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THE
MARKETS
While all the doomsayers out there have been constantly screaming that the markets are going to plunge into an abyss, we have maintained that they are simply correcting and building momentum for the next upward phase. These perma bears have used everything under the Sun to justify their position; however they missed some very interesting clues. We will provide some of them today but will be dealing with this in more detail in a joint article with John Tyler, which should be ready by next week. OIL
Dow Transports (IYT)
If you look at the above charts you can clearly see that the Dow transports rallied in a tit for tat manner with oil. This is extremely strange and none of the doomsayers seemed to notice this. We mentioned this anomaly several months ago. The funny part is now that oil is in the process of retreating; it looks like the transports will correct with oil. This strong positive divergence was completely missed by all the bears out there. A lot of noise was made about the new lows that the put in recently, however the huge positive divergence on several TA indicators was completely ignored. Another huge interesting factor was air lines stocks which normally crash in the face of higher oil prices, actually started to rally; delta air lines led the pack, its up over 70% from its lows. All that is left is for the Dow Jones to follow and we believe barring a terrorist event in the US it should be able to deliver the goods. To illustrate that we were far from bearish on the current markets and that we practice what we preach, we are enclosing some quotes from the most recent market updates: The markets have hit their minimum levels for this second correction that we have been expecting. The maximum levels are currently in the 9650-9780 ranges. Market update Sept 29, 2004 It happens almost all the time in almost all the markets. The markets bottom, break the down trend line and then suddenly experience what appears to be a rather explosive rally. However this is usually the final set up to catch the eager early bulls as the market suddenly reverses hard and fast to scare everyone out and then finally mounts the real rally. Now if most players had the guts to sit through this fake down move, then there would be no problem and they could take positions early; sadly most cannot do this. This does not happen all the time, but 8 out of 10 times after the market has undergone a pretty strong correction or corrected slightly but traded sideways for an extended period of time; one final fake down move is usually in the works. We think that the Dow and NASDAQ could experience this before the real explosive rally begins. These powerful up moves that have taken place over the last few days have all the ingredients of what we would like to call a slaughter house set up. So we will delay buying call options on the indices for just a bit longer and use these weaknesses to try to get fills on all the open plays we have. Market update Oct 5 2004 Last week we talked about the Slaughterhouse effect; well the first and second phases of this stage are now complete. We are left only with the final and extreme third stage, which usually means a sudden plunge of 100-250 points, followed by with an immediate turn around. In other words the markets plunge in a fast and furious manner, they then recover just as fast and furiously as they plunged. The effect is to force the weak hands to dump their shares right at the very bottom. Market update Oct 12 2004 We did not expect this to scenario to unfold the very next day but it did; a nice lucky strike. This 200-point decline did not take place on very high volume; it is possible that we might experience one or two more 60-120 point down days but ones that occurs on very high volume. Ideal targets for the bottom are still in the 9650-9780 ranges. Market Update Oct 19 2004 Conclusion Despite what all the doomsayers claim we believe that the markets will be considerably higher 6 months from now. It’s not going to be all up from here, we will have lots of volatility and those who position themselves in the right sectors will be able to really walk away with some super gains. It’s going to be a stock pickers market; if you pick the right sectors and the best stocks in those sectors then you are set to see some serious gains. A little clue, Gold and Silver are not going to be the top performing sectors in the next 3-6 months. Gold right now has the potential to possibly spike to 480 but then it will enter a corrective phase which should last several months. However we believe that once bullion starts to correct, it should be used as an opportunity to take new positions as the Gold bull is far from over. There is one more metal out there that makes far more sense to load up on now then either Gold or silver, a simple analysis should reveal the answer. We
have been taught to believe that negative equals realistic ©
2004 Sol Palha THE
DOW We all have a bias of some description and we all need to teach ourselves to turn charts upside down and look again in the mirror, just to see if we were right in our first assessments. To demonstrate I have put an upside down 4 year chart of the Dow doing just that.
This is a chart all bears love to see. “ The real tip-off appears when activity fails to pick up appreciably on the third rally, the right shoulder”. "Technical Analysis of Stock Trends", Edwards and Maggie, page 60. I think it would be enough to put a bull into hibernation, but remember the chart is 180 degrees out of line. So it’s the bears turn for caution caution, caution. Here comes 11750 according to the book. © 2004 Alan
Lunt
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