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MARKET NOW HOME ALONE
Predictions for 2005 and 2006

Holiday season volume has dried up, and many finance professionals will be busy spending their hefty bonuses for the remainder of the year. The trading action is going to be dominated by the public. The outcome feels clear to me – most trading days remaining in ’05 will resemble today’s. The market will be lightly up through the end of the year; just enough to keep the public interested and buying and this will occur with a media backdrop of positive predictions for the economy and the stock market through 2006. Then, with negative seasonality due to kick in right after the New Year, I’m looking for record high trading volumes as the “big bid” enters the market in at attempt to again prop things up. This will provide the catalyst for another round of buying as the market will respond to the fact that the market didn’t fall in the face of expected negative seasonality. The dominant psychology for the first quarter of 2006 as stated in plain language, “If the market will not drop, then why not buy?” Up we will go through January and February. As good 2005 4^th quarter earnings releases are brought forth, earnings after items and one time events will be considered excellent and the stock market should rally through the 1^st quarter of 2006. Numerous companies, including many retailers will “beat” expectations and “up” guidance and this will be the stuff of a powerful market rally.

Short term rates will respond to most media predictions of one or two more short term interest rate hikes. The longer bond will respond positively and the yield curve will invert. As in 2000, the esteemed professional and academic market apologists will preach to the public that this isn’t your big sister’s inverted yield curve and there is nothing to worry about. This story will be taken as fact by the public, hook, line, and sinker. The talk of a housing bubble will be lessened and emotions will cool off. Homebuilder stocks and home buying will respond to the positive long bond as the consumer debt bubble will spin yet again.

Stock market bears will be scorned and ridiculed as much as they were in 2000. Squawk Box will institute even more annoying noise making graphics to attract the short attention span of the TV-watching public in order to compete with Fox and Nickelodeon. Eliot Spitzer will accept an opportunity for yet another “Apprentice” TV show to supplement those already staring Donald Trump and Martha Steward. (He has already appeared on “Madd Money”.)

Google will be inserted into the S&P 500 and its analyst target price will be upped to about $750/share as they successfully make inroads into trashing all US copyright laws. Google will successfully compete with Yahoo by utilizing their inflated stock as currency against Yahoo’s stock which, although absurdly inflated, is not nearly as inflated as Google’s. Google will buy a real media company with their “currency” similar to what AOL did in 2000. No one will point out the similarities between these two mergers, and Google will see its $750 price target by the 2^nd quarter of 2000.

Merck will be let entirely off the hook for Vioxx.

The average P/E for retailers and restaurant stocks will reach 35 by 1^st quarter end with dividends of less than 0.5%.

The US government will contribute to bailing out General Motors while they will also reinstitute a tax break for consumers purchasing the big H-2 Hummer.

CNBC will spin off a channel dedicated entirely to reporting on the investing activities of Saudi royal prince Alwaleed bin Talal, Carl Ichan, Kirk Kirkorian, Jim Cramer, and others. A celebrity investor will see value in General Motors stock, which will rise back to $30.00/share on this “recommendation”. More astounding, will be the positive action on the Auto parts companies. The celebrity recommending GM will be liquidating these ancillary companies into the strength resulting from the GM “recommendation”. This is what we saw last year and we will see it again. Ratings of the Celebrity Investing Channel will exceed those of PBS.

Gasoline will rise to $5.00 a gallon, and news commentators will sing the praises of a New Economy” that is not dependent upon low priced fuel. The rise in fuel will be attributed to “the speculators”. The Dow Transportation Index will rise to 6000 and the dividend will be reduced to less than 0.5%. (Not a word about the Transportation index and speculators will be uttered.)

A major consumer credit company will issue ATM cards where consumers can actually tap into their home equity at any ATM, at a per use fee of $5.00 per transaction. The most frequent location for use of these ATM cards will be MacDonald’s.

There will be a new ETF that covers bulletin board stocks.

The CBOE VOLATILITY INDEX (WCB) will touch zero. The CBOE will record a trading day where no puts were bought.

Investors Intelligence will publish the results of their newsletter writer survey which shows 99.9% bulls and 0.1% bears.

Oliver Stone will direct a sequel to the movie Wall Street with the same roles played by Michael Douglass, Martin Sheen, and Charlie Sheen. The movie will be written in 2006, and it will open in early 2007.

Terry Bradshaw will author a book on stock trading.

Martin Goldberg will author a subscription newsletter thereby becoming part of the 0.1% bears tracked by Investors Intelligence.

Gold will go to $1,000 per ounce, and silver will go to $50.00 as economists will scream to any one who will listen that this action is due to “the speculators”. (Not a word about “the speculators” will be uttered about Google.)

The stock market will crash in the 3^rd quarter of 2006.

Today’s Market

The stock market, Home Alone, did what it was supposed to do. It was broadly up. Of all the US indices tracked by Yahoo, all were up, except for the Dow Jones AIG commodity index. Gold and silver rallied, as gold is $504 and silver is $8.50/ounce. The XAU was up over 2% and the HUI up over 4%. Solid gains were logged by Gold Corp. (GG) on acquisition news.

Crude Oil was up $0.84 and closed at $58.94. After a bearish point and figure signal in the fall, crude appears to be trying to stabilize, at least from a Point and Figure perspective.

In the face of an oil swoon, Tesoro Petroleum Company, a company I own, has shown excellent relative strength.

Canadian Natural resources, another company I own, is in a bull market, and it appears to have pulled back on low volume to a point where it can be bought safely with a stop loss at a decisive close below the blue line previous resistance which may be support.

I try not to be an Elliot Wave-snob. There is a lot of truth in Elliot Wave, and as with many principles of technical analysis, and a lot of mirages too. With that said, it appears as if the US Dollar has completed a 5 wave advance off of a bottom. Given the magnitude and duration of the 5-wave advance, it would appear likely that a larger and longer duration correction off of the 5-wave advance would be in order.

And at the risk of being labeled a momentum snob, I can’t help but notice how the most recent run (from 4 to 5) in the dollar was accompanied by a divergence in weekly RSI. So to summarize my view, the preponderance of the evidence suggests that this week’s strong dollar is a sucker’s rally. I’d start to doubt this conclusion if there were a decisive close above the 10-week moving average at about 91, and would say “never mind” if the dollar closed decisively above the blue line.

Notice how in its bull run, the CRB index refuses to become oversold in any meaningful way as indicated by the weekly RSI. It is clearly a commodities bull market.

Finally, stocks can potentially hang on for awhile and they may even do so in a similar manner as what is described above. Yet when the main reason to buy is momentum, the fact that stocks have not advanced may be a reason for alarm. After all, if the main reason to buy is “they are going up”, if they stop going up, there would be no reason to buy. As shown in the S&P 500 weekly chart below, it’s been 5 weeks with no progress. My heart is sensing the “big bid” coming in January.

Yet a high volume into new high ground cannot be dismissed. If such a breakout happens, (the “big bid” can cause it), there will be a new found reason to buy.

Have a great holiday!

Martin Goldberg

Copyright © 2005 All rights reserved. Martin F. Goldberg, MS, P.E. Market Analyst Expert Page Commentary Archive Email

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