Oct 31, 2004 Indicant.Net Weekly Update

Volume 10, Issue 5 ISSN 1526 6516 © The Indicant Stock Market Report

Heart and Soul of Bullish Seasonality

The heart and soul of bullish seasonality starts today. Some of you recall how well the market conformed to historical standards last year. The market’s dismal performance this year adds fuel to a repeat of bullish expressions this year. Notice the stop loss changes later in this report, reflecting reduced bearish expectations. 

There are some fundamental reasons supporting bullish expectations. Oil prices are “perceived” to have passed its recent cyclical peak. Notice the quoted term, perceived. It does not necessarily matter if oil prices are not past its cyclical peak. Perception drives cyclical behavior. The Dow Transports continues to skyrocket in anticipation of declining oil prices. What is amazing is how the Transports rose while oil prices rose. It does not take much imagination to understand profit margin compression for the transports incurring higher fuel costs. The rise in the Transports is common contrarian behavior; buying when the news is bad. This adds to bullish fuel within the confines of the heart and soul of bullish seasonality.

The economy is okay. It is not sizzling, which should dampen Greenspan’s enthusiasm to become front-page news by a rapid increase in interest rates. However, do not be surprised at that behavior in 2005 when political pressure is at a minimum.

The consumer price index and the producer price index appear positioned beyond their recent cyclical peaks. The equity markets enjoy a declining CPI and PPI, as long as there is no deflationary threat. It is okay to chuckle at the pundits predictions of deflation a few years ago. It did not happen and as long as the Chinese economy continues to stretch the demand for fuel, deflation will not be a threat. The CPI and PPI charts are in a healthy position and are tracking favorable for bullish equities. Links to the charts are below:

http://www.indicant.net/Members/Updates/Economic/E-CPI.htm

http://www.indicant.net/Members/Updates/Economic/E-PPI.htm 

Although more of a technical reason than a fundamental reason for bullish expectations in the heart and soul of bullish seasonality is the Dow’s position so far this year. It is down 4.1% in this presidential election year. The presidential election year has been the second most bullish on the four year presidential election cycle. The last presidential election year in 2000 was also down. The Dow was down 6.2% during Clinton’s last election year.

The last time the Dow endured back-to-back losses in presidential election years was in 1913 and 1917 during Woodrow Wilson’s presidency. Historical standards favor a year-end bounce of more than 4.1% for the Dow. That would propel the Dow to a gain for the year and remain congruent with historical standards.

Interestingly, most of the other indices are up for the year. However, they do not have the long history of the Dow for historical perspectives. The only indices of the eight tracked by the Indicant that are not up are the Dow, NASDAQ, and the S&P100. The S&P600, small caps, is up 9.8% this year. The NASDAQ100 is up 1.3% this year.

If there is no terrorist attack before Tuesday’s election, it would not be out of line to deduce that Osama bin Laden is now reduced to only being able to tape a speech. If that is the case, the market will reward with additional bullish behavior from the emotional attributes of stock market movement.

The market cascaded, adequately, through bearish seasonality this year in the face of a nasty political campaign, rising oil prices, rising interest rates, rising commodity prices, war, and a ho-hum economy. It did okay after a solid bullish cycle that originated in October 2002. Yes, the market drifted to the southeast for most of this year, but it has been gentle. Yes, it was somewhat frustrating, but tolerable relative to the contemporary environment.

The Mid-term Indicant RYS model signaled bull for the S&P500 Index after signaling bear just last week. That bullish expression supports normalcy in the heart and soul of bullish seasonality. The Dow Jones Industrial Average did not cross above its trip line this past week, but should this coming week. The link to the S&P500 chart is below:

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-02-SP500-Curr.htm

Next week’s report will discuss expectations for the developing heart and soul of bullish seasonality, which is starts today and concludes on January 31, 2005. So far, the various Indicant models are supporting a bullish expectation during the next three months.

Weekly Buy/Sell Summary

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

In addition to the sell signals, the Mid-term Indicant is avoiding 43 stocks and funds of the 296 tracked by the Indicant. The avoided stocks and funds are down an average of 33.3% since the Mid-term Indicant signaled sell an average of 53.8 weeks ago.

There were only 25 stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 23.9% since their respective sell signals an average of 31.6 weeks earlier. On November 1, 2002, the Mid-term Indicant was avoiding 38 stocks and funds that were down an average of 29.6% since their respective sell signals an average of 19.1 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 243 of the 296 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 67.1%. That annualizes to 64.8%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 243 stocks and funds for an average of 53.8 weeks.

One year ago, the Mid-term Indicant was holding 261 stocks and funds for an average of 30.4 weeks. They were up 54.5% (annualized at 93.4%). The Mid-term Indicant was signaling hold for 211 stocks and funds two years ago on November 1, 2002. They were up by an average of 16.9% (annualized at 88.4%) since their respective buy signals an average of 10.0 weeks earlier. Two years ago, there were 42 buy signals, which was the fourth consecutive week of aggressive buying at that time.

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.

This paragraph is repeated from the past several months, but it does not hurt to reread it each week during bearish seasonality. 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. Bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. The Quick-term Indicant is showing some signs that bullish seasonality may be starting a little early this year and could be underway. A late August rally and an unusually bullish September support an early entry into bullish seasonality, although October so far has been somewhat bearish.

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.

The parenthetical phrase (or just after) was inserted in the above paragraph on October 23, 2004. Bullish behavior is having difficulty getting started this year. The rising oil price, rising interest rates, and the Chiron debacle on the influenza vaccine have dampened bullish enthusiasm. However, a Quick-term bull is expected to occur before the end of this year.

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.

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

This attribute was neutral last week. This week, there is solid evidence of bullish convergence. All sectors are either moving north or solidly positioned in bullish domains. That makes equity investments very appealing.

Economic Conditions – Inflation, Currency, Interest Rates

As stated last week, most economic variables appear to be positioning for a typical post election bearish year. There is no need to act on that or even speculate about what 2005 holds for the stock market. Those configurations are what they are and can change. But right now, it appears the political phenomena of post election year blah is configured to disappoint our holding positions. However, we are in the heart and soul of bullish seasonality. Enjoy it while it lasts. The various Indicant models will keep you informed as we enter the post election year.

There is little difference from last week’s report. Commodities continue to reside at a level that threatens the stock market’s bullish ambitions. The U.S. Dollar remains weak, which is bullish for equities. Recent configurations suggest the dollar has bottomed out on the current mid-term cycle. Interest rates are starting to experience some aberrations from their steady and smooth ride to the northeast on the charts. That offers some addition fuel for bullish aspirations in equities.

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-three weeks ago since the MTI buy signal in April 2001. One-hundred and sixteen weeks ago, it closed up 30.1%. Last week it closed up 123.2%, which is higher than the 75.9% reported sixty-seven weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 34.2%, which is significantly higher than 23.1% reported sixty-seven weeks ago. This fund is up slight from its most recent peak on December 5, 2003 when it was up 117.3%. This fund moved up last week.

The Fidelity Gold Fund #28 is up 11.3% (annualized at 58.3%) 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. 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 modestly last week.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 129.6% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 57.9%. Vanguard Energy #18, VGENX, is up 62.1% (annualized at 39.0%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 33.7% (annualized at 37.0%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 41.0% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 33.6%. These energy related funds fell last week, after several weeks of solid bullish expressions. The market is solidly anticipating a rapid drop in oil prices as it did a few weeks ago. That is bearish for these energy related funds, but do not sell until you see a sell signal. Oil is nestled at very high profit opportunities for energy related companies.

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 12.6% (annualized at 40.5%) since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? 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.

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 0.4% since the Quick-term Indicant signaled bull on October 1, 2004. The Quick-term Indicant’s attributes shifted solidly in favor bullish behavior last week. This Quick-term bull cycle was disrupted by Chiron’s failure to deliver influenza vaccinations but the market has overcome that failure. The equity markets are slapping higher oil prices in the face. The equity markets are going to respond to a lethargic Osama.

Four weeks ago, six of the eight major indices were quick-term red bulls. After three consecutive weeks of zero red bull configuration s, we now have three that possess that luster. As long as just one of the indices possesses a red bull configuration, there is no threat of a major downturn.

After nearly a year of up and down behavior, all eight Force Vectors are moving in a bullish direction. They are also in bullish domains. That adds a delightful influence to bullish bias.

Vector Pressure continues moving north (gaining positive or bullish energy). As stated in the daily reports, five of the eight reside in bullish domains. The underlying weakness in the Dow30, S&P500, and S&P100 still contain negative (bearish) Vector Pressure. This remains as a bullish bias, as stated for the past several days.

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. 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

There is little difference from last week’s report. The Indicant Volume Indicator continues with robust movement to the north. As previously stated much of this rise has paralleled quick-term bullish market behavior. This supports a quick-term bullish bias. There is no longer a small tint of non-bearishness. This attribute fully supports a bullish bias.

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

The Dow is down 2.1% since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is up 1.0% since the Short-term Indicant signaled bull on October 5, 2004. Bearish behavior was not expressed last week and the market is definitely with 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

As stated the past few weeks, the NASDAQ and NASDAQ100 indices were threatening their respective breakdown lines a few weeks ago. When they got close, they responded with a bullish expression. The sickly Dow30 came very close to contact its breakdown line the past few weeks. However, last week’s behavior emulated the bullish behavior a few weeks ago by the NASDAQ indices. This supports a bullish bias on a short-term and 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 19.3% since the Mid-term Indicant signaled bull an average of 53.8 weeks ago. That annualizes to 18.6%. The Dow Transports is the strongest bull. It is up 54.5% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 17.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 32.2% since the Mid-term Indicant signaled bull on March 22, 2003. Five of the eight major indices are red bulls, which add significantly to the viability of these long-standing 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 90.9% since the Mid-term Indicant signaled bull an average of 81.1 weeks ago for an annualized gain of 58.3%, which is less than the 72.9% reported seventy-two weeks ago.

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

Oct 24, 2004 Indicant.Net Weekly Update

Volume 10, Issue 4 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

New Mid-term Bear Signals and Stock Market Fluttering

The Dow and S&P500 received bear signals after a two-year bull leg. The MTI-RYS signaled bull on October 11, 2002 for the S&P500 Index. After 106 weeks or just over two years, it signaled bear this weekend. The S&P500 Index increased 31.1% during this 106-week long bull leg.  Click the following link to view the current S&P500 MTI-RYS chart.

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-02-SP500-Curr.htm

In the face of stock market indecisiveness, the Dow Transports and Dow Utilities continue exploding to the north. This is occurring in the face of rising and record high oil prices. As long as those two indices, in addition to other major indices signaling bull, this bear signal may prompt the first market fluttering activity in over two years. Fluttering is when the market gyrates up and down very quickly over short time periods. More detail about fluttering is explained later in this report. Click the below link for the Dow Transports Chart.

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-06-DJT-Curr.htm

Click the below link for the Dow Utilities Chart:

http://www.indicant.net/Members/Updates/MTIRYS-Mkts-US/MTI-RYS-07-DJU-Curr.htm

The Dow Utilities are up 59.5% since the MTI-RYS bull signal on October 25, 2002. This bull has lasted 104 weeks. The Dow Transports received a bear signal last March after gaining 23.1% since the prior bull signal on March 21, 2003. It received a bull signal the next week on March 26, 2003 and is up 18.9% since then. The combined gain for the Dow Transports since March 21, 2003 amounts to 52.0%.

The Dow Jones Industrial Average also received a bear signal this past weekend after rising 15.6% since the MTI-RYS bull signal on October 25, 2002. That bull leg lasted 104 weeks or exactly two years. The MTI-RYS model has outperformed buy and hold by over 2,000% since 1900 for the Dow. It has outperformed buy and hold by 40.6% since 1971 for the S&P500. It has outperformed buy and hold by 18.0% since 1996 for the Dow Transports. It has outperformed buy and hold by 23.9% since 1996 for the Dow Utilities.

The Dow Utilities, which has a history of boring bull/bear cycles, has been the best performing bull in this recent bull leg. As earlier stated, it is up 59.5% since the October 25, 2002 bull signal. Many of its constituents are up by triple digit amounts since the Mid-term Indicant signaled buy for those stocks. The Dow Utilities fell with as much vigor as the NASDAQ in the 2000-2002 bear leg. But the current bull leg has risen with more vigor than the NASDAQ’s recent bull cycles, which at one point was up by 50% since its October 2002 bull signal.

To view the history of all ten major market indices, click the following link. The Dow Jones Industrial Average has charts extending back to 1900 with each bull and bear cycle documented in a table. The S&P500 has charts extending back to 1971 and the NASDAQ charts go back to 1985. The MTI-RYS model has outperformed buy and hold by 141.3% since 1985. The NASDAQ’s MTI-RYS history can be viewed at the following link:

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-0005-03-NAS.htm

The MTI-RYS heuristic is somewhat complicated and purposefully esoteric. It will never be revealed to the public. The worse thing one can do is mass market a working model. That is why the Indicant has a limit on membership. The Stock Trader’s Alamanac has been publishing stock market nuances for years. The authors, Yale and Jeffrey Hirsch, state that when one of the nuances becomes common knowledge, the nuance quits working. The Indicant refers to this as the phenomenon of commonality. Day trader algorithms are the most popular mass-marketed devices in today’s market. That is one reason why nearly all day traders lose money.

However, it is important for Indicant members to understand, in part, the assignment of trip lines. They occur twice each year after the conclusion of deep bearish (or mid-term bearish) seasonality. Since 1900, the market has lost over half its value during certain weeks of the year. Those weeks will be revealed to members as soon as copyrights are registered.

The assignment of trip lines are important for identifying bull and bear cycles. These trip lines reposition the next bull or bear signal. New trip lines were assigned last week. You will notice the dashed green lines on the charts are extended from the white portion on the charts.

Do not be concerned too much about this. The Indicant will continue to signal new bull, bull, new bear, bear, buy, hold, sell, and avoid every week for all the Mid-term Indicant models. Next spring you will see more white lined segments appear on the charts. New trip lines will be extended from those white segments at the conclusion of the Mid-term bear cycles.

Several of the assignments this weekend were simple. Deep bearish seasonal periods were above the bullish red curve for the entirety of the Mid-term Indicant bearish cycle. Their assigned trip lines were drawn off the bearish cycles maximum point. This will favor quicker bear signals, as opposed to when the trip lines are constructed off their minimum points. There are rules for assigning trip lines that have worked, for the most part, during the 103-year period. The assignment of these trip lines are a significant contributor to the Indicant’s 2,000% advantage over buy and hold.

The S&P500 Trip Line was invoked by Rule D, which says the trip line is assigned to a hybrid BRS-2 cycle when the incumbent bull cycle originates from below bearish yellow. This rule the least used, as this phenomenon occurs very rarely.

The NASDAQ, NASDAQ100, and S&P100 Mid-term Bear Cycles were neutral. That means the entire Mid-term bearish cycle was contained between the bearish yellow curve and the bullish red curve. Rule B was invoked on the assignment of these trip lines. This is a common application of trip line assignments, which means the market is no longer expressing robust bullish behavior.

The Dow Jones Industrial Average’s Mid-term Bear Cycle was hybrid along the red curve. It crossed below it, which prompted Rule C during the course of the bear cycle. At the conclusion of the Mid-term Bear’s seasonal cycle, there was no trip line assigned off this particular Mid-term Bear Cycle. Rule C states the trip line is extended from the prior Mid-term Seasonal Bear Cycle. Since its minimum point was below the red curve, it was extended from its minimum point. The prior mid-term bearish period was somewhat depressed for the Dow Jones Industrial Average, which is now below both red and the incumbent trip line. That configuration is what induced the bear signal.

If you look at the historical information on the website, you will notice quite a bit of fluttering in election years. All charts begin on election years and end on election years. The last election year on each chart is the first election year on the next chart. This provides you a continuum from one cycle to the next. As you scan through the charts, you will notice quite a few exceptions to bullish and bearish normalcy. The market never has nor ever will provide a consistent pattern to any other variable, such as politics, the economy, or corporate earnings. It will do what it wants to do whenever it wants to do it. The idea is to take what the market will give you and avoid what it can take from you.

As you scan through the charts, you will notice the market does quite often go down in front of recessions. It usually starts heading to the south about six to nine months ahead of the recessions. You will also notice that it continued to move up in front of and during a few recessions. The oldest model is the Dow Jones Industrial Average. It has the most history to offer.

Now back to market fluttering. After long bull legs, the market tends to flutter with several bull and bear signals occurring very close to one another. Since 1900, there have been 123 Dow bull/bear cycles or a little more than one per year on average. Nearly half of these have been fluttering bull/bear cycles. The Indicant defines these bull/bear cycles as lasting four weeks or less. As earlier stated this fluttering occurs quite a bit at the conclusion of long bull cycles and near the end of election years. The longest MTI-RYS bull cycle lasted 213 weeks. That occurred from April 14, 1933 to May 14, 1937. The link to the two charts covering that time span is below:

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

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

There was not that much fluttering at the conclusion of that 1933-1937 bull cycle. You will notice on the second chart above that there was significant flutter at the conclusion of the bear cycle that coincided with the 1937 recession.

Fluttering is caused by traders, as opposed to investors. Traders set buy points and sell points unique to the contemporary position of the market. So, when the market falls to a certain point, buy orders are generated pushing the market temporarily higher. Conversely, it falls when it hits there sell points.

Therefore, expect some fluttering as we near the end of this year. The Indicant still expects a Quick-term bull before year-end. This is expected even though the market is facing some severe fundamental confrontations to any bullish desires. Interest rates are rising and oil prices are rising. The last time the market was confronted with rapidly rising oil prices was in the 1970’s. You can see from the following link, the bear fully enjoyed that:

http://www.indicant.net/Non-Members/Tours/MTIRYS-Mkts-US/MTIRYS-01-DJI-1972-1976.htm

However, the rise in oil prices in the 1970’s was more dramatic than the current cycle. Also, the interest rates are historically low, although rising. The market has little experience in dealing with an unfavorable direction nestled in at historically low interest rates. Rather than forecasting the market, it is better to take what it will give you and avoid what it will take from you. That is the basis of the MTI-RYS model.

Weekly Buy/Sell Summary

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

In addition to the sell signals, the Mid-term Indicant is avoiding forty-nine stocks and funds of the 296 tracked by the Indicant. The avoided stocks and funds are down an average of 33.0% since the Mid-term Indicant signaled sell an average of 52.3 weeks ago.

There were only twenty-two stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 23.8% since their respective sell signals an average of 31.6 weeks earlier. On October 25, 2002, the Mid-term Indicant was avoiding 75 stocks and funds that were down an average of 34.0% since their respective sell signals an average of 17.5 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 239 of the 296 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 64.7%. That annualizes to 63.0%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 239 stocks and funds for an average of 53.4 weeks.

One year ago, the Mid-term Indicant was holding 261 stocks and funds for an average of 29.4 weeks. They were up 50.6% (annualized at 89.5%). The Mid-term Indicant was signaling hold for 178 stocks and funds two years ago on Oct 25, 2002. They were up by an average of 19.1% (annualized at 65.3%) since their respective buy signals an average of 17.5 weeks earlier. Two years ago, there were 37 buy signals, which was the third consecutive week of aggressive buying at that time.

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.

This paragraph is repeated from the past several months, but it does not hurt to reread it each week during bearish seasonality. 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. Bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. The Quick-term Indicant is showing some signs that bullish seasonality may be starting a little early this year and could be underway. A late August rally and an unusually bullish September support an early entry into bullish seasonality, although October so far has been somewhat bearish.

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.

The parenthetical phrase (or just after) was inserted in the above paragraph on October 23, 2004. Bullish behavior is having difficulty getting started this year. The rising oil price, rising interest rates, and the Chiron debacle on the influenza vaccine have dampened bullish enthusiasm. However, a Quick-term bull is expected to occur before the end of this year.

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 continues recommending a stop loss of 5% because of bearish seasonality. This is the final week of bearish seasonality. If you are up by 50% or more you may find it advantageous to set your stop-loss at 10% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use either a 5% (or 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 8% 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 8% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 15% 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

This paragraph is the same as last week with modifications that refer to historical timing. The market continues to reveal divergent behavior. That is non-bullish. The market’s divergent expressions are not enough to solicit outright bearishness at this time.  The bullish bias from three weeks ago has been lost, but there is not enough convergent behavior to support a bearish bias either. This attribute is neutral. The Energy Sector and Commodity Sector are bullish. If this pattern continues, this will become a solid bearish bias.

Economic Conditions – Inflation, Currency, Interest Rates

Most economic variables appear to be positioning for a typical post election bearish year. Commodity prices are rising and setting new highs. Interest rates are moving aggressively to the northeast. The automotive industry is softening and appears headed for a major downturn.

It appeared the market was anticipating a reduction in oil prices a few weeks ago. The most violent bearish reactions occur when an anticipated outcome does not occur. If oil prices do not correct to the south in the very near future, expect the market to adjust quickly to the south. If oil prices continue to march north, prepare for a lengthy bear market.

As stated the past three weeks, rising commodity prices continue to be a threat to mid-term and long-term market bullishness. Oil prices have seemed to find a comfort zone nestled above the $50 per barrel price. Other commodity prices continue to skyrocket. As stated last week, this cyclical behavior is setting the stage for a bearish post election year, which is the traditional bearish year on the four-year presidential election cycle.

This paragraph is unchanged from last week. The U.S. dollar continues to shift to strengthening against world currencies. The Canadian dollar continues to march to its own drumbeat and strengthened considerably the past three weeks. The Euro returned to strengthening. That may continue to help U.S. exports.

Interest rates continue moving north. Most of these activities, with the exception of high oil prices, are consistent with election cycle’s influence on economic policies. The best time for the political community to screw things up is in the post election year. Remember, the only political contribution to the economy is for the politicians to undo their prior sins.

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-two weeks ago since the MTI buy signal in April 2001. One-hundred and fifteen weeks ago, it closed up 30.1%. Last week it closed up 120.5%, which is higher than the 75.9% reported sixty-six weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 33.7%, which is significantly higher than 23.1% reported sixty-six weeks ago. This fund is flat with its most recent peak on December 5, 2003 when it was up 117.3%. This fund moved up modestly last week.

The Fidelity Gold Fund #28 is up 10.4% (annualized at 59.5%) 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 up modestly last week.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 135.5% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 61.1%. Vanguard Energy #18, VGENX, is up 64.0% (annualized at 40.7%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 36.1% (annualized at 40.5%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 42.7% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 35.5%. These energy related funds rebounded strongly last week, after bearish expressions in the prior week. The market had been anticipating a rapid drop in oil prices. That did not pan out and the prices adjusted with some bullish fervor.

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 11.4% (annualized at 39.2%) since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? 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 is likely to occur in the upcoming presidential post election year. It has been occurring the past few weeks in anticipation of this prognosis.

As repeatedly stated in this weekly report, gold prices will tumble if terrorism and inflationary threats subside.

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.

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 down by an average of 2.5% since the Quick-term Indicant signaled bull on October 1, 2004. Although the quick-term attributes still support a bullish bias, these bullish attributes have weakened the past three weeks. The market was configured to support immediate quick-term bullishness three weeks ago, but Chiron’s failure to deliver flu vaccine stung the bull’s ambition. However, that and rising oil prices have wounded the bull, it is still portraying enough pride to put the bear back into hibernation. After all, the weather is getting cooler with shorter days. That usually invigorates the bull and puts the bear to sleep. Fundamental pressures are stifling bullish exuberance.

Three weeks ago, six of the eight major indices were quick-term red bulls. For the third consecutive week, none of them possess red bull configurations. The bullish red curve did not act as a floor to falling stock prices last week, opening up a window of opportunity for the bear to gain position before the conclusion of bearish seasonality.

Force Vectors behavior is mixed right now with only two of the eight moving north as of this past Friday’s close. A major concern is the Dow’s inability to respond back to the north after falling below bearish yellow. It, along, with the S&P500 and S&P100 are now below the bearish yellow curve. Subsisting in that state for a few more days will allow the bear to gain confidence on a quick-term basis. It is still possible for a quick-term bull rally before year-end, but it would be all for naught if preceded by a nasty quick-term bear cycle.

Vector Pressure continues moving south (bearish) for six of the eight indices. The NASDAQ and NASDAQ100 are moving north, which supports a quick-term bullish bias. Vector Pressure weakened late last week. It is now negative (bearish) for five indices. The bullish bias is now being tested on a quick-term basis. However, as long as some are in bullish domains, there is little threat of a deep crash.

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. 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 Indicant Volume Indicator continues with robust movement. As previously stated much of this rise has paralleled quick-term bullish market behavior. This supports a quick-term bullish bias. It is discerning though that the degree of robustness accelerated late last week, paralleling bearish expressions. However, Big Board Volume was down slightly last week on bearish expressions while the NASDAQ volume was relatively flat on bearish expressions. This offers a small tint of non-bearishness.

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

The Dow is down 4.7% since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is down 2.1% since the Short-term Indicant signaled bull on October 5, 2004. Recent behavioral patterns are no longer supporting a short-term bullish bias. Bearish expressions next week will trip the Short-term Indicant to signal bear.

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

As stated the past few weeks, the NASDAQ and NASDAQ100 indices were threatening their respective breakdown lines a few weeks ago. When they got close, they responded with a bullish expression. However, as stated last week, the sickly Dow is in danger of making contact with its breakdown line. It is only 1.8% above it, while the NASDAQ and NASDAQ100 are no longer being threatened by contact. The S&P100 is only 2.8% above it. Contact could be made very soon. Again, bearish expressions typically follow contact.

Read your daily emails, as this attribute will again be closely reviewed this coming week.

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 15.6% since the Mid-term Indicant signaled bull an average of 52.8 weeks ago. That annualizes to 15.3%. The Dow Transports is the strongest bull. It is up 49.0% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 14.5% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 28.2% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities, Dow Transports, and Dow Composite continue as Mid-term Indicant Red Bulls. The three red bulls provide some comfort against any nasty crashes. The market seldom crashes when any index is a red bull.

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 88.6% since the Mid-term Indicant signaled bull an average of 80.1 weeks ago for an annualized gain of 57.5%, which is less than the 72.9% reported seventy-one weeks ago.

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

Oct 17, 2004 Indicant.Net Weekly Update

Volume 10, Issue 3 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

The Market Owes At Least One More Quick-term Indicant Bull This Year

The Quick-term Indicant Bulls this year have been lackluster. The market has been mixed this year, but it would be safe to say it has been a bearish year. The Dow Jones Industrial Average is down 5.0% for the year. The NASDAQ is down 4.6% so far this year. Those are the two most bearish indices so far in 2004.

The Dow Composite of Sixty-Five Stocks is up 2.5% on the year. That is due to the continuing bullish expressions by the Dow Jones Transports, which continues to skyrocket in the face of higher oil prices. That is a classic case of buying when the news is bad. Bottom line performance of the Dow Transports has been severely threatened with the increasing oil prices. Although Delta is not a constituent of the Dow Transports, its problems have been shared by poor earnings performance by the Transportation Sector since 911 and rising fuel costs. Delta Airlines impending bankruptcy is fundamentally bearish. However, the Dow Transports continues to rise. That index is up 48.1% since the Mid-term Indicant signaled bull on March 22, 2003. The market is anticipating good year-end news in 2004 with respect to lower fuel costs.

The Dow Composite of Sixty-Five Stocks is also performing well due to the profound performance of the Dow Utilities. That index is up 27.0% since the Mid-term Indicant signaled bull on August 16, 2003. The index, overall, expressed some bearish behavior in the summer of 2003, but quickly rebounded. However, individual stocks contained this index have performed very well. The fifteen stocks are up 105.7% since the Mid-term Indicant signaled buy an average of 73.8 weeks ago. Those who bought locked into some annual nice dividends as well. This group of stocks, although a small number, will most likely maintain the Indicant’s hold positions for quite some time. This is due to a lack of selling interest by holders because of the healthy dividend payments, which is 100% higher than buyers would get today. Do not be surprised to see these stocks receiving the Indicant’s hold signal for the remainder of this decade.

The market endured a late spring inflection point with the meandering behavior of such markets. Although the inflection point attributes expired earlier this year, the market has merely meandered since then. The S&P500 is nearly flat on the year. It is down, infinitesimally, by 0.3% this year. The large cap index, S&P100, is down 3.5%, while the mid-caps (S&P400) is up 1.6%. The S&P600 (small caps) is up a respectable 6.9% on the year. The S&P600 was at a record high a few weeks ago.

Two years ago, there were 107 buy signals for stocks and funds. There were 51 buy signals for funds. We are now starting the third year of overall bullish positions and lengthy hold positions for several stocks and funds since the October 2002 buying spree.  Several of those stocks endure sell/buy cycles since then. Some were stimulated by technical reasons, while a few were stimulated for profit taking purposes only. The Indicant is sensitive to market seasonality and is liberal in sell signaling during bearish periods.

Deep bearish seasonality expired on October 15, 2002. With that expiration, a new bull market was born. Although this year has been a ragtag sort of year for the stock market, vestiges of that new bull market that was born in October 2002 still exist. Deep bearish seasonality just expired in 2004. That is one more reason to expect a Quick-term Bull before year end.

The Indicant’s MTI-RYS model, which was unveiled a few weeks ago, reveals the current MTI-RYS Bull market was born in October 2002. The early days of that bull were impressive, but the indices were weakened with the worse December in 2002 since December 1931. This bull transformed from being dynamic to somewhat of a mediocre bull market between October 2002 and March 2003. However, the 2003 bull market was refreshing since it was the first up year this century, including the 100^th year of the last century.

The markets are anticipating a decline in oil prices. That was apparent from last week’s drop in energy-related stocks and funds. They were down dramatically last week even though oil prices shattered new record highs. Even gold was down last week.

The presidential election year is the second most bullish on the four year presidential election cycle for the Dow and S&P500. The NASDAQ, although a newer index with limited historical data and relationships, appears to be falling into congruent configurations of the older indices. The NASDAQ and NASDAQ100 are more volatile than the older indices with more magnitude in movement. However, their bull/bear cycles are becoming more similar in breadth with the older indices.

This year has been uncharacteristically bearish when comparing to historical standards. That is why a year-end bullish spurt would not be surprising. The Quick-term Indicant is configured to support a Quick-term Bull in the immediate future. The quick-term bullish configurations were weakened with Chiron’s failure to distribute influenza vaccines. That was bad news and the market quite often goes up on bad news. In this case, though, it shocked the market, because it was such a surprise and because of political ramifications.

Do not be surprised at bullish behavior on a quick-term basis in the next few weeks. Read your daily reports as the market can reverse quick-term attributes quickly. If the news gets good in the next few days, expect some selling pressure, as the recent buying was predicated on the anticipation of that good news.

Weekly Buy/Sell Summary

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

In addition to the sell signal, the Mid-term Indicant is avoiding fifty-two stocks and funds of the 296 tracked by the Indicant. The avoided stocks and funds are down an average of 33.1% since the Mid-term Indicant signaled sell an average of 51.5 weeks ago.

There were only nineteen stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 23.3% since their respective sell signals an average of 31.7 weeks earlier. On October 18, 2002, the Mid-term Indicant was avoiding 109 stocks and funds that were down an average of 31.4% since their respective sell signals an average of 15.8 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 240 of the 296 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 63.7%. That annualizes to 63.5%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 240 stocks and funds for an average of 52.2 weeks.

One year ago, the Mid-term Indicant was holding 266 stocks and funds for an average of 28.3 weeks. They were up 51.8% (annualized at 95.4%). The Mid-term Indicant was signaling hold for 76 stocks and funds two years ago on Oct 18, 2002. They were up by an average of 25.8% (annualized at 62.5%) since their respective buy signals an average of 21.5 weeks earlier. Two years ago, there were 107 buy signals, which was the second consecutive week of aggressive buying.

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.

This paragraph is repeated from the past several months, but it does not hurt to reread it each week during bearish seasonality. 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. Bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. The Quick-term Indicant is showing some signs that bullish seasonality may be starting a little early this year and could be underway. A late August rally and an unusually bullish September support an early entry into bullish seasonality, although October so far has been somewhat bearish.

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 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.

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 continues recommending a stop loss of 5% because of bearish seasonality. If you are up by 50% or more you may find it advantageous to set your stop-loss at 10% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use either a 5% (or 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 8% 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 8% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 15% 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.

There have been quite a few buy signals the past few weeks that were driven by the technical rally. Be conservative with these buys and do not be surprised if sell signals for some them reverse.

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

The market continues to reveal divergent behavior. That is non-bullish. The market’s divergent expressions are not enough to solicit outright bearishness at this time.  The bullish bias from two weeks ago has been lost, but there is not enough convergent behavior to support a bearish bias either. This attribute is neutral. The Energy Sector and Commodity Sector are bullish. If this pattern continues, this will become a solid bearish bias.

Economic Conditions – Inflation, Currency, Interest Rates

As stated the past two weeks, rising commodity prices continue to be a threat to mid-term and long-term market bullishness. Oil prices have seemed to find a comfort zone nestled above the $50 per barrel price.

Other commodity prices continue to skyrocket. As stated last week, this cyclical behavior is setting the stage for a bearish post election year, which is the traditional bearish year on the four-year presidential election cycle.

This paragraph is unchanged from last week. The U.S. dollar continues to shift to strengthening against world currencies. The Canadian dollar continues to march to its own drumbeat and strengthened considerably the past two weeks. As stated the past several weeks, this could be a long-term move related to increased production from the tar sands in Canada in the next few years. Canada has more oil in those reserves that the Middle East. The high price of oil supports tar sand extraction, which has a tremendously higher extraction cost than Middle Eastern oil. However, with today’s higher oil prices, investment in tar sand extraction will be much easier to capitalize for investors.

Interest rates continue moving north. Fannie Maes and Freddie Macs have been contacting bearish yellow and bouncing to the north in each cycle. The problem is that each bounce off yellow is higher than the previous one. That cyclical behavior is non-bullish. All of the other interest rates continue on their path to the northeast. That is not yet bearish, but the direction is certainly non-bullish.

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-one weeks ago since the MTI buy signal in April 2001. One-hundred and fourteen weeks ago, it closed up 30.1%. Last week it closed up 116.1%, which is higher than the 75.9% reported sixty-five weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 32.8%, which is significantly higher than 23.1% reported sixty-five weeks ago. This fund is flat with its most recent peak on December 5, 2003 when it was up 117.3%. This fund has moved significantly to the south last week after rising quite nicely the prior four weeks.

The Fidelity Gold Fund #28 is up 7.4% (annualized at 47.3%) 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. 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 also fell significantly last week.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 127.3% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 57.9%. Vanguard Energy #18, VGENX, is up 61.4% (annualized at 39.5%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 33.8% (annualized at 38.8%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 40.5% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 34.4%. All of these energy-related funds were down significantly last week after rising nicely the prior seven weeks in the face of vacillating and record high oil prices and rising commodity prices.

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 9.8% (annualized at 32.2%) since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? 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 is likely to occur in the upcoming presidential post election year.

As repeatedly stated in this weekly report, gold prices will tumble if terrorism and inflationary threats subside.

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 positions, there remains some pessimism regarding the future of the economy.

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 down by an average of 2.0% since the Quick-term Indicant signaled bull on October 1, 2004. Although the quick-term attributes still support a bullish bias, these bullish attributes have weakened the past two weeks. The market was configured to support immediate quick-term bullishness two weeks ago, but Chiron’s failure to deliver flu vaccine stung the bull’s ambition. However, that and rising oil prices have wounded the bull, it is still portraying enough pride to put the bear back into hibernation. After all, the weather is getting cooler with shorter days. That usually invigorates the bull and puts the bear to sleep.

Two weeks ago, six of the eight major indices were quick-term red bulls. For the second consecutive week, none of them possess red bull configurations. The bullish red curve did not act as a floor to falling stock prices last week, opening up a window of opportunity for the bear to gain position before the conclusion of bearish seasonality.

Force Vectors behavior is mixed right now with four of the eight shifting north on last Friday’s close. Bearish yellow acted as a floor to the Dow’s bearish expressions late last week. That was a non-bearish response to the market’s slide since the Chiron fiasco.

Vector Pressure is now moving south, but six of the eight reside in bullish domains. The two indices situated in bearish domains are the Dow and the S&P100. The six in bullish domains is a 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. 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 Indicant Volume Indicator resumed its rise after a couple of downward moving days. The recent rises coincide with up days, while the down days accompanied bearish market expressions. This means the number of buyers exceeds the number of sellers on both bullish and bearish days. That is definitely not bearish on a quick-term basis. The Big Board’s volume was moderately high last Friday that paralleled bullish market behavior. The NASDAQ’s Indicant Volume Indicator supports a quick-term bullish bias.

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

The Dow is down 3.0% since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is also down 2.3% since the Short-term Indicant signaled bull on October 5, 2004. As previously stated, the do not be surprised to see the market retreat back to the Quick-term Indicant’s bullish red curve on this signal. The markets did just that. Last week, the DJIA even fell below bearish yellow, but the following day, it moved back to the north. So far, this behavior is non-bearish on a quick-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

As stated the past few weeks, the NASDAQ and NASDAQ100 indices were threatening their respective breakdown lines a few weeks ago. When they got close, they responded with a bullish expression. However, the sickly Dow is in danger of making contact with its breakdown line. It is only 3.7% above it, while the NASDAQ and NASDAQ100 are no longer being threatened by contact. The Dow’s relative position to its breakdown line is very close to where they were for the NASDAQ and NASDAQ100 a few weeks ago. There will be an overall bullish response by the market if the Dow responds in the same bullish manner as the NASDAQ and NASDAQ100. Read your daily emails, as this attribute will again be closely reviewed this coming week.

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 15.9% since the Mid-term Indicant signaled bull an average of 51.8 weeks ago. That annualizes to 16.0%. The Dow Transports is the strongest bull. It is up 48.1% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 16.6% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 29.1% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities, Dow Transports, and Dow Composite continue as Mid-term Indicant Red Bulls. The S&P500 lost its Mid-term Red Bull status last week. The three red bulls provide some comfort against any nasty crashes. The market seldom crashes when any index is a red bull.

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 89.8% since the Mid-term Indicant signaled bull an average of 79.1 weeks ago for an annualized gain of 59.1%, which is less than the 72.9% reported seventy-one weeks ago.

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

Oct 10, 2004 Indicant.Net Weekly Update

Volume 10, Issue 2 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

Variant Behavior

International stock market indices rose last week. They typically parallel U.S. Indices although with differing magnitude and timing. There is no need to speculate on this, as variances are the nature of the stock market. The only relevance rests in the market’s direction.

Pundits blamed last week’s bearish expressions on record high oil prices. The internet sector took it on the chin last week, while most of the other sectors held ground. The internet industry is not known to be big consumers of oil. So, why did the internet sector express bearish behavior last week? Who cares as to why? The direction is the only relevance. Right now, the Mid-term Indicant is still signaling bull for that sector, as last week’s bearish expression was not enough to unseat bullish dominance.

The Dow Transports rose last week. It rose 1.1% when most of the other major indices fell or were flat. The news was bad last week for the transportation sector. Record high oil prices will erode their profit margins. That deflates their earnings per share. It will deflate their return of shareholder equity. So, on the record high oil prices, the largest sector consumer of oil expressed bullish behavior. That, on the surface, is variant behavior, given the underlying fundamentals confronting the transportation industry.

The bad news does not end with higher oil prices. Delta Airlines is on the verge of filing Chapter 11 bankruptcy. It was once a great company. Recognized in the 1980’s book, In Search of Excellence, Delta was once considered an outstanding company. By the way, that book mentioned quite a few mediocre companies as excellent, but Delta was truly an exceptional company in the late 1980’s.. At any rate, such contemporary news does not bode well for the transportation industry. But, last week, that index went up.

The Dow Utilities also rose last week. It, along with the transports were the only two major indices that expressed bullish behavior last week. The utilities are huge consumers of petroleum products. Record setting oil prices and rising indexes that need oil does not make sense, huh? Fundamentally, it does not make sense. Commonsense seldom patterns the market’s direction. Contemporary news never directs the stock market’s mid-term cyclical direction.

Furthermore, the Dow Transports is the most bullish of the eight major indices tracked by the Mid-term Indicant. It is up 47.4% since the Mid-term Indicant signaled bull on March 22, 2003. That was nearly nineteen months ago. During that time, oil prices have skyrocketed from $28.61/BBL to $52.67/BBL. That is an 84.1% increase in the price of oil. That is a profound operational cost increase for the transports to endure. All the while, the Dow Transportation Index has risen more than any other index since March 22, 2003. In fact, the Dow Transportation Index is at the highest it has been this century, while oil prices are their highest level ever.

The above is a classic case of contrarian investing. Buy when the news is horrible is the contrarian’s mantra. The market’s mid-term and long-term direction is all about anticipation, which is sometimes wrong. That contributes quite often to the periodic sharp movements in one direction or the other. Currently, the Dow Transportation Index is anticipating falling oil prices and increased transportation activity. The contrarians may win or if they hold too long they may lose. If oil prices continue upward, a deep reversal as cash flow and earnings will eventually overtake the contrarian’s current stance.

Why did the U.S. markets fall last week while the rest of the world exuded bullish expressions? Chiron’s collapse probably had a lot to do with that. Although the Indicant does not usually care about the why on the market’s direction, this situation is worth mentioning. This is because, each week, the Indicant recommends you do not invest more than 10% of your investment resources into a single stock. That is because you never know when dilettante management will rear its ugly head. The U.S. produces more dilettante managers than any other country in the world with the possible exception of European countries.

The market punished all pharmaceuticals last week on Chiron’s failure to produce and deliver influenza vaccines. This was not a flop in forecasting, which can be tolerated, but known customer demand. Forecasting flops ate tolerated because forecasts are always wrong. High performing companies adjust operational activities to forecast error almost real time with the accumulation of error. Low performing organizations are not flexible or capable for such adjustments.

What did Chiron do wrong? Let us start at the beginning, which is always the best place to start any problem solving routine. Nearly all industries participate and help develop a standard body of knowledge or guidelines. Legislative and administrative law drives some guidelines. The Act of 1887 provided regulation of railroads in interstate commerce. That was one of the earliest applications of administrative law.

Since then administrative laws have burgeoned to regulate several industries. This helped foster industry standards, which continue to weave into nearly all industries. For example, the automotive industry’s design functions are influenced, in part, by the S.A.E., Society of Automotive Engineers. The petroleum industry’s design functions are influenced, in part, by S.P.E, Society of Petroleum Engineers. Both industries, in addition to other industries, are influenced by S.M.E. (Society of Mechanical Engineers) standards. Several industries subscribe to ASTM standards, which defines measurements, specification tolerances, and applications of material sciences.

There are several guidelines used to establish industry standards. Most manufacturing organizations subscribe the ISO9000 standards of manufacturing and quality control practices. The automotive industry further refined the ISO standards under the guidance of QS9000, while the petroleum industry follows, for the most part, ISO9000 guidance. These two standards are similar. The Pharmaceutical and food processing companies follow guidelines and standards established by the FDA. Many FDA guidelines are shrouded in administrative law, which means violation is a criminal event.

The U.S. F.D.A. and their British brethren, the M.R.H.A., shut down Chiron’s distribution of the current influenza vaccine. The British claimed that they documented “systemic deficiencies” within Chiron’s processing. They also found contaminations in some of Chiron’s production lots.

You cannot read the news and determine the magnitude of guilt in such cases. However, if the phrase, systemic deficiencies, accurately profiles the problem at Chiron, a clear example of dilettante management can be illuminated.

Allowing “systemic deficiencies” in production of product is never excusable. There are always problems in the manufacturing of any product. Even high performing companies endure occasional problems, referred to as isolated incidences. When the problems become systemic, you have a management team who does not have their eye on the ball. That is dilettante management. Core operating principles guide outstanding companies. Those principles drive basic operating practices. With the continued violation of those principles and practices, systemic deficiencies are given birth and quickly spread throughout the organization. Allowing this to happen is 100% management responsibility.

Core operating principles run deeper into an organizations practices, industry guidelines, and administrative law. It is only a matter of time before the degradation of core operating principles when their founders are no longer in charge. Later generations of managers seldom know the core operating principles. They tend to focus exclusively on financial data. For example, they will say, “Ship it” to make month’s revenue budget even if the product is defective.

Systemic issues originate as a single isolated incident of inferior output. If corrective action is not immediately taken, then the population of these isolated incidents of inferior operating performance grows. This promulgates procedural negligence at the lower levels of the organization. That characteristic evolves to systemic deficiencies. That phenomenon occurs over a long period. That means management is incompetent. They are not watching the business. Most dilettante managers are incapable of monitoring core principles because they do not even know what they are. However, all managers should be completely aware of the industry’s standard practices. Not honoring those practices is a pure act of management stupidity.

Many companies facilitate the birth of systemic deficiencies when new management takes over. The new management, if not homegrown or willing to learn, is not aware of the core operating principles. Laziness or neglect kicks in and the new management team is unaware of the devolution underway. When one sacrifices, consciously or unconsciously, long-standing principles, then they become an organization without principle. Thus, systemic deficiencies are born.

Dilettante management rapidly permeates industry groups. Executives spend a lot of time networking to make sure their next job is lined up when and if they get fired. Many, although not all, focus on self-gain, self-protection daily tactics as opposed to honoring the trust placed in them by the board of directors and the shareholders. When a company like Chiron expresses incompetent results, the markets punish that company. However, punishment does not stop there. It also punishes all members of that industry’s “good old boy” network. “Systemic deficiencies” are a fundamental reason for avoiding that company’s stock for the rest of that company’s life, which will be short-lived, if Congress does not protect it for their voting employees. Systemic deficiencies take a long time to materialize. However, it takes much longer to fix them. Most of the time, they are now reparable. The question is, did the newspaper reporter or Britain’s FDA equivalent, MRHA, use a good choice of words with “systemic deficiencies.” Time will tell if this is real or some overzealous behavior on the part of the MRHA.

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

Weekly Buy/Sell Summary

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

In addition to the sell signals, the Mid-term Indicant is avoiding fifty stocks and funds of the 296 tracked by the Indicant. The avoided stocks and funds are down an average of 32.6% since the Mid-term Indicant signaled sell an average of 51.1 weeks ago.

There were only twenty-four stocks and funds avoided at this time last year. The avoided stocks and funds one year ago were down an average of 22.5% since their respective sell signals an average of 31.0 weeks earlier. This contrasts strongly with the avoided stocks and funds two years ago. On October 11, 2002, the Mid-term Indicant was avoiding 212 stocks and funds that were down an average of 25.6% since their respective sell signals an average of 11.3 weeks earlier.

In addition to the buy signal this weekend, the Mid-term Indicant is currently signaling hold for 240 of the 296 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 64.3%. 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 ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 240 stocks and funds for an average of 51.2 weeks.

One year ago, the Mid-term Indicant was holding 263 stocks and funds for an average of 27.9 weeks. They were up 52.9% (annualized at 98.7%). The Mid-term Indicant was signaling hold for only 52 stocks and funds two years ago on Oct 11, 2002. They were up by an average of 25.2% (annualized at 52.8%) since their respective buy signals an average of 24.8 weeks earlier.

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.

This paragraph is repeated from the past several months, but it does not hurt to reread it each week during bearish seasonality. 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. Bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. The Quick-term Indicant is showing some signs that bullish seasonality may be starting a little early this year and could be underway. There is more about this later.

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 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.

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 continues recommending a stop loss of 5% because of bearish seasonality. If you are up by 50% or more you may find it advantageous to set your stop-loss at 10% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use either a 5% (or 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 8% 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 8% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 15% 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.

There have been quite a few buy signals the past few weeks that were driven by the technical rally. Be conservative with these buys and do not be surprised if sell signals for some them reverse.

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

The prior week’s convergence was lost this past week. The Internet and Medical sectors weakened last week. Chiron’s crisis in England induced the medical sector’s bearishness. Interestingly, the non-energy consuming sector, Internet, declined, while Transports expressed bullish behavior in the face of record high oil prices. Keep in mind the market is always anticipating. Internet growth continues to be impressive, but rip-off artists are unhealthy contributors to that growth.

The market lost one of its bullish biases with this past week’s divergent behavior.

Economic Conditions – Inflation, Currency, Interest Rates

As stated last week, rising commodity prices continue to be a threat to mid-term and long-term market bullishness. The equity markets rose the week before last in the face of rising commodity prices, but there was a general belief that $50 oil was the ceiling. The equities markets did not like seeing it pass above the $50 level.

Other commodity prices are skyrocketing, trying to keep up with their cousin, Oil. As stated last week, this cyclical behavior is setting the stage for a bearish post election year, which is the most bearish year on the four-year presidential election cycle.

This paragraph is unchanged from last week. The U.S. dollar continues to shift to strengthening against world currencies. The Canadian dollar continues to march to its own drumbeat. As stated last week, this could be a long-term move that is tied to more oil being delivered from the tar sands in Canada in the next few years. Canada has more oil in those reserves that the Middle East. The high price of oil supports tar sand extraction, which has a tremendously higher extraction cost than Middle Eastern oil. However, with today’s higher oil prices, investment in tar sand extraction will be much easier to capitalize for investors.

Interest rates continue moving north. Fannie Maes and Freddie Macs have been contacting bearish yellow and bouncing to the north in each cycle. The problem is that each bounce off yellow is higher than the previous one. That cyclical behavior is non-bullish. All of the other interest rates continue on their path to the northeast. That is not yet bearish, but the direction is certainly non-bullish.

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 weeks ago since the MTI buy signal in April 2001. One-hundred and thirteen weeks ago, it closed up 30.1%. Last week it closed up 125.1%, which is higher than the 75.9% reported sixty-four 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 sixty-four weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund has moved up nicely the past four weeks.

The Fidelity Gold Fund #28 is up 11.3% (annualized at 81.1%) 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% 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. However, its behavior last week was fun to watch for those of you who bought it.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 135.4% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 62.1%. Vanguard Energy #18, VGENX, is up 65.2% (annualized at 42.5%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 38.5% (annualized at 45.0%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 44.3% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 38.0%. All of these energy-related funds rose nicely the past seven weeks in the face of vacillating and record high oil prices and rising commodity prices.

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 13.5% since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? 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 is likely to occur in the upcoming presidential post election year.

As repeatedly stated in this weekly report, gold prices will tumble if terrorism and inflationary threats subside.

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 positions, there remains some pessimism regarding the future of the economy.

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 down by an average of 1.1% since the Quick-term Indicant signaled bull on October 1, 2004. The quick-term attributes shifted from a bearish bias two weeks ago to a bullish bias. That bias was weakened somewhat last week. The Dow Jones Industrial Average Index appeared ready to support bullish expressions, but withered last week. That shift away from a bullish bias is not strong, which lends some expectations from a reversal to a bullish bias.

Last week, six of the eight major indices were quick-term red bulls. This week none of them possess red bull configurations. That is somewhat disappointing. If the market does not express bullish behavior next week, then the bullish red curve did not act as a floor to falling stock prices. If the market does not express bullish behavior next week, then the next issue is how well the market will react on a quick-term basis if it decides to interact with bearish yellow.

Force Vectors shifted back to the south all eight indices after all eight were moving north last week. However, all eight Force Vectors still reside in bullish domains. That supports bullish bias on a quick-term basis, but not as strong as last week. The Force Vector movement became robustly bullish in the middle of last week, but the recent turn to the south suggests the degree of robustness may not be sufficient to provide continuing bullish expressions. Robustness was achieved on mature Force Vector cycles. A reversal is not uncommon when that happens. It was disappointing the reversal took place but bearish dominance is still not obvious on a quick-term basis.

Vector Pressure is now moving north. Last week all eight were moving south. Northward bound Vector Pressure is adds a significant bullish bias. All but one is in bullish domains. The culprit is the Dow Jones Industrial Average, which is an index that seems to be showing sympathy to bearish ambitions. However, as long as the Vector Pressure is moving north and residing in bullish domains adds flavor to the underlying bullish bias on a quick-term basis.

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. 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 Indicant Volume Indicator continues to rise for both indices. Most of the NASDAQ’s rise paralleled NASDAQ up days. That supports bullish expressions. The NYSE’s Indicant Volume Indicator’s rise has been associated with mixed behavior, which suggests the quick-term bull may not be strong or be short-lived. This recent movement by the Indicant Volume Indicator, overall, supports non-bearish behavior.

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

The Dow is down 1.8% since the Short-term Indicant signaled bull on October 6, 2004. The NASDAQ is also down 1.8% since the Short-term Indicant signaled bull on October 5, 2004. As previously stated, the do not be surprised to see the market retreat back to the Quick-term Indicant’s bullish red curve on this signal. The markets did just that.

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 NASDAQ and NASDAQ100 indices were threatening their respective breakdown lines a few weeks ago. When they got close, they responded with a bullish expression. However, the sickly Dow is in danger of making contact with its breakdown line. It is only 4.9% above it, while the NASDAQ and NASDAQ100 are no longer being threatened by contact. This is something to watch. The sickly Dow could make contact next week and trigger a new Quick-term Bear market. Read your daily emails, as this attribute will be closely reviewed this coming week.

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 Mid-term Indicant signaled bull for the NASDAQ and NASDAQ100.

The eight major indices are up an average of 16.4% since the Mid-term Indicant signaled bull an average of 50.8 weeks ago. That annualizes to 16.8%. The Dow Transports is the strongest bull. It is up 47.5% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 18.0% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 29.6% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities, Dow Transports, Dow Composite and the S&P500 continue as Mid-term Indicant Red Bulls. That provides some comfort against any nasty crashes. The market seldom crashes when any index is a Red Bull.

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 92.2% since the Mid-term Indicant signaled bull an average of 78.1 weeks ago for an annualized gain of 61.4%, which is less than the 72.9% reported seventy weeks ago. As you can see, although not down as much as the U.S. indices, they have been subjected to a slight bearish bias as well.

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

Oct 3, 2004 Indicant.Net Weekly Update

Volume 10, Issue 1 ISSN 1526 6516 © The Indicant Stock Market Report

Dear Indicant Members:

This Week’s Report

Bullish Bias Just Formed

You need to recognize the MTI-RYS model. Although some additional work is in progress, you will find some meaningful information. The MTI-RYS Indicant signaled bull for the NASDAQ and NASDAQ100 this weekend. That is substantive.

Secondly, you need to notice the Quick-term Indicant signaled bull this past Friday. This triggered a sell signal for the ProFunds Ultra Short. There will be more about the Quick-term Indicant and ProFunds Ultra Short later in this report.

Thirdly, the Mid-term Indicant also signaled bull for the NASDAQ and NASDAQ100. These were the only two bears encountered this year. Bullish behavior may indeed be starting ahead of bullish seasonality. So far, the recent bullish expressions do not appear to be a mere technical rally, but one with potential substance.

There are the conflicts continuing and should be reviewed. The approaching presidential post election year is the most bearish on the four-year presidential election cycle. It would not be surprising to find 2005 as being bearish. This is due to rising oil prices, rising commodity prices, and rising interest rates. The stock market does not like any those things. Such economic projections, if materialized, would encourage the bear to exert itself. Threats of terrorism in the U.S. have not waned. That provides some bearish fuel.

Why the bull signals with such negativity? It appears the market may be jumping into bullish seasonality a month ahead of normalcy, which has been the recent pattern. The Quick-term Indicant signaled bull on October 4, 2001, which was not even a month after the horrors of 911. Although that turned out to be a mere Quick-term bullish cycle, it nevertheless conformed to seasonal standards. October 2002, which followed a horrendously bearish year, was the beginning of the current Mid-term bull legs. The market moved up paralleling normal seasonal behavior until December 2002, which was unseasonably bearish. That bearish continued into the first part of the first quarter of 2003. Another Mid-term bull signal was issued in late March 2003 and has been a bull for the most part ever since. Normal seasonality did not prevail in 2003 as the bull market continued to propel northward through the bearish seasonal period.

This year has been a variant one in terms of normal seasonality. Bearish influences began in February 2004, as opposed to bearish normalcy in the April-May period. The market peaked with the exception of the S&P600 in February and has been drifting southeast ever since. This has been somewhat frustrating, but many of the hold positions have held up well. Some were subjected to buy and sell cycles, but over half of the funds and stocks held above sell signal territory. Although your net worth took a few hits, commission expenses were avoided for the majority of the holdings.

The NASDAQ’s September was surprisingly bullish. It was up for the first time since 1999. The S&P500 was also up for the first time since 1998 this past September. That is a significant variant, but it merely offsets to a minor extent the earlier bearish expressions during bullish seasonality. A September 1971 $10,000 NASDAQ investment rose from $6,331 in September 2003 to $6,533 in September 2004 if only invested in the month of September since 1971. The only NASDAQ losing months on a historical basis are July, August, and September with September being the worse. However, this year, the NASDAQ moved up by a rather nice 3.2% in the normally bearish month of September. The S&P 500 moved up by a mild 0.9%. The Dow Jones Industrial Average fell by 0.9% in September.

The Dow’s August-September bi-monthly period was bearish with a 0.6% drop. A 1950 $10,000 Dow investment made only in these two months is now down to $4,448. The S&P500 and NASDAQ’s August-September bi-monthly period were surprisingly bullish. They were up 1.2% and 0.5% respectively. A 1950 $10,000 S&P500 investment in only these two months is now down to $5,638. The NASDAQ’s is down to $6,229. The NASDAQ’s September-October rolling bi-monthly has risen the past three years and it appears that will be the case this year.

The most bearish month for all three of these indices has consistently been September. Although there are other single months that lose money, September stands alone with the biggest historical and consistent losses.

Although this year has been a variant year, it is important to mention historical standards for the next few months. October is in the middle of the pack for all three indices with a slight edge in favor of minor bearish expressions. November is historically the second most bullish month for the S&P500 and NASDAQ. It is the third most bullish month for the Dow. The October-November is the third most bullish bi-monthly period for the S&P500 and NASDAQ, while it comes in as the fourth most bullish for the Dow. The October-December rolling quarter is the second most bullish for the Dow and S&P500. It is the fourth most bullish for the NASDAQ, which takes quite a few bearish hits in October, but provides a nice bullish response in the November-December rolling bi-monthly period.

As you can see, there is a high likelihood of bullish seasonality about to unfold. Deep bearish seasonality only has three weeks remaining and it appears to have been defeated with bullish aspirations this year.

There have been ninety-nine buy signals since August 20 this year against only eleven sell signals for stocks and funds. At the time of these buy signals, sell signals were expected to follow under the influence of deep bearish seasonality. However, you can see they did not.

Do not read too much into this, but it should be stated. There were over a hundred buy signals in August 2002 that were followed by nearly as many sell signals in September 2002. Those sell signals were followed by over 200 buy signals in October 2002. Most of these buy signals were followed by hold signals lasting for more than a year for stocks. Some of them are still being held with those specific hold signals. The Quick-term Indicant, as of this past Friday, is suggesting there is a decreasing probability that the recent buy signals will not succumb to sell signals in October of this year.

All major indices are down so far in this presidential election year. That is variant behavior as the election year is typically the second most bullish on the four-year cycle. The Dow is down 3.6% as of September 30, 2004. The NASDAQ is down even more by 5.3%. The S&P500 is up a paltry 0.2% this year. The average gain since 1831 in presidential election years is 7.3%. So, the Dow needs to rise by nearly 10% for this year to be on par with presidential election years.

The Dow fell by 6.2% in Bill Clinton’s election year of 2000. The last back-to-back declines in presidential election years was in Woodrow Wilson’s 1916 and 1920, which is the only time back-to-back bearish expressions have occurred since 1836. There are two conflicting arguments in probability here. One holds that an event that has not occurred in quite some time has an increased probability that it will occur. The other argument would hold that a rare even is rare for a reason. Thus, there is little probability of occurrence. One cannot play the market on probability alone. Basing investment decisions solely on historical standards will invite some needless grief. The Indicant monitors these events and couples them to its rigorous mathematical modeling that has never been or never will be divulged to the public. When the masses catch onto something that works, it quits working. The masses cannot be right. Winners are limited to a minority of the investing population, for it is the loser’s money that is provided to the winners.

Since the Dow and NASDAQ are down so far this year and the presidential election year is historically bullish, one can reason the fourth quarter of this year should be shrouded with bullish market expressions.  The Quick-term Indicant made a major shift with Friday’s close. The market has laid down some of its cards that show some bullish aspirations. There will be more about that later in this report.

To get a historical grasp on the market’s performance, try to find about thirty minutes this week. When you do, click the following link. It will provide you some interesting perspective on the market, relative to the presidential election years, seasonal patterns, and what appears to be irrational behavior at times. All of the major indices include charts, but the Dow goes back to 1900. The S&P500 goes back to 1971 and the NASDAQ is traced and tested to 1984. The other indices go back to 1996.

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

Weekly Buy/Sell Summary

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

In addition to the sell signal, the Mid-term Indicant is avoiding fifty stocks and funds of the 296 tracked by the Indicant. The avoided stocks and funds are down an average of 32.4% since the Mid-term Indicant signaled sell an average of 52.4 weeks ago.

There were only thirty stocks and funds avoided at this time last year in addition to three sell signals. The avoided stocks and funds one year ago were down an average of 20.9% since their respective sell signals an average of 29.7 weeks earlier. This contrasts strongly with the avoided stocks and funds two years ago. On October 4, 2002, the Mid-term Indicant was avoiding 226 stocks and funds that were down an average of 24.7% since their respective sell signals an average of 10.1 weeks earlier.

In addition to the buy signals this weekend, the Mid-term Indicant is currently signaling hold for 204 of the 296 stocks and funds tracked by the Indicant. The stocks and funds with hold signals are up an average of 73.6%. That annualizes to 66.6%, which is down from 124.1% reported on June 7, 2003, but up from 50.2% reported over a year ago on February 15, 2003. The Mid-term Indicant has been signaling hold for these 204 stocks and funds for an average of 57.4 weeks.

One year ago, the Mid-term Indicant was holding 219 stocks and funds for an average of 30.0 weeks. They were up 58.5% (annualized at 98.0%). The Mid-term Indicant was signaling hold for only 54 stocks and funds two years ago on Oct 5, 2002. They were up by an average of 20.2% (annualized at 48.6%) since their respective buy signals an average of 21.6 weeks earlier.

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.

This paragraph is repeated from the past several months, but it does not hurt to reread it each week during bearish seasonality. 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 that 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. It is unlikely we will enjoy back-to-back asynchronous market behavior with seasonal normalcy in 2004. Bearish expressions on a Mid-term basis in 2004 between May and October should not be surprising. So far, this year has been consistent with normal bearish seasonality. Unfortunately, bearish expressions started ahead of schedule this year. The Quick-term Indicant is showing some signs that bullish seasonality may be starting a little early this year and could be underway. There is more about this later.

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 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.

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 continues recommending a stop loss of 5% because of bearish seasonality. If you are up by 50% or more you may find it advantageous to set your stop-loss at 10% from your current hold position. If you sold a stock on the stop loss and the Indicant continues to signal hold, do not buy the stock unless the Quick-term Indicant is signaling bull.

Use either a 5% (or 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 8% 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 8% trailing stop loss. If you are up by triple digit amounts and enjoy your ownership of the stock or fund, then use a 15% 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.

There have been quite a few buy signals the past few weeks that were driven by the technical rally. Be conservative with these buys and do not be surprised if sell signals for some them reverse.

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

After a couple of weeks of non-bullish divergent behavior, there was some noticeable convergent expressions last week. All sectors moved in a bullish direction. That is bullish. Some of these movements conflict with economic rationality as the energy sector and general equities cannot consistently express bullish configurations in the long run. However, seasonal and quick-term cyclical behavior does not express itself with rationality at the forefront. If this pattern does not shift in the next few weeks, then enjoy your hold positions even more.

Economic Conditions – Inflation, Currency, Interest Rates

Rising commodity prices continue to be a threat to mid-term and long-term market bullishness. Some commodities skyrocketed last week. That did not deflate the market at all. It appears that seasonal forces are about to provide a cyclical bullish bump to the market even in the face of rising commodity prices.

Recent stability in commodity prices has been shattered by the continuing rise in the price of oil. The other commodities are following suit. This is setting the stage for bearish post election year which is the most bearish year on the four year presidential election cycle.

This paragraph is unchanged from last week. The U.S. dollar continues to shift to strengthening against world currencies. The Canadian dollar continues to march to its own drum beat. This could be a long term move that is tied to more oil being delivered from the tar sands in Canada in the next few years. Canada has more oil in those reserves that the Middle East. The high price of oil supports tar sand extraction, which has a tremendously higher extraction cost than Middle Eastern oil. However, with today’s higher oil prices, investment in tar sand extraction will be much easier to capitalize for investors.

The problem is that petroleum investors have burned too many times in the last twenty-five years. That industry is not known for stability. Prices have vacillated quite wildly and just as investors warm up that sector’s plea for investment money, the prices fall again. Why put your money into an industry shaped by a foreign royal family that has blood relatives to those who hate the west? The question is, how long will that question have merit. The market will tell you. If the fifty dollar oil holds up, then expect investment dollars to pour into the Canadian tar sands. Also, for those of you who like to trade currencies, buying Canadian dollars would not be a bad idea.

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 nineteen weeks ago since the MTI buy signal in April 2001. One-hundred and twelve weeks ago, it closed up 30.1%. Last week it closed up 119.9%, which is higher than the 75.9% reported sixty-three weeks ago. The current annualized growth rate since the April 13, 2001 buy signal is 34.1%, which is significantly higher than 23.1% reported sixty-three weeks ago. This fund is up from its most recent peak on December 5, 2003 when it was up 117.3%. This fund has moved up nicely the past three weeks.

The Fidelity Gold Fund #28 is up 8.4% (annualized at 71.8%) 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 52.7% 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. However, its behavior last week was fun to watch for those of you who bought it.

State Street Research Global #9, SSGRX, which is isolated in the energy sector, is up 129.8% since the Mid-term Indicant signaled buy on August 16, 2002. It is annualizing at 60.2%. Vanguard Energy #18, VGENX, is up 62.4% (annualized at 41.2%) since the Mid-term Indicant signaled buy on April 5, 2003. Fidelity Energy Services #40, FSESX, is up 37.2% (annualized at 44.8%) since the Mid-term Indicant signaled buy on December 6, 2003. Fidelity Energy #39, FSENX, is up 41.8% since the Mid-term Indicant signaled buy on August 16, 2003. It is annualized at 36.5%. All of these energy-related funds rose nicely the past six weeks in the face of vacillating oil prices but with recent record highs.

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 10.0% since the Mid-term Indicant signaled bull on July 9, 2004. As repeatedly asked, is this the 1970’s all over again? So far, it does not look that way, but increasing bullish expressions in the energy sector will lead to more bearish equity expressions. This is likely to occur in the upcoming presidential post election year.

As repeatedly stated in this weekly report, gold prices will tumble if terrorism and inflationary threats subside.

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 positions, there remains some pessimism regarding the future of the economy.

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

Quick-term and Short-term Indicant Update

The Quick-term Indicant signaled bull this past Friday. After expressing some comfort between bearish yellow and bullish red, the market apparently was not ready to take another dip to bearish yellow.

After fourteen weeks of favoring bearish expressions, the Quick-term Indicant shifted some bias in favor of bullish expressions on a quick-term basis. Please read on.

Six of the eight major indices are now red bulls. They are above the bullish red curve by an average of 0.9%. All eight major indices are above bearish yellow by a significant average of 4.4%.

Force Vectors shifted north for all eight indices. Six of the eight are now in bullish domains. There inclining nature is still embryonic. Therefore, it is still too early to detect any robustness. If they become robust in the next few days, there will be no more doubt as to the market’s direction. The technical rally experienced in late August was also preceded by some robust Vector Pressure behavior. Prior to that movement, the Force Vectors had found a bottom. This recent turn of events is at a higher plane than the prior shift back to the north. That shifts bias from bear to bull on a quick-term basis. This will be closely monitored over the next few days.

Vector Pressure is still moving south, which favors a bearish bias, but the recent shift in Force Vectors has a good chance of shifting pressure changes from negative (bearish) to positive (bullish). Early last week Vector Pressure shifted into bearish domains. That may have ignited bullish aspirations. Good strong bulls always react to negative bearish behavior. Although sometimes this reaction is short-lived, there was an obvious reaction. That qualifies this bull as being a good one. The question is how good is it? We will find out in a few days.

Keep in mind Force Vectors and Vector Pressure are eight dimensional and cannot be plotted. We continue to research methods to convert to two-dimensional arrays so you can see them. About a year and a half ago, one of our members, a Mechanical Engineer, made some suggestions that appear to be promising for plotting. We have recently been experimenting with these plots and his idea is showing promise. The problem is the plots do not yet accurately show position and the trends are not clear. Sudden drops in Force Vectors show non-linear drops in Vector Pressure, which is not yet plottable on a two dimensional plane. However, we are making progress in this area. Once perfected, options trading can be better planned. Until then, we will continue to use words to describe them.

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 Indicant Volume Indicator is one attribute where the market eventually has to show its cards. The NASDAQ’s Indicant Volume Indicator is starting to rise. Although its movement is not rigid or steep, it is moving harmonistically with an uplifting NASDAQ. That is significantly bullish on a quick-term basis.

The big board’s Indicant Volume Indicator has recently demonstrated some rigidity and steeply moving to the north. If that continues with a rising market, this quick-term bull could add some bullish muster to this year’s stock market performance.

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

This indicator is the only remaining sore spot. It continues to signal bear. The Dow and NASDAQ are up by a trifle of 0.2% and 0.4% since the Short-term Indicant signaled bear on July 8, 2004. The market has been relatively flat for the fifty-two days. This indicator is showing signs of soon signaling bull.

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

As stated the past few weeks, after racing to their respective breakdown lines, the NASDAQ100 Index and NASDAQ expressed resistance to contacting them. They are now above their respective breakdown lines by over 10.0%. The market can easily fall this amount at this time of year, while this separation is non-bearish with respect to your hold positions. Read your daily emails. If bullish seasonality kicks in early this year, and it appears likely that is about to occur, bearish contact may not occur until the post election year.

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 two new bull signals and no new bear signals.

The Mid-term Indicant signaled bull for the NASDAQ and NASDAQ100.

In addition to the bull signals, six of the eight major indices remain as bulls. They are up an average of 22.5% since the Mid-term Indicant signaled bull an average of 66.4 weeks ago. The Dow Transports is the strongest bull. It is up 45.7% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Jones Industrial Average is up 19.6% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Composite is up 30.0% since the Mid-term Indicant signaled bull on March 22, 2003. The Dow Utilities, Dow Transports, Dow Composite and the S&P500 continue as Mid-term Indicant Red Bulls. That provides some comfort against any nasty crashes. The market seldom crashes when any index is a Red Bull.

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 was one new bull signal and no new bear signals.

In addition to the new bull signal, twenty-one of the twenty-two foreign indexes tracked by the Indicant are Mid-term Bulls. They are up an average of 94.1% since the Mid-term Indicant signaled bull an average of 80.7 weeks ago for an annualized gain of 60.6%, which is less than the 72.9% reported sixty-nine weeks ago. As you can see, although not down as much as the U.S. indices, they have been subjected to a slight bearish bias as well.

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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