My Thoughts

[HenryTo]

This is just my personal opinion but judging by the indicators that I've been keeping track of consistently, it seems like there's a good chance we may be at the beginning of a pretty substantial decline.

I see the P/C ratio steadily going up but not oversold. While the number of new highs is still outpacing the number of new lows on the NYSE, the reverse is true for the NASDAQ. The weird thing is, the one-day NYSE ARMS reading today hit a level of 0.50 - the lowest reading we've seen since mid November of last year.

Both the NYSE and the NASDAQ McClellan Summation Index have also turned substantially down, but they are also definitely not in the oversold area. Moreover, the NASDAQ Composite has never confirmed the Dow Industrials nor the Dow Transports on the upside on March 4th. While this is not necessary under Dow Theory, I believe it is a definite plus from a logical standpoint - given the prevalence of NASDAQ stocks in the retail investor's portfolio.

Insider selling has also picked up substantially, while the Fed is scheduled to raise the Fed Funds rate again on March 22nd (just a week away). Steel prices are expected to rise again, and oil is not going down either even as talk of a new 500,000 barrel raise in the OPEC quota came along earlier yesterday. The "positive" INTC news last Thursday evening was ignored on Friday and again ignored yesterday. Concurrent with the resignation of CEO Greenberg from AIG and its delay with the filing of the 10-K, this could be the trigger for some substantial down side ahead. We will see.

[Dubious]

Henry,

Soaring commodities, inflation, soaring gas prices, crude worries - that is now but guess what? That was 1972 (with odd and even gas days). Commodities rallies last on average 19 years. The first two years are slow and steady - then year 3 it takes off. We are in year 3 and crude has gone from $42 to $57.

This is not an inflationary period to you? Gas prices up 40%, education up 28%, health care up 14%, housing prices going up double digits which means insurance is going up double digits. Corporations unable to pass higher prices to the consumer due to their debt levels. Hmmm..

We can agree to disagree but this is like a 1972 flashback to me. We also had the last days of Vietnam and the people turning on the Big Head Cheese - hmmm. Ask yourself??? Is that happening now. Iraq and King George II.

My price target for the DOW is 8,000. Remember starting June 2005 options will be treated as expenses...which means P/Es are going to go to the moon. Fed data is on 25 crude and Stock P/Es are on 30 crude - because Mr Bubbles (greenspan) has stated crude at these prices is temporary - that is when crude hit $32. He is a treasure. Congress changed the bankrucpy laws (NOW) for a reason and the reason is - pain ahead.

Dubious

[HenryTo]

Dubious,

I am in the 1997 to 1998 camp mainly because I think the emerging markets will fall in the next six to nine months - similar to what happened in the 1997 Asian Crisis and the subsequent decline of Brazil, Russia, and the LTCM. The set up is the huge liquidity that has been flowing to the emerging markets and the subsequent lack of respect for risk. Credit spreads are at or near all-time lows. This all does not matter, of course, until it reverses. And now, it looks like that we are reversing.

Interest rates have already been rising since the 1960s until we hit the inflationary 1970s - for comparison purposes, I think we are still early in the game. Sure, oil prices are near all-time highs but I think the reversal of the emerging markets will put a dent in oil prices - long enough to give us a few more years before oil prices go to $75 a barrel. I think, if anything (if you want me to compare the current period to the 1966 to 1974 bear market period) we are more like in the January 1969 to May 1970 period - the second cyclical bear market within the 1966 to 1974 bear market - when inflation and commodities were also rising significantly.

Price targets for the Dow Industrials? Probably somewhere below 9,000 - which will give us a very good buying opportunity.

[Dubious]

Henry,

I am in the 1972 camp.

Rising inflation, gas prices, interest rates and the fed dead at the switch.

This is not a 1997-1998 replay. IMHO.

1973-1974 were two years of sandpaper to stocks - rubbed them raw.

Come on spill the beans and give out price targets - .

Major foreign stock markets are breaking down - check out the Oz stock chart - broke down on Thursday (major top signal). Not a good sign.

Dubious

[HenryTo]

Dubious,

It is very difficult to say - I am still in the 1997 to 1998 camp. That is, I expect emerging markets to take a hit in the next six to nine months. The U.S. will also take a hit but the hit will be disproportionally mild - again, kind of like the late 1998 scenario.

I believe it will take year for some of those emerging markets to recover but the U.S. will do relatively well. In fact, people will forgo international and emerging market stocks and once again buy domestic stocks. I believe the "crash" of the emerging markets will generate a very oversold situation in the domestic markets - one in which I think will offer a very good buying opportunity. Again, similar to the late 1998 scenario.

At this point, I am not giving out any price targets.

Henry

[Dubious]

HenryTo,

I am in your camp. However, there will be strong oversold rallies that we can make some coins. I feel the SPY will be down 20% by the end of the year. Naz will be down double that. The DOW is 25 dogs and 5 half decent stocks.

I believe a rally is possible after the job report on April 1 (Fool's Day) no less.

[HenryTo]

The McClellan Oscillator is now very sold. NASDAQ not so much but the NYSE McClellan Oscillator is now at its lowest level since March of last year. The Summation Index, however, is still at neutral levels.

The market is holding up nicely today (as of 12:20pm ET) given the higher-than-expected CPI number but this bounce is still looking pretty weak. We will just have to see but if the market does recover today, I still do not see good times ahead for the bulls until things such as the ARMS Index or my longer-term indicators (such as the five-week RSI as shown on vtoreport) get more oversold. This may take a while if we have a hard bounce on the upside in the next few days.

We will see.

[HenryTo]

Latest HSNSI data from Mark Hulbert at marketwatch.com:

http://www.marketwatch.com/news/story.asp?guid=%7B9B9614A1%2D8420%2D42BB%2DA6C2%2DCC03198A9E9A%7D&siteid=mktw&dist=

Says his sentiment indicator, the HSNSI, is getting very oversold - but I would just like to point out that his HSNSI has gotten below zero in the past. Twice in 2004, as a matter of fact - once in May and once in August. The HSNSI also hovered around the zero line in March 2004 before rebounding.

[HenryTo]

Hmmm... today's decline has made both the NYSE McClellan Oscillator and the Total Market McClellan Oscillator very sold on the daily charts. Both their respective Summation Indexes are also at the late January support level (in the latter case, very close to the zero line) - suggesting that a powerful snapback rally may materialize pretty soon.

The prudent trader who is looking to short may want to sit it out here and wait for this rally to materialize before initiating any short positions (and at the same time, keep close tabs on the major sentiment indicators).