REAL LOOK AT THE DOW
by Sol Palha & Alan Lunt
May 29, 2004
market is a place set apart where men may deceive each other.
The Dow has climbed roughly 3600 points from its low of 72,000 (Oct 2002) to its high of 10,800 (Feb 2004). This has been one helluva of a run. It would be absolutely normal and healthy for it to retrace up to 1/3 of this move. This would translate to a correction of about 1200 points, which would put the Dow at 9600. Even if we pulled back a little more, there would still be no reason to panic. The outlook would change slightly in that the market would have less upside potential.
The masses never look at the big picture and so a descending move of over 300 points is viewed as a total negative. This dim perception translates into fear based selling, where all stocks regardless of their value are dumped. The masses being the last ones to jump on board are the first ones to hit the brakes and bail out the moment they sense any sign of weakness. Not once does it occur to them that it is quite natural and essential for the market to take a breather in order to build the necessary strength to power off to new highs. They are quite willing to dump quality shares in order to escape what they perceive to be the next big crash. This action has some side effects for the patient trend investor; the most common one being sudden plunges in the prices of certain shares. What we would like to point out to everyone is that just as we are witnessing some devastating plunges now, we will witness some equally breath taking rises when this market gets back on its feet.
So don't just focus on the short-term picture, take in the whole view and follow the long-term trends. The long-term trends for the Dow, Nasdaq, SP500 and Nasdaq are still all up.
The chart above indicates that the main trend is still up; only the second up trend line has been violated. This type of action is perfectly normal during a correction. We envision one more rally before the end of the year. When the time is right we fill flash a final major buy signal. After that everyone will most likely have to hunker down as we start to brutally correct. This huge correction should start sometime in 2005.
It appears that Gold and Silver will once again rally in sync with the general markets. They will most likely part company when the market starts to plunge sometime next year. It is at that time that the precious metals sector will finally trade in a direction that is completely contrary to that of the Dow.
is no original truth, only original error.
Gaston Bachelard1884-1962, French Scientist, Philosopher, Literary Theorist
REAL LOOK AT THE DOW
Contributor, Tactical Investor
What a wild beast the market is, one minute bullish and the next bearish. My own mind set is that of a bear and I have had to curb the tenancy towards that view. There are so many things happening at once that should all be interrelated, but there seems to be a disconnect. I hold in great regard the greats like Richard Russell, Kurt Richeb�cher and Lord Rees Mogg. But something is happening to this Kondratieff winter that has not been allowed to occur before because this is the first winter of the modern period where fiat money has the final say.
I like the term �Crop dusting Wall Street�. I have a suspicious nature and it is screaming at me presently. When commentators start talking about the monetising of debt by the Federal Reserve, one of the ultimate tools of the Fed, I am drawn to the thought of the Japanese and their Central Bank's entry into the equities market to prop up their domestic banking sector. Already the ESF has the power to enter the market via the purchasing of S&P futures, it would only be a small step to enter the equities field.
I know you are saying that it's inflationary and debasing the currency is wrong, but further debasement is the name of the game. Sol stated some time ago that the Dow had none nothing much when priced in Euros, even as it appeared to blasting into the stratosphere when priced in US dollars, I believe that trend will continue for some time yet. The Fed has to engineer a soft landing for all the bubbles out there, and the equities market is one of those targets. It has to have the Dow priced consistently in order to keep foreign investment capital in the USA.
The classical line of thinking is that the cycles that exist must complete, however they may do so in inflation based scenario with the values not changing too much from where they are now. At a 20% inflation rate the Dow could hold the 10,000 area for 6 years and loose two thirds of it's value in the process. This is the problem of fiat; there is no constant to price anything against except gold and silver.
It looks to me as though the Dow's decline is over in terms of gold, at least for the meantime until inflation really hits and gold and silver become money of real value.
© 2004 Sol Palha, Tactical Investor
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