.9% since the Quick-term Indicant signaled bull on October 1, 2004. That annualizes to 38.9%. Do not expect the annualized number to manifest in the upcoming post election year. That is not a forecast. If it does, we will enjoy it. The quick-term attributes support a continuing bullish bias.

All eight major market indices are red bulls. That is decidedly bullish. As stated the past four weeks, the bullish red curve should as a protective floor, preventing sharp drops in stock prices. The eight major indices are above their respective bullish red curves by an average of 1.3%, which is down from 1.8% three weeks ago. The last few interactions with bullish red have proven to be a floor to falling prices.

Force Vectors are generally moving north, supporting a bullish bias. All eight of them are positioned bullish domains. That supports a bullish bias.

Vector Pressure is moving south for six major indices. All eight still reside in bullish domains. These attributes support bullish bias.

Keep in mind Force Vectors and Vector Pressure are eight dimensional and cannot be plotted. We are within a year of producing a two dimensional array of these data points so you can see them. Upon completion, we should be able to provide quick-term perspectives on stocks and options.

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

Both Indicant Volume Indicators have lost their robustness the past few days. That does not mean the market is about to lose bullish bias. Softening demand can support status quo behavior. Since the current market is bullish, status quo will be good for your hold positions.

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

The Dow is up 5.7% (annualized at 26.8%) since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is up 10.5% (annualized at 48.5%) since the Short-term Indicant signaled bull on October 5, 2004. This continues to support a bullish bias on a short-term basis, while being threatened by market neutrality.

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

The major market indices are engaging their respective breakout lines. That is bullish. The S&P600, small cap index, is stratospheric. Although not threatening, the breakdown lines are rapidly moving north. The next interaction with them will at much higher levels than your buy signals in 2002 and 2003. The current hold periods could last for quite some time.

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 28.7% since the Mid-term Indicant signaled bull an average of 61.6 weeks ago. That annualizes to 28.7%. The Dow Transports is the strongest bull. It is up 67.3% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 27.1% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 42.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 41.4% since the Mid-term Indicant bull signal on August 16, 2003. All eight major indices are red bulls, which add significantly to the viability of these long-standing mid-term bull cycles.

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-two of the twenty-two foreign indexes tracked by the Indicant are Mid-term Bulls. They are up an average of 96.2% since the Mid-term Indicant signaled bull an average of 88.9 weeks ago for an annualized gain of 56.2%, which is less than the 72.9% reported 79 weeks ago. International indices were up last week.

None of these international indices is a bear at this time.

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

Dec 20, 2004 Indicant.Net Weekly Update

Volume 12, Issue 3 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

One More Time – Are We Heading for a 1970’s Market?

History sometimes repeats. Several past weekly reports discussed similarities between today’s economic climate to those of the 1970’s. The underlying components of similarity will be reviewed, periodically, until the threats diminish.

The first and primary concern is climbing interest rates. Although they still reside at historically low levels, the direction is unsettling. Stock prices rise more as a function of supply and demand than any other reason. That reflects human emotion, which is not predictable. At some possible point on the interest rate incline, investors will find more comfort in low-risk interest bearing investments than the higher risk equity investments. That results in depressed demand for stocks and usually generates bearish behavior.

The threat of inflation is ever-present with historically high oil prices. Consumption of petroleum-based products was smooth and somewhat predictable until the early 1970’s. OPEC, under the leadership of Sheik Yamani of Saudi Arabia, displaced the U.S. from being the swing nation that accommodating cyclical demand patterns. After rapid increases in oil prices in the 1970’s, the Sheik drove prices down to record low levels by the mid-1980’s. U.S. Rotary Rig count fell to pre-depression levels. Although Saudi’s King Faad was disgruntled by cheap oil prices in the middle 1980’s, the strategy set forth by the Sheik was executed to perfection. Saudi became the swing nation by the middle 1980’s, although it cost the Sheik his job. The Saudi’s still hold that prestigious ability.

The dynamics in the 1970’s are not the same as those today, but the underlying supply and demand relationship is eerily similar to those of the 1970’s. China introduced nearly a billion new capitalists, who consume natural resources. That abnormal consumption capacity is what has elevated the price of oil. The U.S. and Canada will increase production, but capital support for western growth is still hesitant due to being burned too many times in the past. If prices hold at above forty bucks per barrel, expect solid increases in western oil production. Even with that, though, one billion new capitalists will put the squeeze on finite supplies. Prices will continue to drift to the north. Although many claim western economies are no longer petroleum based, no one can argue that the recent increases in oil prices have indeed impregnated the producer price index.

OPEC is not made up of reasonable people. Some of them are fanatics and could care less about the world economy. As Henry Kissinger stated to OPEC in the early 1970’s, the U.S. has two options; “it can pay for the oil or it can take it.” Reasonable OPEC members understood that comment, but radicals who believe greatness awaits them in heaven do not care about such threats. The U.S. alone will have greater difficulty threatening to “take the oil” now, since the rest of the world wants it too. Russia can be self-sufficient for a long time and would most likely be an ally to the U.S. if it gets nasty. But the Chinese, who are not self-sufficient will be just a hungry for OPEC oil as the U.S. There could be an increase in international tension if the Chinese do not get their fair share.

Major bickering and the quality of life between countries typically induce bearish behavior in the equity markets. That is something to watch. The Chinese have been surprisingly accommodating toward regulating their economic growth to help stifle excessive demand. So far, they have been reasonable.

Fed Chief’s legacies are made on economic stability and preventing excessive inflation and deflation. The equity markets do not like the inflation/deflation band to exceed plus or minus four percent or a range of eight percent. Greenspan and his troops constantly attempt to predict inflation and deflation. Their policies are based on these predictions. Aggressive Fed Policies are established when their predictions fall outside these limits. But during post election years, those tolerance bands are believed to be ignored.  

The Federal Reserve Board is made up of some of the smartest economist the country has to offer. This is not saying economists are good or bad, but sometimes you have to wonder why that body of knowledge was created in the first place. The U.S. economy thrived for a couple of hundred years before economists were invented. They were not needed during times of barter. The invention of paper currency is what generated a perceived need for them.

Now, here’s the rub. The Federal Reserve Board and politicians bias behavior for a solid economy around election times. They actually have absolutely nothing to offer a solid economy, but they are completely influential on destroying a solid economy. The Federal Reserve and politicians are now at work to ensure the normal patterns are in order. They will want a healthy economy in the appropriate years. That is the Mid-term Election Year, coming up in 2006 and the Election Year, coming up in 2008. Political leadership and politicians do not care about the economy that much when no elections are occurring. That is why the post presidential election year is historically the most bearish.

Rising interest rates, rising oil prices, the threat of inflation, and international tension are eerily similar to that of the 1970’s. The market fell about 40% from peak to bottom in the 1970’s and resulted in a flat decade for equities. The post election year of 1973 netted a 16.6% drop in the Dow. The other post election year, 1977, netted a 17.3% drop. Those were followed by a 27.6% and 3.1% drop in the Mid-term Election year, respectively. Those horrible bearish expressions were then followed by wonderful bullish expressions in the pre-election and election years. Those years were consistent with the historical record of the presidential election year cycles.

The post election year is historically the most bearish for equities. The Federal Reserve Board is loyal to their boss, the President. They will bias their behavior to ensure a solid economy by 2008. They understand natural economic cycles and help speed up economic cooling during periods, void of elections. They reason that the economy will cool anyway, so they say, “we may as well dictate when that occurs.” And the best time to shut down economic activity is in the post election year. The populace is powerless to replace the incumbent. Americans vote their pocket books – there is no other influence regardless of what the press says.

So, do not be surprised at aggressive interest rate hikes in 2005. That will depress corporate earnings and stimulate a bearish bias. This is not a forecast, but a warning and something to keep your eye on. The various Indicant models will keep you posted.

Weekly Buy/Sell Summary

The Mid-term Indicant generated four buy signals and two sell signals for stocks and funds.

In addition to the sell signals, the Mid-term Indicant is avoiding 16 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 40.2% since the Mid-term Indicant signaled sell an average of 58.0 weeks ago.

There were only 16 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 26.6% since their respective sell signals an average of 36.6 weeks earlier. Two years ago, on December 20, 2002, the Mid-term Indicant was avoiding only 10 stocks and funds that were down an average of 27.5% since their respective sell signals an average of 22.7 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 298 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 70.8%. That annualizes to 65.3%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year and a half ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 298 stocks and funds for an average of 56.4 weeks.

One year ago, the Mid-term Indicant was holding 277 stocks and funds out of the 296 for an average of 34.7 weeks. They were up 55.4% (annualized at 83.1%). The Mid-term Indicant was signaling hold for 275 stocks and funds two years ago on December 20, 2002. They were up by an average of 16.0% (annualized at 67.3%) since their respective buy signals an average of 12.4 weeks earlier.

Secular Market Blend

This paragraph is a repeat from the last several months with a few modifications. The current 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 with 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. 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 next paragraph is repeated from the past several months, but it does not hurt to reread it each week. As we approach the close of this year, there will be some modifications to it.

You will notice many of the mutual fund buy signals occurred in March 2003. Many of you recall how the market did not synchronize very well 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. As stated most of this year, bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. That is exactly what occurred. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. However, the bullish expressions, which solidified in October 2004, are synchronizing beautifully with historical standards. The Quick-term Indicant accurately revealed an early start to bullish seasonality. The early part of December was not consistent with the normal Santa Clause rally. However, bullish expressions resumed. Some quick-term attributes suggests there will be a Santa Clause rally.

This paragraph has been repeated most of this year. The second most bullish year along the presidential election cycle is the election year, which is underway in 2004. The Indicant anticipated a bullish response just before or just after the election in 2004. That is exactly what happened. The following link will take you to charts that explain this phenomenon, which is currently underway. It is in a “members only” section. This paragraph will repeat throughout this year.

Although the Indicant does not officially forecast, the above paragraph, which has repeated during most of 2004, has been accurate to date.

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. So far, we do not expect 2004 to be an exception. If it becomes an exception, the Quick-term Indicant and the other Indicant models will let you know.

Stop Loss Management

The Mid-term Indicant is now recommending a stop loss of 10% because of 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. Right now, the Quick-term Indicant is signaling a solid bull, as opposed to those shaky quick-term bulls throughout most of this year.

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.

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. Be patient with this download. It takes a few minutes.

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 is on a single page in the web site. 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

There was a definite pattern of market divergence this past week. Interest rate sensitive equities plummeted. This was discussed earlier in this report. Foreign markets and the medical sector reversed bearish expressions two weeks ago with a bullish response this past week. The energy sector resumed its bullish pattern. Is the combination of these events the beginning of a 1970’s type of market? If they continue from their embryonic state into a trend, rest assured, this will become another 1970’s type of market. Technology, large cap, mid-caps, and small cap sectors remained in a bullish position, which is not consistent with a 1970’s theme. More has to be done before history repeats.

As stated last week, these positions and volatile behavior is a divergent pattern. That is non-bullish. The bull lacks confidence when expressing divergent behavioral patterns. That does not necessarily mean the bull is about to give in to bearish inclinations. It is simply a lack of confidence.

Economic Conditions – Inflation, Currency, Interest Rates

Commodities continue to reside in a neutral zone. The CRB Bridge Futures is obstinately remaining at bullish red. As stated last week, it is favorable they are not setting new peaks. They are weakening somewhat aggressively.

The dollar continues to weaken, although somewhat mixed last week.

As stated last week, keep your eye on China and Greenspan. Those two entities can and have the ability to induce a bear market.

This paragraph remains unchanged from the past four weeks. Interest rates continue their rise, but still from historically low levels. Right now, the stock market is not being bothered by this unfavorable direction, while at the same time, equities will not take their suspicious eye off of it. 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 around the corner.

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 thirty weeks ago since the MTI buy signal in April 2001. One-hundred and twenty-three weeks ago, it closed up 30.1%. Last week it closed up 131.8%, which is higher than the 75.9% reported 74 weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 35.3%, which is significantly higher than 23.1% reported 74 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund was up slightly last week.

The Fidelity Gold Fund #28 is up 8.0% (annualized at 24.3%) 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 few weeks, 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 was down significantly the past two weeks.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 142.9% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 60.2%. Vanguard Energy #18, VGENX, is up 66.8% (annualized at 38.7%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 40.8% (annualized at 38.9%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 46.1% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 33.9%.

After falling significantly the past few weeks, these energy related funds rebounded last week. As stated last week, the $40+ position is still bullish for those companies who serve the petroleum industry.

There is more about mutual funds, including contrarian ProFunds Ultra Short, later in this report and the links to the mutual fund tables can be found there.

The Gold Index is up 7.1% (annualized at 15.8%) since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? The remainder of this paragraph will remain unchanged until such time conditions change. So far, it does not look that way, but increasing bullish expressions in the energy sector will lead to more bearish expressions in general equity markets. This may occur in the upcoming presidential post election year. Again, forecasting the market is okay for hallway conversations, but never give 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.

Quick-term and Short-term Indicant Update

The eight major indices are up by an average of 7.5% since the Quick-term Indicant signaled bull on October 1, 2004. That annualizes to 35.2%. Do not expect the annualized number to manifest in the upcoming post election year. That is not a forecast. If it does, we will enjoy it. The quick-term attributes has shifted from extremely bullish to neutrality.

Seven of the eight major market indices are red bulls. That is decidedly bullish. As stated the past three weeks, the bullish red curve should as a protective floor, preventing sharp drops in stock prices. The eight major indices are above their respective bullish red curves by an average of 0.5%, which is down from 1.8% two weeks ago. A few bearish days the past two weeks coupled with a rising bullish red curve has moved the indices close to their respective bullish red curves.

Force Vectors continue their aberrations as they have done for the most part this year. This has been a meandering market with the exception of the late year bullish surge. However, all eight of them has moved into bullish domains. That supports a bullish bias.

Vector Pressure is moving north for all eight major indices. All eight still reside in bullish domains. These attributes support bullish bias.

Keep in mind Force Vectors and Vector Pressure are eight dimensional and cannot be plotted. We are within a year of producing a two dimensional array of these data points so you can see them. Upon completion, we should be able to provide quick-term perspectives on stocks and options.

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

Both Indicant Volume Indicators have resumed their robust advance, supporting bullish bias.

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

The Dow is up 4.0% (annualized at 20.3%) since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is up 9.2% (annualized at 45.9%) since the Short-term Indicant signaled bull on October 5, 2004. This continues to support a bullish bias on a short-term basis, while being threatened by market neutrality.

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 is nothing different here from the past few weeks. Read the daily Indicant reports for continuing information about this attribute. Several indices threatened contact with their respective breakdown lines several weeks ago. Rather than making contact with their breakdown lines, the indices responded with a bullish fervor. The remaining quick-term attributes are expressing market indecisiveness. Although there is considerable distance to the breakdown lines, there is little likelihood of a major market shift until contact is made. The quick-term configurations do not suggest any imminent contact, but it is something to keep your eye on in the upcoming presidential election year and the 1970’s similarity.

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 26.9% since the Mid-term Indicant signaled bull an average of 60.8 weeks ago. That annualizes to 23.0%. The Dow Transports is the strongest bull. It is up 65.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 25.0% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 40.6% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 38.6% since the Mid-term Indicant bull signal on August 16, 2003. All eight major indices are red bulls, which add significantly to the viability of these long-standing mid-term bull cycles, but within the confines of disappointing quick-term attributes. A Santa Clause rally will help.

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