Tuesday, September 26, 2006

Nirvana in Sight

With Tuesday’s rally in stocks, the all three major indexes we follow did manage to move above last week’s highs. The SP 500 now has made 5 ½ year highs for two days in a row. The Dow is again within striking distance of the magic all time closing high price of 11,722.98 with today’s close of 11,669. The most logical thing is for nirvana to occur and the Dow make an all time new high. That would please all of the bulls and would provide us with another nonconfirmation.

We were disappointed in the market’s ability to rally in the face of the news that is out there; but, the market is only thinking that we are about to go into a magical period for the economy due to the fact that the economy is now noticeably slowing so the Fed Can’t raise rates for sure. As you probably know, we do not share the market’s jubilance. We are concerned with the business of over-valuation and with the next Big move being down. We do sound like a broken record but at this point, there is no reason for us to change our tune.

One big item for this position is the VIX. As we mentioned in our last post and you can see at the bottom of this post, we have added the VIX to our list of daily reports. This is the volatility index and we see that it fell hard again today. This is a measure of how much fear of a market decline there is, the lower the number the less the fear. (This is measured by the amount of premium in the index puts in case you were wondering.) Tuesday the index closed below 12 and near the lows for the last couple of years down around the low 10’s. Just for the record, We will Not be bullish stocks (other than mining stocks) until this index goes up to a much higher level—we will let you know but it won’t be anything less than 25.

Today, we heard that the consumer confidence numbers were much improved over last month but didn’t quite make up all of the ground lost last month. We think there are reasons for this with the main one being the recent drop in gas prices. The Conference Board’s actual report added that the outlook for jobs improved as well as current economic conditions. Consumers’ outlook for the economy’s performance over the next six months improved.

We tend to think that any positive news stories over the next few weeks have a great deal to do with the political landscape looking toward the elections in November. This includes the stock market headlines, especially the 5 ½ year high in the SP 500 and the Potential All Time high in the Dow. All of these things tend to make consumer confidence go up. The big question is if the market can hold up until the elections. You know our answer to that.

We believe, as we said earlier this week, that the market will peak on Wednesday due to the end of the quarter window dressing. The mutual fund companies need to have the right stocks in their annual reports, you know, the ones that went up this quarter or year. That effect is probably going to hit its peak on Wednesday. To help this along, the news on Wednesday includes the durable goods and one of our favorite indicators the August new home sales.

In the "huh?" column, we saw an article on CNN Money at the end of the day that said that the stock market can now enjoy some fresh money from those people who would otherwise plow their free capital into real estate. Since real estate investments are currently "dead" money, the analyst felt that at least a portion of newly available money would find its way into the stock market. So, the real estate market bailed out the stock market after the big decline and now the stock market will bail out the real estate market. That's a neat trick...

Dow Industrials: 11,669.39 +93.58
VIX: 11.53
QQQQ: 40.77
RYVNX: 19.59
RYAIX: 22.98
RYCWX: 39.70
TLT: 89.93
BEGBX: 13.76

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