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To not buy stocks would be to risk missing out on the benefits of compounding and the investing opportunity of a lifetime. A 40-year-old investing one hundred thousand dollars today and returning a conservative 10% per year in stocks would be worth about a million dollars at age 65. (This assumes no additional savings which is a good assumption). With social security in trouble, you can’t afford not to buy stocks now! With the charts of the mid-caps, small-caps, and transports forging new highs almost daily, you can’t afford to let the opportunity of a lifetime pass you by while you hang out with the gloom-and-doomers. You can’t afford that, especially with the Dow closing in on 11,000. There is no better time than today to buy stocks now! The pessimists have said time and time again that this economy is fragile and too dependent on the US consumer and massive amounts of consumer debt. Yet time and time again they have been proven dead wrong. So when will these people just admit that they were wrong and go away? The US consumer has not failed us so far, and therefore he never will. The pessimists just don’t get it. In matters of the economy, listen to the Old Professor, Steve Liesman. You should buy stocks now! The sadistic and negative crowd suggests that there is something unhealthy about the red hot real estate market. I just don’t see their point which makes no sense. What’s so bad about a bull market in real estate? History has shown that except for a few pauses, real estate basically always goes up. Why should next year be any different than the last few? A bull market is a bull market, and if my net worth is increasing via my home, what’s so bad about that? And if new and innovative mortgage products afford more Americans the opportunity to own a home, why should I quibble? Isn’t America the land of innovation anyway? We’re in a new era of society’s understanding of corporate America. Taxes are bad because it hurts taxpayers and business. If you remove the taxes you help business and help consumers’ and their net worth through higher stock valuations. For that matter, higher home valuations and more home equity is a result of lower taxes, too. Less tax means greater profit, means greater profit growth, means higher stock valuations. How do we pay for spending-induced government and consumer debt? No problem; all that extra growth will do the trick. We’ll just pay it off next year, or the year after that, or the year after that. In the mean time, back up the truck and buy stocks now! Those negative worrying pessimists are chirping about high energy prices again, but as usual they just don’t get it. In the face of rising oil, corporate profit growth didn’t take it on the chin yet. “This economy” has shown resilience time and time again. So by now, it is apparent that there is no relationship between energy prices and corporate profits. It’s the productivity that these people don’t understand. This is sustainable, and there is no reason why rising oil and gas should hurt corporate profits. And falling energy prices will boost corporate profits and even rally the market. And job growth will not be hurt either. In fact, I hear Kudlow suggesting that job growth will not be impacted either. That I like! There is no risk in this pretty picture and as a result, you should buy stocks now. Bou-ya, ski Daddy. Buy ‘em now! The price of gold and silver has risen to multi-year highs and this has given the nay Sayers the opportunity to suggest there is inflation in the pipeline. Yet as is apparent, the rising gold and silver price has nothing to do with inflation because it is just due to jewelry demand in Asia and a few nutty and fearful speculators. Don’t these guys look at economic statistics? Gold and silver are nothing to get excited or concerned about. You want to join these nut cases? Not me – I’m buying stocks. Inverted yield curve. So what? Buy stocks now! Forgetaboutit! Buy ‘em now! Here are some technical charts. Can it be clearer? The NYSE index is in a solid uptrend. It's time to buy!
The S&P 400 mid-caps are in a similar technical position. Buy buy buy!
The Russell 2000 is bou-ya-bullish. I think you should buy!
Want blue-chip stocks? Just look at the bullish S&P 500 chart. Buy stocks now!
A Change of Heart? In writing this article, my intention is to make an ill-timed set with the April 28th 2005 article entitled, “Sell ‘em All!”. At that time while I wrote, “sell ‘em all”, the stock market appeared to be in peril, while it was also oversold and due for a bounce. Bounce it did, right on queue as an optimistic speech by President Bush initiated a sharp and powerful rally. Now, all of the major indices are at significantly higher levels than when the April 28th article was penned. Technically, the market is now in the opposite position that it was in late April. In the intermediate term, although the market is now way overbought, the intact bullish trend deserves the benefit of the doubt for now. Yet I’m skeptical of this bullish backdrop for the following reason. It appears that seasonality is the major driving force behind the rally – the same seasonality that propelled the market last year. Last year the market put in a top on the very last trading day of the year and dropped sharply in early January. This year it is likely that there will be significant trading money that will exit the market in December while trying to get a jump on the “expected” January swoon. But with the champagne ordered and party hats near by, perhaps we need to see Dow 11,000 before the “pre January drop” appears. Homebuilders Showing Technical Weakness Below is a 3-year weekly chart of the Dow Jones US Home Construction Index showing that a long term support trendline has served as a resistance line. The Home Construction Index rallied with the rest of the stock market, but recently is showing poor relative strength. The relative strength (versus the S&P 500) has been in a downtrend since July. The relative strength after rallying was turned away at the 20-day exponential moving average (blue arrow). The rate-of-change indicator has also produced a series of lower highs and lower lows.
Below is a one-year weekly chart of Pulte Homes, Inc., a large and important homebuilder. During the summer rally Pulte rose on progressively increasing volume, and progressively less bullish weekly candlesticks. The late summer drop from the highs was accompanied by higher volume. A two-week rally came on lower volume, followed by a sharp decisive high volume drop. The rally off of the October lows retraced more than 50% of the drop off of the summer highs, yet came on only 3 “up weeks,” and very lethargic volume. It is clear to me that Pulte Homes is under technical distribution and under technical peril.
A rally of the Dow Jones US Home Construction Index to above 980 or a rally in Pulte Homes to above 44 would reverse this bearish analysis. What Folks are Reading The following table presents the hardback featured “Finance” section of the Barnes and Noble bookstore in Wayne, PA. This will provide an idea of where people’s minds are when it comes to popular finance. Relevant to the discussion of seasonality above, the Stock Traders Almanac appears on the eye-level shelf in a popular bookstore. Beyond that, it may be worthwhile to review this list yourself and draw your own conclusions. December
3, 2005
Today’s Market Ha. Larry Kudlow is on the TV complaining that the gold market is being manipulated! The stock market finished marginally down today and trading volume was relatively high. The market seems a bit tired and there is probably more to this (so far) small pullback. The more important question is whether there will be something more ominous to this pullback or whether it will merely move back to support before continuing the expected year end rally. I think that if the market continues to move down, there will be a lot of fast money that will look to safely lock in their seasonal profits. Since there was a January drop last year, why not get out in December of this year and beat the New Year’s rush? Toll Brothers’ quarterly earnings and outlook were good enough to ignite an at-the-neck-line short squeeze in the stock. No surprise here. This trend is one that has been consistent since October 2002. There is similar behavior in American Eagle Outfitters (AEOS) as shown below.
Until this trend changes it pays to be aware of it and trade on it in some cases. And it clearly shows the danger and lack of favorable risk to reward ratio in shorting into support breakdowns. The Toll Brothers rally was tradable and there was some momentum imparted in other homebuilders. Pulte put out a potentially bullish hammer as shown in the 6-month daily candlestick chart, below.
Today’s action was just a single day, and so far there is nothing in the weekly analysis of the homebuilders presented above that has changed. Yet a look at the Toll Brothers 3-year weekly chart suggests that the homebuilders may be ready to get whip sawed. Remember the trend has been for apparent breaks of support to be bullishly whip sawed. This is a chart worth watching in that regard:
I’m sure that you don’t need to hear it from me, but gold is on a tear and it appears that something fundamental has changed that goes beyond jewelry demand or a few crazy speculators. Gold is now in a pattern that is extremely overbought and a pullback is to be expected. Yet, since wave 3, pullbacks tend to be of short duration and shallow; there is no reason for investors to sell or get excited about if there is a pullback.
Bullish Gold is being confirmed by bullish silver is being confirmed by bullish platinum is being confirmed by the prices I’m seeing at Albertsons. It can’t be otherwise.
Here is the chart of light crude oil showing all of its trendlines – especially the important lower trendline – intact. The bull market has offered an entry point just below the 200 day moving average every few quarters.
Here is a final important chart – the 3-year chart of the US Dollar.
After completing a 5-wave advance, the US dollar may have stalled out at 92 which is an important technical level matching the May of ’04 high. If the US dollar loses this level, and falls below the 50-day moving average (currently 90.67), that would be bullish for gold. We could even see $520 gold. What’s that? It’s there now? Never mind! Have a great evening. Martin Goldberg
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