Predictive Model Output - Jan 6, 2006

[nodoodahs]

Well, I hope everyone that wanted to took advantage of last week’s buying opportunity.

The EPCR model output is back down to the 3rd decile after the dramatic rise in the index and the accompanying change in sentiment. I had clearly signaled a coming boost in the index by moving from the 3rd decile three weeks ago, to the 5th decile two weeks ago, and although it crossed into the 6th decile on Tuesday of last week, it ended last week in the high end of the 5th decile. Along with some very oversold technicals, it wasn't hard to spot. The question now is, will we be back in the doldrums again? While the 3rd decile isn't particularly bearish, it sure isn't bullish output. However, the 14-day K (applied to the typical price, not the closing price) isn't as high as Nov 25 (0.85 today vs. 0.93 then). The KST is still below the signal line and rising, whereas on Nov 25 the KST was above the signal line (although it didn't start closing with the signal until the 29th). Both the 5- and 20-day accumulations aren't as overbought as they have been at various times in the last month-and-a-half. Lastly, the daily candle is very bullish with a long body, shaven bottom, and small upper shadow. In summary, I don't think the market is a "buy" at this point, but I'm unwilling to say it's a "sell" or "short" - it's a "hold."

The 13-week model for the S&P 500 has fallen to the 4th decile. It had been in the 7th decile reading for five consecutive weeks before falling to the 6th decile last week, and finally the 4th this week. This suggests a 40% chance at best of making 1320 by the first week of March, and only a 5% chance of being 10% lower than today at the first week of March.

The 52-week model for the S&P 500 has also fallen, to the 3rd decile. It had been in the 6th decile for five of the last six weeks. Quite a swing, we'll have to see if it holds this low; if it does, that might put 1400 in jeopardy.

The 13-week model for the 10YT is back into the 2nd decile, it's generally been in the 1st or 2nd decile for about two months. This is still a strong signal that yields will stay low or go down.

The 52-week model for the 10YT is still in the 3rd decile, and has been for thirteen weeks in a row. Implication is 93% chance that yields decline.

The 13-week model for the USDX has popped up into the 7th decile after being in the 5th decile for four consecutive weeks. I think this may be just a blip, as it doesn't fit some other things I see.

The 52-week model for the USDX is in the 7th decile for a fourth week now.

The USDX output doesn't jibe with my macro views that USDX will likely peak early and roll over, based on timing of the remaining FFR move(s?), opening of the Iranian Oil Bourse, and the end of tax benefits for corporations bringing foreign dollars home. The jobs report today pretty much poked a finger in the eye of extended Fed raising; several foreign countries look to be on a raising rate direction over 2006; and the Euro/Dollar has broken a critical trend line. Bottom line, models are tool, and one should always look for convergence or divergence with what else one knows (or thinks one knows).

The implication of the 10YT models is that rates will stay low - and that jibes. If rates stay low on the 10YT until the Fed capitulates (not long now - BUBBLEBUBBLEBUBBLEBUBBLEBUBBLE) and starts to lower the FFR, the homebuilding stocks will be screaming buys late in 2006. They are already heavily discounted as "peaking cyclicals" but if they stay relatively healthy financially, the boost from resumed lowering of rates will most likely precede investor reaction on their stocks. Not to mention I have noticed several clusters of buying by insiders in the banking industry. Do they "know" something about future Fed action? BOOYAHHHHH!
_________________
I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[fib233]

the problem with predictive model outputs is that what happens
when everything flips upside down ??? or what if it extends.
with the debt in the us going crazy i have to wonder if it is the debt
that is driving stock prices higher . granted eventually everything
comes back to reality . i came here as i was searching the web
and found a few slamming a thoery i noted on my web page
none of you and i find no offense . im glad i found this page .
but what i have to womder and it has been in my mind for several months
now . everyone is thinking this yr is the 4 yr cycle low . so if you are a bull ( which i am not ) ten you would be looking to buy a hard drop in the mkt expecting this bull mkt to continue for several more years .
if your a bear ( which i am not either ) then youare shorting this mkt with a vengence and getting your head handed to you . for me it is really all about what happens into march . specifically march 31- april 4th .
there has been a very consistant 118 trading day cycle in the dow since
nov 2004 and the next cycle low is march 22 if it is to be exact .
the oct 4th 2005 cycle low came in 9 days late . if that was to happen again were looking at march 31 2006 . now what happens if that turns out to be a top ?????? then the cycle inverted . i cant rule out higher prices
nore can i rule out a larger drop this mkt is diverging and for me i cant be holding bullish anymore . but the proof in the pudding will be in late march . and from there we have to ask ourselves if the entire 4 year cycle is not in itself flipping over . if thats the case then mid june will be a buying oppurtunity . and mid to late march a massive shorting oppurtunity . it all should show its signs soon . like feb 27th . that is a key day for me to line up off of . ideally it is a spike up that day .
spx 1320 ????? very well could be .
nuff said
the other part of the equation

http://www.tradersaffiliates.com/WEEKLY%20UPDATE.htm

and just for grins
this pattern is still valid

http://www.tradersaffiliates.com/MARKETUPDATE.htm

and if you interested in timing
youll see the link on the page there is many pages there
just wanted to clarify something that few missed
_________________
IM THE GUY WHO WAS HUNG UP ON 3 PEAKS DOMED HOUSE IN 2005

[HenryTo]

Invest in Germany at your own peril:

http://www.businessweek.com/magazine/content/06_02/b3966054.htm

The real appreciation in Germany housing prices have been effectively at 0% over the last 35 years.

History has also shown that running a balanced budget has no correlation with economic growth or appreciation in private asset prices. Name ten companies in Western Europe that have been better investments than MSFT, DELL, YHOO, EBAY, GOOG, SBUX, INTC, GE, AMZN, MO over the last 20 years. Also, as a ratio to disposable income, total NET assets in the U.S. is now close to an all-time high - just below that during spring 2000. While some U.S consumers and the U.S. government have been piling on debt, the U.S. as a whole has been building up her asset base at a faster pace - thanks to everday entrepreneurs and folks who continue to save in their 401(k)s. Of course, we have a housing bubble in various parts of the U.S. but the bursting of such a bubble would not do much to affect the total asset base of the U.S. in the coming years. Short-term, however, economic growth will take a hit but any slowdown in U.S consumer spending will affect the rest of the world - especially China and Western Europe thanks to the overly high exchange rate of the Euro vs. the Japanese Yen and other Asian currencies.

If the U.S. savings rate was at zero, why have the growth (the rate, not just absolute growth) of assets been outpacing that of debt? Not to mention the U.S. having the largest savings industry in the world - witness the growth in CDs, Evergreen bank accounts, and the finally the growth in mutual fund assets. The calculation of the U.S. "savings rate" is flawed - given that the savings rate only takes into account the W-2 income from work (excluding capital gains) and deducts from this income all expenses, including expenses to maintain a house as well as capital gains taxes. Keep in mind that W-2 earnings do not include 401(k) deductions, and nor any employer matches. Of course, the savings rate also does not take into account any capital appreciation of stocks, bonds, real estate, and so forth.

[Goodfella]

At least they are doing something about their budget deficit. Germany economically is a better long term bet than its western counterparts, high savings rate and low personal debt - people are worried about the future and doing something about it. German property will be a great buy maybe a better entry in a few years.

BTW If the trade deficit is not large then how did the asians get all their dollars?
NZ is a popular place to retire. enough said

[HenryTo]

Sometimes, it may be better to stick with one's models - especially ones that have worked over time and that has still worked in the last cycle.

The U.S. Dollar is such a complex animal to look at and the necessary data isn't easily available. What is available is not even half the slice of a pie and focusing on those only may be dangerous - especially if some of that data is flawed, such as the U.S. trade deficit.

Many analysts are now predicting that the U.S. will run a near $1 trillion deficit by 2007 - or about 8% of GDP. Is this sustainble? Possibly (we know that the NZ Dollar is staying at an elevated level despite a trade deficit running at 8% of GDP) - we really don't know, and people who claim to know are lying - especially if they are analysts who have been predicting the collapse of the U.S. dollar over the last couple of years and that at 4% of GDP, the trade deficit was not sustainable.

The trade deficit of New Zealand is more "reliable" than the U,S. - given its dependence of tangible exports (mainly in the agricultural industry) as opposed to the U.S - which is very much dependent on services as well. For example, how do trade officials take into account the investment banking services provided by Goldman Sachs, Morgan Stanley, etc., to European companies? What about the services provided by U.S. hedge fund managers to Middle Eastern investors? Not to mention the hundreds of U.S. based investment newsletters that international investors subscribe to? Or downloadable U.S. produced software over the internet? The answer is: None of this is taken into account. Even assuming everything is taken in account, the number is still flawed - given that the world has an approximately $300 billion deficit with itself (when it is supposed to net to zero).

And then we take it one step further. Apple makes a $30 margin on each of its iPods that was manufactured in China. The Chinese manufacturer makes a $1 margin. The entire iPod is counted as a deficit against the U.S. with China as the iPod is exported back to the U.S., even though much of the "value-added" will be felt by U.S. employees and U.S. AAPL investors. Of course, it is okay to do this - as long as one recognizes that the subsequent market cap of Apple increased many times than the trade deficit added by Apple because of this transaction.

Central Bank buying is also only one part of the equation. The trade deficit number and Central Bank buying of the dollar collectively are almost always overwhelmed by private flows - and the latter is not easily tracked. As long as assets owned by U.S. citizens are increasing faster than our trade deficit (whatever that is), then this game can still go on indefinitely.

Besides, the U.S. dollar index is 57% Euro based, and my continued guess is that European economic growth will continue to disappoint going forward. Europe's largest economy, Germany, is set to increase its consumption tax in January 2007 (collectively, one of the biggest tax increases in post WWII history) . The last time this was tried was Japan in 1997, and it ended in disaster both for the country and for the rest of Asia.