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Thursday, November 11, 2004

Ok, so my last little expirement didn't last long at all. Not surprised really. Probably a little too much work to read two newsletters, synthesize and then post my own opinion. So I'll forget about Favors and Ryan for now. I'm still watching wavespeak. Might as well, I pay for it. So, now I'm going to try just posting an opinion. Will this last? Maybe not, but recent action has brought us to a potential turning point in the market, so I feel today is as good a time as any to begin.

If my memory serves me, I think I stated back at the beginning of the year when we got into this tight range that come Oct/Nov there might be some fireworks. The election gave us what we were looking for and now I have to make a choice... Do I hold on to positions in the anticipation that markets continue further northbound, or do I dump most everything into cash with the exceptation that markets are going to crash. All three major indicies are at or near 2004 highs and technicals are all overextended. Yet, now that we know we're getting 4 more years of the same (for better or worse) the markets can relax. And so they have. The VIX is .4 points away from an all time low. Plus I feel like this calm has added to the momentum in the market. The 4th FED rate hike this year didn't dampen spirits.

So here's the summary. Extended technicals, yearly highs, extreme calm, decent momentum. Where do we go from here. I'd like to say even higher, but I just can't buy into it. I'd like to jump into cash and preserve capital but I don't want to miss out on what could be the next nice little push up.

What to do, what to do!!!

Wednesday, October 20, 2004

Analysis and Predictions: Tuesday 10/19/04

Favors: We could have had a short lived rally on Tuesday/Wednesday, but weakness was expected in to Thursday/Friday. Favors still expects an important short term low by the end of the week. Excurpt:

At this point if the Dow falls below 9861 and a sharpercorrection follows, there should still be very strong support near9750, plus or minus 20 points on the Dow. We do not consider a declineinto that area as mandatory from here, but it is still possible.Nevertheless, we believe that still-higher prices will follow anyfurther correction in this time frame.

For now we want you to be prepared for some further correctionover the next day or two, but it remains our position that we are near the next important low in stock prices.

We would expect some further correction at some point tomorrow,however we believe that significantly higher prices will follow any further correction in this time frame.

WS: Ryan is still predicting continued weakness, although a side note in his analysis extends the possibility that the markets might be in a larger ABC correction. Excurpt:

Today’s reversal down is yet another indication that the downtrend remains intact on the Blue Chips. The main question is whether the next leg down has begun or if we’ll have to wait for a larger ABC to trace out before it does.

Market Action: 10/20/04
Decline until 11am then strength.
3 Wave advance.
DJIA: -0.10%
NASDAQ: +0.50%

Conclusion:
Ryan still predicts significant weakness, but covered his ass today and realizes an expanded correction (more time consuming) may be in store. I have always believed he jumps the gun and expects movements to take less time then they should or do. On the other hand, Favors is unclear about how long a rally will last. Two days, two weeks, etc... Both analysts may be converging on the same conclusion that a short term upward correction is in the works. I'll wait and see. But if I had to put my money somewhere, I'd say Thursday goes down and then Friday is the reversal. I'll give this one to Favors.

Trade:
Remaining flat until Friday.

Tuesday, October 19, 2004

Monday
10/18/04

Favors: 1 or 2 day pullback then a rally beginning Thursday or Friday to significantly higher highs for the year.

WS: Heading lower immediately. No real forecast looking forward. Elliott Charts are messy.
*Note, Ryan was dead wrong with his forecast from Friday.

10/19/04
Market Action
Swift initial strength for about 1 hour.
Then a sharp reversal and a weakness drift for the rest of the day.
NSADAQ and DJIA both down about 0.60%

Conclusion:
I'd have to say Favors wins this round if only because Ryan is not clear on his predictions.
I imagine the first few days of me doing this will not yield much clarity until I have a rolling/moving predictions "average."

Trade:
Remain flat until Friday when Favors' analysis should yeild some results.

I'm starting a new "feature"... haha
I'm going to start comparing the Jerry Favors report with Wavespeak (Ryan Henry) to try and determine wh is a better market forecaster. Basically, how well can each analyst predict market paths.

As often as I can I will post a summary of Jerry and Ryan's market analysis and predictions. Predictions will be posted on a one day lag along with what actually happened in the market. I will also attempt to point out when certain predictions are imminent, and of course when they do and do not come to pass. For instance if on Monday Jerry says the market will nosedive on Friday, on Thursday or Friday I will try to remember to point out that analyst's prediction.

Hopefully through posting these predictions online I (and you) can see when these two are getting things right and when they are horribly wrong. And since I am trying to come out in the black instead of the red in this game, I feel these blogs will be a nice resource.

Happy Trading!

Thursday, August 19, 2004

A recent market perspective letter from Shenkman Capital (www.shenkmancapital.com) cited "seven major uncertainties" as "adversley affecting market psychology:

- high oil prices
- the Iraqi conflict
- the threat of domestic terrorism
- rising interest rates
- inflation
- the sustainability of corporate profits
- the outcome of the Presidential election"

While I agree with all of these factors, sadly, only one will really be decided in the near term (election). Oil prices and interest rates are somewhat controlled by OPEC and the FED. Inflation to a very low degree can be curbed by FED policy, but I think it is really more a function of consumer spending and attitudes, which raises the question "Which came first, the chicken or the egg?" Only time will tell if corporations can sustain their profits, but I think we will see a slow down coming soon as efficiencies top out.

Finally, no one has control nor can anyone reasonably predict the outcome of the Iraqi conflict or if we will be attacted again. I think the US got the ball rolling in the Middle East, but the hatred is so ingrained in people's mind over there, I think sometimes they might even forget why they hate each other. As far as terrorism I wish others would realize we Americans really aren't all that bad. I know the US has done some bad things to people before, and we continue to do so... but we're only human. And I certainly did not harm anyone, so stay away from me.

Anyway, that's my take on the market and world right now. Google starts trading today after a day delay from the SEC. Should be interesting to watch its effect on the markets. I still believe we are due for one final impulse down before we reverse trend and head into YTD highs.

Tuesday, August 17, 2004

Email excurpt to fellow Elliott fan,

I think Jerry (Favors) is right on here.I'm still wary of two things however.

Yesterday's rise could be the start of the fifth wave of a largerimpluse that began somewhere around October 2002. That would makesense since wave 2 was sharp between Nov & Mar and the 4th wave took alooooooooong time between Jan/Feb and Aug (last Friday). And thisentire rise (according to Wavespeak) is A of B of the really largecorrection that has been on since the beginning of 2000.

However, on more intermediate terms, the fall-off from the beginningof Aug 04 may be extending into a giant 3rd wave. I hope this is notthe case, but you never know. I think the correction from thebeginning of the year has lasted longer than a lot of people expected.Although I think Woody Dorsey up in VT may have got it correct.

Anyway, I'm expecting a nice little correction today (Tuesday 08/17). Hopefully just a 2nd wave and not heading further down. Perhaps theGoogle IPO and AMAT earning on Weds (09/18) as we discussed last night will be enough to finally lift this market and get it going again uptowards rally highs.

That would be a relief and confirmation to trustcertain newsletters (a la WS [wavespeak] and Favors).

Friday, August 13, 2004

Just read this on Marketocracy.com and thought it was interesting.

(by fmoslehi 8/21/01)

There are several mega trends that are working their way through the system. Over the next decade about 10 trillion dollars will be passed in the form of inheritance from the "greatest generation" to the "instant gratification generation". Now those older folks in their 70s and 80s do not have their assets in MSFT, CSCO and JNPR! Most of that money is in cash, bonds, real estate, art, collectables, etc. The generation that is receiving the money is crazy about equities (even people like you who are anticipating the coming deep recession are still invested in the market!) so as these trillions change hands, a good chunk of it will find its way to the markets.

The other huge mega trend is the shift from "defined benefits" to "defined contributions" type of pension/retirement plans. The real driver behind the DOW going from 700 to 11,700 was the advent of the switch from defined benefit to defined contribution plans (IRA, 401k, 403b, etc.) That tsunami hasn't stopped yet, in fact there are still plenty of corporations that haven't switched over, and even the ones that have, are working through the older workers who were close to retirement and didn't make the switch, and as those people retire and new people come on board the number of people in the defined contribution plans grow every year.

I know plenty of people who are completely turned off by the markets and have closed their brokerage accounts, and yet they have not made any changes in their 401k allocation!! So every 2 weeks they are throwing money at the very markets they are not supposed to be playing any more!!!! As you know, the IRA contributions are about to be raised from $2000 to $5000 per person.

But the real big change in this area is coming from the global impact. Most of the rest of the world (Japan, Europe and all the rest) haven't even begun to switch to defined contributions. Europeans (Germany and Britain are about to do this) are starting to make the legal changes necessary to allow their pension and retirement systems to offer defined contribution options.

Once that comes, there will be huge sums of money headed for the global equity markets (remember some of those countries have income taxes as high as 60% or more with a huge portion of it going toward their retirement pools)! And as more and more companies get cross listed on all the major exchanges around the world, the American companies will be clearly the beneficiaries of these great rivers of money headed for the equity markets.

So it has been quite some time since I posted anything. I won't appologize as I've been very busy. New job, summer, etc... but I'm going to get back on the horse and start posting again.

My very last blog said that the FED was going to wait to raise rates. Well, since that time Greenspan et al have raised the FED Funds rate .50% (.25% twice). I think this was expected. A few/many thought the FED was going to move faster, but anyone at all who is on a budget knows that the US still isn't roaring.

For this reason I'm going to go out on a limb and say the FED will continue to raise rates .25% per quarter. They will not raise rate .50% at one time and they might even hold off a quarter or two here at there until a "neutral" policy (~4%) is reached. That would put us sometime around the beginning of 2007. I think this is totally reasonable.

The Elliot Show!
Well, the wave patterns have been terribly difficult to decipher this year. Wavespeak thinks we are in a large scale 4th wave (which would make sense) but Pretcher & Co. still contend we're headed down, down, down. Who's correct??? Well, I'm still waiting to see. A bunch of others are still saying we'll get a rally into year end. This was my origianl thought at the beginning of the year, and I hope it still plays out, but I am starting to wonder if it will happen.

We are at market lows for the year (yesterday) and things are looking bleak. I guess this is the time to actually invest and double down it possible. But...if and when the rally occurs it will be a great time to exit, especially higher beta bets, and hold some cash or bonds for a while.

Note: Today is Friday the 13th and the Athens Olympics start today.
Michael Phelps is going for 8 gold medals and the road cycling course has been discribed by George Hincapie as "Dangerous".


Friday, February 06, 2004

This is a recent email I sent to my father. The day before I sent him an email telling him I was going to start selling some stock investments and I thought it was a good idea if he and my mother (both turning 55 this year) start moving some of their retirement funds to more conservative accounts. My parents have always took a conservative approach to investing, which may help to explain some of my approaches to risk. But nevertheless, my father wanted to know why I have such a bearish outlook on the economy and stock market (one and the same in my book). Below is my father's question and then my response.

-------------------------------------------------

Jason,

You obviously feel very strong about the future of the stock market. I
have never been a market timer and over the long haul stocks have always
been the way to go. What is the basis for your prediction and why am I not
seeing anyone else giving this advice. I am not saying you are wrong but I
sure would like to know why you feel so strong about this. Like you said our
retirement rides on this decision. We have always had an extremely
conservative investment strategy but your are telling us to put everything
into an even more conservative position.

Dad

::::::::::::::::::::::::::::::::::::::::::::::::::

Hi Dad!

First of all, I don’t want to scare you or Mom with what I’ve said. It’s only one man’s opinion. But here’s the reasoning…

I’ve been reading some behavioral finance books which, by nature, tend to be bearish. But I have to tell you Dad, the authors are making a lot stronger arguments that we are due for a correction, than the bulls who think the market can keep going up and up and up. But even some bulls say they expect a market downturn within the next 12 to 24 months. Don’t get me wrong, I’m not saying to sell everything and keep a shoebox full of gold coins under your bed, but I really don’t see the markets going much higher without a sizeable correction. Not everyone agrees, but one prediction puts the DOW at 2500. I’m not so sure of that one, but I could easily see the DOW back down to its recent lows in the 7500 to 8000 range (it’s currently at 10,500) within the year.

I agree with you that over the long haul stocks are the way to go, because historically they have always gone up. And with a good, conservative money manager like the ones at T Rowe Price, we’ll all be ok. But the problem with mutual funds is that they have to have a certain percentage of assets invested at all times. They can’t just hold cash if they want. And, you and Mom don’t have much of a long haul left.

Luckily, I found out that you can transfer money from one IRA (Roth) fund to another without any tax or withdrawal penalties (unless the particular fund has redemption fees). What I am getting ready to do is just take my profits from sci/tech fund and others and just put them into a prime reserve account which I have already set up.

The reason you haven’t been “hearing anything” is that the mainstream media is always optimistic. It’s their job to be. And especially since it’s an election year, no one in the media wants to be talking about a sour economy. History has shown however that the media, and accordingly the public, doesn’t fully recognize a major market top until after it has happened. And usually by then it is too late. People are always optimistic that their investments will increase in value, even after a downturn. Now, more than likely, those investments will come back, but as we both agree, you are Mom are nearing that age where it’s dangerous to “gamble”. I could loose a fair chunk of my investments and still make it back in 10 or 20 years. But within 10 years your income may very well be zero and you will be living off of you investments.

Also, I wouldn’t bet on the value of your house increasing at the same rate it has just since you moved there. In fact, a lot of people are starting to think that real estate will actually come down in value in the next few years. It’s a simple matter of credit extension. Mom always wonders how these “young people” can have nice houses, cars, etc on the salaries they make. Well the fact is, they really can’t. They’re up to their eyeballs in debt, but the super-low interest rates currently available allow so many people to borrow so much without a second thought.

But what happens when interest rates rise? You might have read how Greenspan and the FED changed their “language” from their last meeting at the end of January. Have no doubt, a rate increase will happen and when it does a large number of people will have a hard time making their monthly interest payments.

It’s a tough pill to swallow, and obviously no one can predict the future. But I just don’t want to see you and Mom struggling when the markets turn down again. You both are too close to retirement and have worked too hard. All I’m saying is “one in the hand is worth two in the bush”. I think a reasonable strategy would be to start moving small pieces of your money into more conservative vehicles. That way, you still have some exposure to the upside while protecting your nest egg.

For example, maybe move some money now to a more liquid fund and then a bit more within 3 months. At the worst in 3 months you’ll be at the same spot you are now. But then again, the DOW and SPX are still below where they were at the end of 2000. The DOW is back up close to its all time high of 11,722 and the S&P 500’s all time high was 1,527 (currently 1,139). The DOW is still down 20% and the S&P is still down 25%.

I’ll try and give you a better recommendation this weekend. But like anything else, do your own homework and make your own decisions. I’m just a little concerned is all.

I hope this helps to explain.
Please let me know if you have any questions.

jasonK.

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