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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: bobby beara who wrote (83626)	1/13/2003 3:18:32 PM
From: StormRider	Read Replies (1) \| Respond to of 99985

Weekly Market Perspective January 9, 2003 All relevant disclosures appear at the end of this report. The prominent forecast for the stock market in 2003 is that odds of a fourth consecutive year of negative losses are low. It has happened only once in over 100 years. However, statistical inference is not so bold. The reality is that the Dow Jones Industrials rose in 65 of the 100 years from 1900-2000, which places a 65% probability of the DJIA rising, versus 35% falling, in any given year. It is also interesting to note that the statistical probabilities of four consecutive down years are lower than having nine consecutive up years as the DJIA experienced from 1991-1999. The case for a higher stock market is fundamental. The Federal Reserve and soon Congress will pursue an aggressive policy to stimulate economic growth. Interest rates are low, money supply is growing, and Washington is mixing a heady brew of incentives to spur capital spending and investment in the stock market. Corporate America has not been idling while suffering anemic growth in demand the last several years. Operating costs have been reduced, lowering break-even levels and priming the outlook for profitability - once revenue growth moves sustainably higher. The risks to a positive year are not hard to envision. Equity valuations are on the high side of their historical average, global military and political conflict creates uncertainty, and investor sentiment is still smarting from the longest and deepest bear market since the Depression. However, the negatives are receiving a fair share of the headlines and expectations appear subdued, which are favorable conditions for the contrarian investor. With the caveat that forecasts can be more dangerous than useless, we offer the following. * The inflection point for the stock market is 965 on the S&P 500. This level was the high after this summer's market plunge. Assuming the level is breeched, it would represent the largest percentage rise since the bear market began in March 2000. It also would be a rally that overtakes a previous high, a first in this bear market. * There is a systemic short interest in the U.S. market. This is partly because the dominant trend has been down and also due to the popularity of hedge strategies to mitigate downside risk. Psychologically, we believe short selling begins to unwind with the 965-inflection point in the S&P 500. * The share of money market assets to total equity mutual fund assets is the highest since 1991. Additionally, the $2.3 trillion in money assets is a higher percentage to the total equity market value (Wilshire Total Market Index) than in 1982. There is plenty of liquidity on the sidelines to fuel a market advance. * Interest rates on Treasury bonds are likely to rise, which will be a modest positive for stocks. Falling Treasury bond yields have followed stocks lower. In late September, the year-over-year performance of stocks versus bonds reached its greatest disparity since the Depression. * Our target level for the S&P 500 at some point in 2003 is the 1050-1100 area. While it is unlikely that the target level is reached before there is more clarity on the situation in Iraq, the resolution could be more the marking in the midpoint of a rally than the bell ringing of a new bull market. Investors may also take some comfort in the reversion to the mean principle that underlies so much of nature. The 1-, 3-, and 5-year performance of the market is so out of synch with its 10-, 25-, and 50-year average. Taken together, we are optimistic for some significant opportunities in 2003. Richard E. Cripps, CFA Chief Equity Market Strategist (c) Copyright 2003 Legg Mason Wood Walker, Inc.

To: bobby beara who wrote (83626)	1/26/2003 10:38:49 AM
From: Tom Pulley	Read Replies (1) \| Respond to of 99985

Bobby, what is your put/call 21 day / 200 day chart telling you now? I didn't fully understand how you are interpreting the chart from your previous post here. Some interesting things going on in the market now. Some indicators are saying we are a long way from the bottom of this bear move. For instance, the NYSE new highs/new lows has only just turned down and in recent past needs to get to -500 on the chart below to indicate we are near a bottom: stockcharts.com[e,a]daclyyay[pb50!b200][vc60][iub14!la12,26,9]&listNum=1 On the other hand, the NYSE tick on Friday showed steady selling as the tick stayed below zero for much of the day and the 4 hour moving average has moved below zero: stockcharts.com[e,a]jaclyyay[d20][pb240][vc60][iUb14!La12,26,9]&pref=G My timing model is still at 25% short (wish it was a higher percentage). Whereas for most of this decline, my indicators haven't been affected much by the down days, Friday's decline did have a significant impact. Makes me wonder if we are about to see a sharper decline going forward. The only event I can imagine that could cause that would be if the Iraq attack is going to start much sooner than the March date that has been discussed recently. Next week's market action will be interesting and perhaps shed some light on the situation. Tom