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

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 92.9% since the Mid-term Indicant signaled bull an average of 88.1 weeks ago for an annualized gain of 54.9%, which is less than the 72.9% reported 79 weeks ago. International indices were up slightly 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 13, 2004 Indicant.Net Weekly Update

Volume 12, Issue 2 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

The Election Year Comes to an End

The stock market has risen an average of 7.8% in presidential election years since 1832. The Dow Jones Industrial Average has been used in that gauge since its inception in the 1890’s. The Dow is up a mere 0.9% this year. That performance is unfavorable to historical standards. But there are two weeks remaining for it to improve its lackluster position in the annals of history. A Santa Clause rally is this presidential election year’s only hope to catapult it from the list of below average performers. Of course, as most of you know, the market does not care about hurting feelings.

The performance has not been that bad, when considering the election itself and economic fundamentals, such as rising oil prices, rising interest rates, and the threat of terrorism. The campaign between the incumbent, George W. Bush, and challenger, John Kerry, was brutal in their war with words. Wartime tends to accentuate the ugliness of political campaigns. The challengers focus on the spoils of war while the incumbent focuses on the necessity of it. That adds more salt to the emotional response from the populace. That negative emotion cascades throughout the population, including Wall Street and millions of existing and potential investors. That phenomenon acts as a depressant to stock prices. Contrarian investing can be tricky during political campaigns.

As pointed out in prior weekly reports, a re-elected second term president typically serves out the second term in a bear market. A second term president has absolutely nothing to lose, as the duration of his remaining employment is finite and conclusive. There is little personal need to ensure the electorate’s pocket books are full of money on Election Day. The stock market smells this and does not expect political favoritism to capitalistic pursuits. It does not matter what the president actually does. What matters is the stock market’s perception of what is ahead. History supports pessimism and corresponding bearishness.

The market becomes bearish most of the time because of the nature of any politician in their final days of employment. People who enter the political arena tend to want to help. That is good. However, politicians are not the type to invent products and services that benefit their fellow human beings. Politicians will not work late at night inventing the model T or penicillin. They attend social functions and spend time with folks who have time on their hands. The real working people are busy at work. So, the politicians and the folks with time on their hands plot to take money away from the non-attendees; those hard at work. The stock market does not like this “taking” from the true capitalists. That is the reason for bearish behavior in post election years.

The S&P600, Small Cap Index, has not been disappointing this year. It is up 17.9% on the year. That is outstanding when compared to the Dow’s meager 0.9% rise so far this year. The S&P600 is not included in historical data because it is a relatively new index. The same is true for other small cap indices.

Before getting to the point, let’s deviate for a few moments about why the small caps outperform the large caps. Many of you recall how the Indicant refers to dilettante management. Briefly, a dilettante manager is analogized as a person who wears a cowboy hat, cowboy boots, and blue jeans who has never ridden a horse. Dilettante managers infest the large caps. Those sorts would never last in the small caps because day-in and day-out performance is required on a daily basis. Since that is requirement, the dilettantes are quickly removed so they no longer threaten the small cap organization. The large caps have more difficulty spotting them because there are large and tolerance bands for incompetence are much wider.

Small cap companies cannot afford lobbyists to schmooze politicians. Most small caps define business models that do not need political help. The small cap folks are focused on three things; product, process, and markets. The large caps are focused on those three things as well, but they also have to focus on legal and political issues. Granted the large caps are constant targets for frivolous litigation, the talent they employ lacks capability on the product, process, and markets. The dilettante is usually pretty good at corporate and external politics. That is a required skill in the large caps. Over the long haul that results in the extinction of large caps. Fortunately, some small caps rise to replace those expiring large caps and the process is repeated. That is the niche for the dilettante manager.

As you read this, keep in mind that small caps may be immune to any pessimistic or bearish outlooks in the upcoming post election year. The small caps work so hard on products, processes, and markets. They can still grow in a depressed economy. Their stock prices can also grow during bearish market behavior. Also, keep in mind their bearish behavior can be more dramatic than the large caps, while the subsequent recovery typically more than offsets their bearish cycles to the south. The Indicant models will keep you posted on that.

Most of you know the presidential post election year is the least bullish on a historical basis. Until any market cycle reverses, the two big influences to stock market behavior are moving unfavorably to bullish aspiration. Interest rates and inflation are two biggies.

It is true that oil prices are still relative low when discounted for inflation. So far, the market has ignored the rising oil prices, although much of this year’s lackluster performance in equities can be attributed to rising oil prices. Do not fall asleep on this issue. The market does not always care about position. It looks at direction and then “attempts” to anticipate where the currently cycle is going. Interest rates and inflation have a threshold position that exceeds the markets tolerance. Pundits will attempt to forecast these threshold positions. If interest rates continue to increase, some pundits will start predicting when the market will find that level intolerable.

Forecasting is generally a waste of time, but there is nothing wrong looking at the future. It is important to blend your view of the future with today’s activities. That is the basis for strategic planning. Short-term objectives can and should be modified when your past predictions of the future appear to be in doubt. Bordering behavioral paranoia is not a bad thing. It provides you enough tension to perform at a high level. Tension is good for you. Just guard yourself from going berserk.

The trick here is recognizing the difference between a quick-term cycle and the birth of a long-running trend. There were several quick-term bull cycles after the stock market crash of 1929. Click the following link to see them.

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-01-DJI-1928-1932.htm

The NASDAQ crash from early 2000 through late 2002 is a near mirror image of the Dow’s 1929-32 crash. Click the following link to see the various quick-term bull cycles on that chart.

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-03-NASDAQ%20Curr.htm

If the NASDAQ behaves like the Dow after the above two crashes, your 2000 investment dollar will not be back to break-even until 2035 without adjustment for inflation. Many people sold out at various places along both declining markets. The retirements of thousands were devastated with both crashes. Going by forecasts is deadly in equity investments. Notice that a prominent Harvard economists stated that stock prices were at a permanently high plateau in early 1930. That was a forecast. It was wrong. It was not wrong by a little bit, but by a whole lot in both magnitude and breadth. After his comment, the market plummeted another 70% and did not recover until the early 1950’s. Middle age folks at the time of the professor’s forecast were well into their retirement years by the time their 1930 was back at breakeven.

Just as the NASDAQ bear was plummeting in 2000, several guests appeared on CNBC predicting the turnaround was imminent. They were wrong. What is amazing is how many guests appear, repeatedly, and project opposite scenarios. Then they take the one that was more accurate and use that statement in their promotional materials. Assessing the skill sets of a market forecaster requires that you understand every statement they made since they started making them. You will find empty suits for the most part.

The post election year is around the corner. That is bearish. Oil prices are rising. That is bearish for most equities, but bullish for certain sectors, including Texas/Oklahoma real estate. Interest rates are rising, which is bearish for equities, but possibly bullish for interest bearing instruments.

However, the bottom line is this. Do not worry about what next year brings. Study it and blend your projections to your day in and day out actions and inactions. The Indicant will differentiate quick-term cycles from any newly developing trends; bullish or bearish.

Weekly Buy/Sell Summary

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

In addition to the sell signals, the Mid-term Indicant is avoiding 17 stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 43.7% since the Mid-term Indicant signaled sell an average of 57.3 weeks ago.

There were only 15 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 25.1% since their respective sell signals an average of 35.9 weeks earlier. Two years ago, on December 13, 2002, the Mid-term Indicant was avoiding only 8 stocks and funds that were down an average of 27.3% since their respective sell signals an average of 23.0 weeks earlier.

Although there were no buy signals this weekend, the Mid-term Indicant is currently signaling hold for 300 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 68.6%. That annualizes to 64.6%, 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 300 stocks and funds for an average of 55.2 weeks.

One year ago, the Mid-term Indicant was holding 279 stocks and funds out of the 296 for an average of 33.5 weeks. They were up 53.1% (annualized at 82.6%). The Mid-term Indicant was signaling hold for 283 stocks and funds two years ago on December 13, 2002. They were up by an average of 14.8% (annualized at 67.4%) since their respective buy signals an average of 11.5 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. December, so far has not been consistent with the  normal Santa Clause rally, but there are two weeks remaining.

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. We are anticipating enjoyment of that as well, but its bullish fervor may not unfold until just before (or just after) the election this year. 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

Foreign markets, commodities, and the medical sector shifted slightly bearish last week. Energy remains in neutral position. Technology, large cap, mid-caps, and small cap sectors remained in a bullish position.

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 are now teetering in neutral zones. Although still hovering near their peaks, it is favorable they are not setting new peaks. Although unlikely, if commodity prices started falling dramatically like they did in the 1990’s, Greenspan would be removed from the game of influence. Falling commodity prices along with rising productivity would completely eradicate the need to jack interest rates up.

The dollar continues to weaken. That is bullish in this particular economic climate.

As long as China exercises restraint in its growth, demand for commodities should stabilize. That would relieve upward pricing pressure on commodities. 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 three 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 twenty-nine weeks ago since the MTI buy signal in April 2001. One-hundred and twenty-two weeks ago, it closed up 30.1%. Last week it closed up 128.5%, which is higher than the 75.9% reported 73 weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 34.6%, which is significantly higher than 23.1% reported 73 weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund moved significantly to the south last week.

The Fidelity Gold Fund #28 is up 5.9% (annualized at 18.9%) 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. 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 140.8% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 59.9%. Vanguard Energy #18, VGENX, is up 65.1% (annualized at 38.1%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 34.7% (annualized at 33.8%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 41.1% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 30.9%.

All these energy related funds fell significantly the past two weeks. As stated last week, the $40+ position is still bullish for those companies who serve the petroleum industry. The energy sector exploded north well in advance of the rising oil prices. The bearish expressions the past two weeks were not in direct response to oil prices falling to the low forties. They are falling in anticipation of further declines early next year. Next week can be a different story.

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 7.0% (annualized at 16.5%) 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.

The past two weeks behavior supports a perception that inflationary pressures will be defeated by Greenspan policies. Two week’s behavior on market perception is not a trend. So far, it is not irresponsible to believe the bearish response the past two weeks was one of market/human emotion due to falling oil prices. It is always safe to bias your strategies in alignment with Greenspan’s tactics. He can and will undo anything OPEC puts out. If they decide to get oil to $100/barrel, Greenspan will not hesitate and providing your economic wealth with double digit interest rates. Remember, any Fed Chief’s legacy is defined in how well they fend off inflation and provide economic stability.

http://www.indicant.net/Members/Updates/MTI-Mkts-Index%20Options/I05.htm#25

Quick-term and Short-term Indicant Update

The eight major indices are up by an average of 6.6% since the Quick-term Indicant signaled bull on October 1, 2004. That annualizes to 34.8%. 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 0.4%, which is down from last week’s 1.8%.

Force Vectors are moving south for all eight indices. Last week all resided in bullish domains, but now only four reside there. This is neutral.  

Vector Pressure is moving north for all eight major indices. That is a non-bullish attribute, but all eight still reside in bullish domains. The combination of these attributes is neutral, but protecting against any dynamic bearish dominance.

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

The NYSE Indicant Volume Indicator is losing robust luster. That is another quick-term attribute favoring neutrality on a quick-term basis. The NASDAQ Indicant Volume Indicator resumed its robust movement to the north two weeks ago, but it also appears losing some robustness. These configurations in this environment are expressing neutrality or market indecisiveness.

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

The Dow is up 3.0% (annualized at 16.6%) since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is up 8.8% (annualized at 48.8%) 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 25.5% since the Mid-term Indicant signaled bull an average of 59.8 weeks ago. That annualizes to 22.2%. The Dow Transports is the strongest bull. It is up 62.8% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 23.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 38.4% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 34.6% 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

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 90.5% since the Mid-term Indicant signaled bull an average of 87.1 weeks ago for an annualized gain of 54.0%, which is less than the 72.9% reported 78 weeks ago. International indices were down significantly 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 05, 2004 Indicant.Net Weekly Update

Volume 12, Issue 1 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

The 1970’s Again – Part 3

Last week’s report discussed the possibility of 2005 emulating a 1970’s sort of stock market. Several economic fundamentals and political phenomena support this. Members of the same political party lead the executive and legislative branches of government. Historically, that is decidedly bearish for the market even though George W. Bush’s first term enjoyed bullish results with a Republican controlled Congress. Of course, politicians contribute little to real economic growth. But, they can damage it and tend to do that with the same party is in power. At least that has been the bias on a historical basis.

Interest rates are rising. The unknown variable is the stock market’s tolerance to rising rates, albeit at low levels. There is a threshold of zero tolerance, yet to be determined. That threshold occurs when investors subtract stock market risks from potential rewards and compare that result to the yields from interest bearing securities. When threshold attainment in interest bearing securities occurs, the stock market’s direction succumbs to bearish influences. That happens when the demand for stocks fall below the supply of stocks for sale.

Some of you remember enjoying double digits gains with near zero risks in the late 1970’s and early 1980’s. Double-digit earnings from interest bearing securities will double your money inside six years. It is difficult for most investors to incur the risk of the stock market against a guaranteed doubling every six years. This is currently not the case, but watching the variables and being aware that an interest rate threshold, yet to be determined, can manifest within months.

Energy prices are rising. This, along with Middle Eastern militancy, is eerily similar to that of the 1970’s, although much more deadly this time.

Inflation is threatening due to the rapid rise in the price of crude. This is weaving its way into the costs of production and several service industries. Although the price of crude is less than $20 in 1980 dollars, it has a profound potential for depressing corporate earnings. Some of you recall the price of crude peaked above $35/barrel in late 1981. Some will say crude oil is cheaper at $50/barrel today than in 1981. The market does not care about that. It cares about corporate profitability. There is an inclination to elevate prices by producers of products and services to protect their profit margins. That is inflationary and if implemented on a wide scale, it will stimulate bearish dominance.

Competitive forces may impede a company’s ability to elevate prices for their products and services. That will depress profit margins. The stock market will not like that either. To offset higher energy costs, corporations must accelerate productivity at ever increasing higher rates. Without productivity increases, the stock market will simply not tolerate the reduced earnings. Keep in mind, most dilettante managers have no idea how to increase productivity. It is not one of their favorite subjects. It takes a lot of energy and unselfish focus to do that.

In the early 1990’s, the Association of Manufacturing Excellence promoted benchmarking for corporations to evaluate their level of competitiveness. One of the benchmarks was sales per employee. The idea was that high performing company’s sales per employee always move to the north, while the so-so companies would be flat and the dogs would be south. For example, General Motors sales per employee in 1990 amounted to around $175,000. Dailmer Benz was at around $400,000. Toyota was at $700,000. It does not take much imagination on where you, as an investor, would put your money with those numbers.

Wall Street embraced the “sales per employee” benchmark and started using it in their evaluations of companies. You will not believe what the dilettante manager did. Rather than working hard to drive productivity up in the spirit of that benchmark, the dilettante cuts the work force and rehires the same people as subcontract employees. The number of employees moves south, making the sales per employee move north. The dilettante manager then points to his or her success. That is the way a dilettante thinks. Take the easy way and produce pretty form; no need to dig into substantive results.

These contracted employees had access to intellectual property. Since they are now self employed, they are excused from internal protective policies. The long and steady erosion of such property unfolds. The company begins shrinking. The employee/employer loyalty is further eroded. The company usually dies after the dilettante retires with the accumulated millions of unearned wealth taken from the shareholder. The final days are usually infested in high debt and the hiring of yet more dilettantes. That is one reason why there are only 74 of the S&P500 companies in 1957 still in business.

The dilettante takes an 8^th grade algebra problem and shrinks the denominator with head count reduction, holding the numerator flat and thus elevating the sales per employee. The honest and hard working manager will focus more on holding headcount constant and increasing revenue. This is done by developing faster and better business processes. These types of managers dominate the small cap companies, while the dilettante infests the large cap companies. Keep this in mind with your long-term goals.

Dilettantes are always figuring out the easy way to bonus, whereas the real manager is always thinking faster and better. Real managers focus on cash flow and improving performance while the dilettante practices voodoo bookkeeping with the income statement.

Now back to the market. Last week’s market was diabolically opposed to a 1970’s type of configuration. Although one data point, representing a week, is not a trend, the question is, “is this the beginning of a trend?” The market prefers trending in one direction or the other around quick-term cycles. It is unusual for it to stay flat for long periods. The difficult part is recognizing which quick-term cycle will reverse the underlying trend.

Oil prices are falling. Unemployment filings are higher. That will dampen Greenspan’s enthusiasm to increase interest rates. Several commodities fell below their bullish red curves last week for the first time in over a year. The Dow Transport Index continues to skyrocket, even in the face of increasing prices for fuel. The single data point last week expressed the complete opposite of a 1970’s sort of market.

Corporate and economic fundamentals are constantly being projected. If the variances are favorable or minimal when the future arrives, the market will continue whatever trend is underway. If the variances are unfavorable when the future arrives, the market will reverse its current trend.

If the unfavorable variances are wide from expectation, the market typically unleashes punishment quickly and severely. Long lasting bears dominate when negative human emotion pervades investment decisions. Most larger corporations and people, for that matter, are generally behind the curve. Corporations are typically very slow responding to recessions. It is not uncommon to see a mere 5% drop in revenue equate to a 40% reduction in profits. That is because supply chains are filled with inventory. The fixed assets are idled with a sudden shock when the corporation delays the inevitable. That gradual delay practiced by dilettante managers is what causes those huge drops in stock prices.

Some corporations tend to keep production up during the early part of the recession so they can please Wall Street for one more quarter with healthy earnings. This is another game played by dilettante managers. It is easy to spot them. Just watch their inventory turns. If revenues are decreasing and inventories are not equally decreasing, their reported earnings are fake, although legal. Eventually, that nonsense is exposed. It is those types of companies that endure those 70% plus drops in stock prices in a single day. The dilettantes even know that will eventually happen, but those sleepy, overstuffed board members already approved the dilettante’s bonus checks. Once a dilettante has his or her ten million or so bonus dollars in the bank, he or she does not care that some widow’s net worth plummeted 50% in her lonely golden years. Those are the companies to avoid equity ownership. They will endure unbelievable losses when they can no longer hide behind their inventory. That is form of voodoo bookkeeping, although not illegal. It is a strategy practiced by the dilettante to get one more big bonus check before the collapse.

Most investors also follow the popularity curve. Not too many people were buying in October 2002. When you bought your shares in October and November 2002, many of those who sold them to you were finally giving up after enduring 50% to 70% declines in their market net worth. Remember the law of supply and demand. When the Indicant signaled all those buys in late 2002, the supply of available stocks to buy equalized with the demand to buy. That helped the market find bottom. The last of the losers were finally getting out of the market just as you were getting into it. Staying in front of the curve is always a successful endeavor.

The NASDAQ may hit 5000 next year, but don’t bet on it. The NASDAQ’s 2000-2002 decline was a near mirror image of the 1929-1932 Dow’s decline. It took the Dow nearly twenty-five years to get back to where it was in 1929. It would not be surprising for the NASDAQ to take at least ten years to get back to where it was in 2000. If the NASDAQ behaves like the Dow in the 1930’s, 1940’s, and early 1950’s, then your investment dollar in the NASDAQ in 2000 will finally break even in 2023. And that is before discounting for inflation.

It is interesting that the Dow Utilities fell last week. Oil prices fell. Commodity prices fell. Last week’s single data point does not support a 1970’s type market. Let’s keep looking and determine if last week’s data point was an aberration to the underlying bullish trend or the beginning of a new bearish trend.

One final note. The Mid-term Indicant signaled buy again for Nortel. The last cycle delivered over a 300% gain, which was a disappointing gain. The Mid-term Indicant did not feel comfortable holding that stock with continuing reports of voodoo bookkeeping.

You have pocketed that money from the last cycle. Do not put you entire Nortel profit from the last cycle into this buy signal. Keep at least two-thirds of it for alternative investments. Nortel is still having problems with voodoo bookkeeping and a bearish stock market would cause a company, such as that, to collapse quickly and violently. Make absolutely certain you set a stop loss upon buying.

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 17stocks and funds of the 320 tracked by the Indicant. The avoided stocks and funds are down an average of 44.3% since the Mid-term Indicant signaled sell an average of 56.3 weeks ago.

There were only 14 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 24.9% since their respective sell signals an average of 35.4 weeks earlier. Two years ago, on December 7, 2002, the Mid-term Indicant was avoiding only 9 stocks and funds that were down an average of 30.0% since their respective sell signals an average of 22.4 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 301 of the 320 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 69.8%. That annualizes to 67.1%, 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 301 stocks and funds for an average of 54.1 weeks.

One year ago, the Mid-term Indicant was holding 271 stocks and funds out of the 296 for an average of 33.2 weeks. They were up 53.7% (annualized at 84.0%). The Mid-term Indicant was signaling hold for 286 stocks and funds two years ago on December 7, 2002. They were up by an average of 16.2% (annualized at 81.0%) since their respective buy signals an average of 10.4 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. November 2004 is responding favorably to offset October’s lackluster performance.

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. We are anticipating enjoyment of that as well, but its bullish fervor may not unfold until just before (or just after) the election this year. 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

It is not surprising the energy sector expressed bearish behavior last week with falling oil prices. That is the most favorable pattern of divergence one can desire for equity market’s bullishness. It is amazing the energy sector and general equities have both enjoyed bullish expressions since late 2002. That combination can last on a mid-term basis, but long-term bullish in the energy sector will induce bearishness in the non-energy sector. Few energy stocks participated in the great 1990’s bull market.

Utilities were surprisingly bearish last week in the face of a fairly nice bullish expression. The divergence is not favorable to a long-running bull. However, it appears on the surface that is a big-money rotation and not a major disruption to the longer-term trend of utilities. However, we will keep our eye on it. The MTI-RYS also tracks the Dow Utilities. If there is a bear signal, you will be first to know. However, many of you bought on the buy signals about two years ago ahead of the capital gains tax adjustment and are locked into some pretty healthy dividends.

Economic Conditions – Inflation, Currency, Interest Rates

As stated for the last several weeks, the U.S. dollar continues to weaken against world currencies. The weakness is becoming more dramatic. This is more bullish than not for the stock market on a quick-term basis. However, this on a mid-term to long-term basis provides Greenspan plenty of room to jack up interest rates.

After several months of commodities holding at their peak or near peak levels, two fell into neutral territory. The Dow Jones Futures fell into neutrality for the first time in several weeks and only the second time since 2001. Oil, although at near record high levels also retreated to the neutral zone for the first time since late 2003. If these new configurations form a new downward cycle and brings the other commodities down with them, a bullish bias for equities could unfold. There is no need to forecast that, as the dynamics of a new billion capitalists will fuel more demand for commodities. If these new capitalists bring more in the way of productivity and new products, equities should enjoy a bullish fervor even in the face of rising commodity prices. The key to long-term prosperity is rising productivity. Greenspan at least understands that.

This paragraph remains unchanged from the past two 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 twenty-eight weeks ago since the MTI buy signal in April 2001. One-hundred and twenty-one weeks ago, it closed up 30.1%. Last week it closed up 140.4%, which is higher than the 75.9% reported 72 weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 38.0%, which is significantly higher than 23.1% reported seventy-two weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund moved south last week.

The Fidelity Gold Fund #28 is up 11.6% (annualized at 39.9%) 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. 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 also down significantly last week.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 150.5% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 64.5%. Vanguard Energy #18, VGENX, is up 68.7% (annualized at 40.7%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 36.2% (annualized at 35.9%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 45.8% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 34.7%.

All these energy related funds fell significantly last week. Remember, the $40+ position is still bullish for those companies who serve the petroleum industry. The energy sector exploded north well in advance of the rising oil prices. The bearish expressions last week were not in direct response to oil prices falling to the low forties. They are falling in anticipation of further declines early next year. Next week can be a different story.

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 13.1% (annualized at 32.0%) 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.

However, last week’s behavior supports a perception that inflationary pressures will be defeated by Greenspan policies. One week’s behavior on market perception is not a trend. So far, it is not irresponsible to believe the bearish response last week was one of market/human emotion due to falling oil prices. It is always safe to bias your strategies in alignment with Greenspan’s tactics. He can and will undo anything OPEC puts out. If they decide to get oil to $100/barrel, Greenspan will not hesitate and providing your economic wealth with double digit interest rates. Remember, any Fed Chief’s legacy is defined in how well they fend off inflation and provide economic stability.

http://www.indicant.net/Members/Updates/MTI-Mkts-Index%20Options/I05.htm#25

Quick-term and Short-term Indicant Update

The eight major indices are up by an average of 7.3% since the Quick-term Indicant signaled bull on October 1, 2004. That annualizes to 42.3%. 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. As stated last week, the Quick-term Indicant’s attributes maintained their favorable bullish configurations.

All 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 1.8%, which is an improvement from 1.0% two weeks ago.

Force Vectors are moving north for seven of the eight indices, but still reside in bullish domains. That is a bullish bias.

Vector Pressure is moving north for three of the eight major indices. Last week, most were moving south, but as stated, without bearish robustness. All eight major indices reside in bullish domains. This remains as a bullish bias, as stated for the past several weeks.

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

The NYSE Indicant Volume Indicator is again moving north after losing holiday robustness. The NASDAQ Indicant Volume Indicator resumed its robust movement to the north last week. These configurations in this environment support a bullish bias. As stated for several weeks, much of the recent rise in the Indicant Volume Indicator has paralleled quick-term bullish market behavior. This attribute fully supports a bullish bias.

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

The Dow is up 3.4% (annualized at 21.7%) since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is up 9.8% (annualized at 60.9%) since the Short-term Indicant signaled bull on October 5, 2004. This continues to support a bullish bias on a short-term basis.

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. That bodes well for bullish expectations on a quick-term basis.

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 26.1% since the Mid-term Indicant signaled bull an average of 58.8 weeks ago. That annualizes to 23.1%. The Dow Transports is the strongest bull. It is up 64.6% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 24.3% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 39.2% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities is up 34.6% 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.

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 93.4% since the Mid-term Indicant signaled bull an average of 86.1 weeks ago for an annualized gain of 56.4%, which is less than the 72.9% reported seventy-seven weeks ago. International indices were up slightly 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

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