From the Trading Turret - February 2, 2005
Current Field Position
1. Offense or Defense?
NYSE Bullish
Percent is in Bull Confirmed Status – Xs @ 78%
Optionable Stocks
Bullish Percent is in Bear Alert Status – Os @ 64%
OTC Bullish Percent
is in a Bear Confirmed Status – Os @ 56%
2. Sector Bell Curve. Average Sector
Bullish Percent is 65.65%
3. Favored Sectors: Drugs, Internet,
Computers, Biomedical, Software and Electronics
4. Strategy: Two of three major
indicators have gone to DEFENSE.
We are moving from
offense to defense or the Capital Preservation Mode. There’s
no need to panic. Remember, we have a game plan in place. We have been
meticulously examining each position we own and have adjusted stop/loss
points accordingly. We are trimming back positions and once stocks hit
their stops, they will be sold and the proceeds placed into a money market
fund. This will reduce our equity exposure slowly. Other position
management tools include: taking partial profits, setting stops, writing
covered calls and initiating positions in a few of the Rydex Inverse Funds.
Our goal here is to remain comfortable with what we have left on the table.
This week’s comment…
The stock market officially closed January with losses across the board.
The media was quick to report this and was quicker to predict that George
Bush was over his head on domestic affairs. To me, there is nothing worse
than an overused cliché and I lost count of pundits who said - "As goes
January, so goes the rest of the year." Not to be outdone, I dialed into my
friends at Ned Davis Research (NDR) and learned that we’ve had 20 down
Januaries since 1950. And of the 20, the rest of the year, February through
December, was down 10 times and up 10 times. All is not well though.
Looking back through history, when January has been down, the rest of the
year has averaged a slight loss of 1.2% (S&P 500). During that same time,
when January was positive, the S&P 500 recorded average gains of 12.66% the
rest of the year. In six out of the last nine down Januaries, the market
rose for the remainder of the year. I’ll end this section by simply saying
this - 2005 will be more challenging than most investors believe.
I’ve stated in recent Turrets that the market was oversold enough to
rally and that the January decline helped to resolve the optimistic
extremes in investor sentiment. In addition, I noted that many technical
positive momentum divergences, which often times occur near lows, and firm
breadth statistics suggest giving the benefit of the doubt to the bullish
case. The combination of an oversold condition, positive momentum
divergences, and improving investor sentiment suggested that the market was
set to stage a rebound rally. That rebound rally has occurred with the
market advancing nicely over the past week.
The market got its boost from the successful election in Iraq. There were
many dire predictions about the election going badly, and those predictions
helped to dampen investor sentiment. The fact that the election went fairly
smoothly has translated into a relief rally.
As far as investor sentiment goes, it appears that the "Wall of Worry" is
back with us. Investor sentiment has shifted dramatically from the
excessive optimism that prevailed in December. According to the American
Association of Individual Investors (AAII) the percent of individual
investors that are optimistic (bullish) has dropped from 70% in December to
just 26% last week. As a contrarian, this is a good number.
I’m also seeing signs of accumulation. The market's internal condition has
strengthened over the past several days with the NYSE advance-decline line
close to a new high, volume flows expanding with the market moving higher,
and an increasing number of stocks making new 52-week highs. The number of
stocks posting new 52-week highs rose to its highest level of the year
while at the same time fewer stocks are hitting new 52-week lows. This
indicates a lack of downside leadership.
Technically, the Dow Jones Industrial Average, S&P 500, and NASDAQ
Composite indices have all broken their respective downtrend resistance
lines. Suffice it to say that the market still has its work cut out for it.
The
Economy…
The Federal Reserve raised the benchmark overnight lending rate by 0.25% to
2.50% and restated their plan to continue raising rates at a "measured"
pace to keep inflation in check. The vote was unanimous and it was the
sixth hike in as many FOMC meetings. According to the Fed's statement "The
stance of monetary policy remains accommodative and, coupled with robust
underlying growth in productivity, is providing ongoing support to economic
activity. Output appears to be growing at a moderate pace despite the rise
in energy prices, and labor market conditions continue to improve
gradually. With underlying inflation expected to be relatively low, the
committee believes that policy accommodations can be removed at a pace that
is likely to be measured."
The Fed is attempting to raise rates to a level that will allow the economy
to continue growing without causing faster inflation. Even with today's
rate hike the real fed funds rate (nominal fed funds rate - inflation) will
still be about 0.50% lower than its historical average. The Fed is likely
to continue raising rates until the fed funds rate is above 3.0%.
Be wary of any bond holdings here. This includes individual bonds as well
as bond funds. As rates go up, bond prices go down. The Fed is making it
clear that they will raise rates to accommodate inflation. In my opinion,
it’s silly to own a long term bond in this market environment. You’re just
asking for trouble.
Update:
As always, please
check out our website,
www.christyinvestments.com for information and news.
Operations: Tax
statements on individual client accounts can be made available to you on a
request basis. The most appropriate tax statement for use with accountants,
records, etc. is issued automatically by the custodian, but we can also
provide a tax statement for your review. Remember, if you're having fees
automatically drawn from client non-qualified annuity accounts, the
custodian does issue a 1099!
Year-end
statements have been posted, printed and sent. In addition, please remember
to wait on your K-1 if you are invested in one of our Managed Futures
programs. We’ll send out the advance copies once they have been received.
If you have
questions or would like more information, contact us at 800-427-0886 or via
email at
ops@christyinvestments.com.
Thank you for your continued support.
Have a
great week!!
Bob
| 
