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The past year has been marked with corporate scandals, a depressed economy, corporate earnings that fell short of expectations, corporate downsizing, high unemployment rates, and the threat of war with Iraq. It has been a very difficult year for most investors and fund managers, with most mutual funds coming in with double-digit losses. This year has added to the markets' down cycle and is the third down year in a row. The Dow Jones Index lost almost 17% this year, adding to its losses of 27.5% for the last three years. The Nasdaq lost 31.5% this year, and for the last three years collectively, it posted a loss of 29.7%. The only time in stock market history that the markets did not advance significantly after three consecutive years of losses was in 1929, when the markets experienced four years of losses in a row. The numbers are so soft now that most economists are predicting that a bull market will not have a great deal of resistance preventing its momentum. Double-digit returns are now a likely possibility!
Consumer confidence fell from 84.9 in November to 80.3 in December, mostly due to lower than expected holiday retail spending; Besides increased unemployment, retailers had to deal with a shortened season as a result of a late Thanksgiving. Reports from Freddie Mac declared that heavy discounting (which failed to bring consumers into the stores) and the uncertainty regarding job security provided a black cloud of support for the unemployment rate, which hovered around 6%. New home sales are still strong, brought on by low interest rates. Rates on a 30-year mortgage fell to 5.93%, down from 6.03%. The big uncertainty contributing to this unstable market is the expected war with Iraq. Historically, wars have been bullish for stocks, but the anticipation of military action is a destabilizing influence. Although history does not always repeat itself, on the eve of the Persian Gulf War in 1991, the stock market dropped over 20%, then recovered that loss quickly and reached new heights once military action began.
We have found that regular monitoring of 270 various components within the markets gives us a reliable snapshot of the current functioning of market conditions. The subtle, and sometimes not so subtle, changes from one newsletter to the next give us a measure of the present underlying conditions of the market. The statistical aspects of any and all of these fluctuations give us a high probability of what we can expect in the near future, and this newsletter we see a direction toward weakness in the short term.
22% are showing strength - Down 10% from last month 11% are neutral - Down 25% from last month 67% are showing weakness - Up 35% from last month
The erratic quality of the market reflects the instability in the economy and impending world conflict, so it is especially important to keep your stops current and ride the profit waves when we identify them.
Courtesy of http://www.investment-index.com
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