All three major indices set new yearly highs on Monday, which the financial media regards as particularly bullish. One reason is that the S&P 500 has been lagging the pack. With ‘confirmation’ from the S&P, some market technicians are breathing a sigh of relief. Hummmm.
Unfortunately, we do not concur with the rationale for the enthusiasm. As the market moves higher, we are getting more cautious, not more bullish. We have two technical resistance zones in mind, one is Dow 10,500 and the other is Dow 10,800. These levels operate like the orbits of electrons around an atomic nucleus. Electrons are stable at these orbit levels and don’t spend much time in transition. Markets act the same way. If the Dow can break through the 10,500 zone, we expect it to travel to 10,800 rather quickly. Time will tell.
On Monday, the dollar finally rallied. A rising dollar is bad for equities, which is one reason the Dow was down 104 points. The greenback has been so badly kicked around that it really had no where to go but up. There has been so much gold-love and dollar bashing that someone had to call the cops on the monetary hoodlums. Full Article
Dow 10,000 has been a target for us at TSR since early April, when the venerable index was 3,000 points lower. The good news is that after a benign FOMC meeting on Wednesday, Mr. Dow’s average rallied strongly and came within 82 points of our intermediate-term target. Pretty good forecasting, eh? Full Article
The current rally has been led by tech, basic materials and the financials. The QQQQ is looking a bit over-extended, however, as it approaches our $41-$42 target zone. Meanwhile, many of the leading financials have been trading sideways for 3 months. If the rally extends into August, and we think it will, then the banks may take over for what we expect to be the final leg up to Dow 10k. Full Article
Despite the recent sideways action in the major indices, the Dow is on pace to record its best July in 20 years. That may be a surprise to some, but in the historical context of bear market rallies, the major U.S. indices are behaving normally. Bear market rallies are known to be extraordinarily volatile. Take Japan, for instance. After making a new secular bear market low in March 2003 that was 80% below its 1990 peak, the Japanese Nikkei surged 240% through July 2007. Was that the start of a new bull market for Japan? Hardly. Over the next 19 months it then plunged 62% and undercut the 2003 level, setting a new secular bear market low. Today, the Nikkei remains about 75% below its 1990 top. Full Article
On Tuesday the Dow dropped more than 100 points intraday, but managed to crawl back toward break-even by the closing bell. The index closed down 12 points, only its 5th negative day this month.
Markets correct in time and price and the proportion varies. The current sideways action will serve the purpose, which is to provide an incentive for over-anxious holders (the so-called ‘weak hands’) to relinquish ownership of their shares. Once the tenuous fruit is shaken from the tree, the market will push higher. Full Article
The Dow rose 15 points on Monday, which is mildly impressive considering the overbought condition of the market. Modest but consistent moves higher on low volume occur during particularly bullish phases due to a lack of sellers. In times past, it was not unusual to see this type of behavior in November-December. Such Teflon rallies can last quite a bit longer than you might think. Full Article
This is a Teflon market. It needs to go down, but won't. Although we expect the market to ignore bad news at this time and levitate to higher levels this summer, we will continue to bring you less rosy background information that will one day be relevant. For example, the Pension Benefit Guaranty Corporation (PBGC), a federal agency, will reluctantly assume the pension plans of the Delphi Corporation, a former subsidiary of General Motors, at a cost of $6.2 billion. Full Article
The developing world is a chaotic hot bed of foreign and domestic investment analogous to a geopolitical version of Climate Change. It’s there, it’s important, but it’s difficult to understand. Full Article
Our mid-year review looks back at our forecast for 2008 that we made in December of 2007. We strongly advised subscribers to overweight agriculture and that proved to be good advice. Our three Ag picks are up an average of 54% in six months. We were wrong about our solar pick, however, and we recommend repositioning into the premier consumer staple play, Wal-Mart (WMT). Full Article
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