tomt stock market model october 31 2010

8/8/2019 TomT Stock Market Model October 31 2010

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Copyright 2010 Tom Tiedeman, Washington, D.C. All rights reserved. 1This is research, not investment advice.

Still on track for a long Bull Market

My statistical models see an exceptionally brighthalf-year ahead for the stock market: 20% gains forthe Value Line Arithmetic Average (VAY) betweenNovember 1 and May 31, 2011. (Actually, the rawprediction is for a 30% gain, but I am discounting that asprobably unrealistic.) There is a greater than 95%probability of at least breaking even. The odds areroughly 50-50 that a temporary correction of at least 8%will occur at some point before June so, the recessionrecovery road ahead will probably be bouncy.

My econometric models of the stock market are basedon the Value Line Arithmetic Average which tracks the1800 largest U.S. companies and accounts for 95% ofindustry. The models focus on a few fundamentaleconomic statistics that tend to foretell stock marketmoves. How good are they? My forecast from last Maywas right on target (13% gain forecasted and 12% actualgain).Here are some longer term performance charts.In real world testing, my models appear to point to thebasic direction of U.S. stock markets most of the time --which is their purpose.

But, what if my new forecast is all wrong? Thatswhat the rest of this paper is about. For what they areworth, here are my thoughts on what I feel are the majorfactors likely to affect the market over the next half year.I have also included a wide variety of stock market andeconomic indicators my favorites and the favorites ofothers for looking ahead several months.

Bad is good. Retail investors remain firmly convincedthat prospects for the U.S. and European economies aresomewhere between dismal and frightening. Corporateprofits have shot back up to near-normal levels, but noone seems to notice. People have focused more on the

pain of high unemployment that refuses to drop. Factoryutilization is low. Housing activity has not been this badsince World War II, and there is no prospect forimprovement in sight. National deficits in mostdeveloped economies have people quaking in theirboots. Millions and millions of people are effectivelybroke.

Personal wealth in the U.S. dropped $18 trillion a fullyears worth of GDP -- in the worst recession since theGreat Depression, but losses could have been twice thatbad.

The Federal Reserve is throwing everything it can at theproblem, including a giant money printing press. But theFed is essentially acting alone. Politicians have nowbeen intimidated by deficit fear mongers so there doesnot seem to be even a remote chance of furthercongressional stimulus action. Getting out of this GreatRecession is going to be a long slow slog.

Because so many retail investors remain frightened,from a long-term investors view nothing could bebetter! When interest rates eventually go up, overseveral years all those bond investors will herd backto stocks! There is plenty of room on the upside forstocks and relatively little room on the downside! Ifeverything was wonderful in the economy then therewould be nowhere for the market to go but straightdown. But, with economic prospects murky, there reallyisnt anywhere to go but up slowly and haltingly foryears!

(My forecast does not include any intervening hugecalamity like war, plague, or a giant meteor strike.Besides, if something like that occurs, no one willremember my prognostications anyway.)

I am not the only stock market Pollyanna. My modelshave been strongly bullish since October, 2008 a timewhen the world seemed near financial calamity. Foreignmarkets started to rebound then, but U.S. marketscontinued to crash until March, 2009. Now, nearly twoyears later, and after a tremendous stock marketrebound, some of the most influential voices in the

popular investing world have finally come out withoptimistic views.

Warren Buffet, the Oracle of Omaha,said (10/5/2010)Its quite clear that stocks are cheaper than bonds. Icant imagine anyone having bonds in their portfoliowhen they can own equities. Here is a columnbySteven Pearlstein from the Washington Post (9/23/2010)saying: "Yes it may finally be time to get back intostocks." (Free subscription required)

Select to view:Current ForecastMarket Valuation MeasuresEconomic Indicators

Trader Signals - FastTrader Signals SlowInternational ViewTesting my forecast modelsAbout This Forecast

Tom Ts Stock Market Forecast October 31, 2010

Current Forecast
http://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://www.bloomberg.com/news/2010-10-05/buffett-compares-wall-street-casino-culture-to-church-raffles.htmlhttp://www.bloomberg.com/news/2010-10-05/buffett-compares-wall-street-casino-culture-to-church-raffles.htmlhttp://www.bloomberg.com/news/2010-10-05/buffett-compares-wall-street-casino-culture-to-church-raffles.htmlhttp://www.washingtonpost.com/wp-dyn/content/article/2010/09/23/AR2010092306290.html?sub=ARhttp://www.washingtonpost.com/wp-dyn/content/article/2010/09/23/AR2010092306290.html?sub=ARhttp://www.washingtonpost.com/wp-dyn/content/article/2010/09/23/AR2010092306290.html?sub=ARhttp://www.bloomberg.com/news/2010-10-05/buffett-compares-wall-street-casino-culture-to-church-raffles.htmlhttp://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined


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Similarly, at MSN MoneyCentral, Anthony Mirhaydariwrote Get Ready for an Epic Bull Market. On10/13/2010 Mirhaydari follows upwriting investorscan look forward to what's shaping up to be the bestmarket environment in a generation. In the same vein,Jurrien Timmer at Fidelity Investments at the start ofOctober wrote about A case for taking some riskagain. At MarketWatch.comPeter Brimelow opines(10/14/2010): Is there a bond bubble? Short answer:yes stocks seem to be a better bet than bonds.Shelly Schwartz for CNBC.com says thatthe best oftimes for stocks may be ahead.Finally, Liz AnnSonders at Charles Schwabwrites: US stocks are notexpensive and they're most certainly under-owned. Mostindividual investors are either pessimistic or indifferentabout the stock market, suggesting the "wall of worry"the contrarian nature of the market to perform best whenpessimism is highestis alive and well.

Considered together it appears that the deep seatedfears of a double dip recession have faded foreconomists and some fairly prominent conservativeinvestors. A long term bull market is coming into their

view. Corporate insiders have also become stronglybullish they are buying their companies stocks.Average retail investors, on the other hand, remainpetrified of stocks as evidenced by the continuing flow ofmutual fund investments out of stocks and into bonds.The smart money and the trendsetters have acceptedthe reality of the bull market and small time investors willeventually follow.

Why have the gurus turned bold? First and foremost,the economy did not tumble into a second round ofrecession as had been feared by many. GDP growth didslow over the summer, hurting stock performance.

Plenty of investors were scared and ran for cover fromMay to August. But, in the end, the sky did not fall; GDPdid not actually decline; profits kept rising; leading

economic indicators leveled off; and the market gave agreat sigh of relief.

Another factor that helped to avoid a big sell off thisautumn was that the market has not racked up majorlosses over the past year or so. Therefore, majorinstitutional investors did not need to sell a massivevolume of losers in order to book tax losses and prettyup their portfolio holdings. On the contrary, mostinvestors have a strong tax incentive to keep holdingtheir stocks at least into the New Year.

Finally, there just might be something to the validity ofthe trend pattern of the PresidentialCycle. Im not surethat I really trust this pattern, but historically the end ofthe second year of the Presidential election cycle is verygood for stocks.

Unless something earth shaking occurs, Ill reportnext at the close of May, 2011.

Competing Econometric Stock Market ModelsMark Hulbert at MarketWatch.comreported in May, 2010on two econometric models with half-year to one yearperspectives that are even more optimistic than mine.One, from Sam Eisenstadt, forecasts a 20% gain in theSP-500 over the next 6 months. The other from NormanFosback foresees a 26% gain in the next year and a75% gain over the next 5 years.
http://articles.moneycentral.msn.com/Investing/MutualFunds/mirhaydari-get-ready-for-an-epic-bull-market.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/mirhaydari-get-ready-for-an-epic-bull-market.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/mirhaydari-get-ready-for-an-epic-bull-market.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/mirhaydari-how-to-build-a-million-dollar-401k.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/mirhaydari-how-to-build-a-million-dollar-401k.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/mirhaydari-how-to-build-a-million-dollar-401k.aspxhttps://guidance.fidelity.com/viewpoints/case-for-riskhttps://guidance.fidelity.com/viewpoints/case-for-riskhttps://guidance.fidelity.com/viewpoints/case-for-riskhttps://guidance.fidelity.com/viewpoints/case-for-riskhttp://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttp://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttp://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttp://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttp://www.cnbc.com/id/39436305/http://www.cnbc.com/id/39436305/http://www.cnbc.com/id/39436305/http://www.cnbc.com/id/39436305/http://www.cnbc.com/id/39436305/http://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100410.htmlhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100410.htmlhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100410.htmlhttp://www.marketwatch.com/story/two-highly-regarded-statistical-models-are-bullish-2010-05-26?link=kioskhttp://www.marketwatch.com/story/two-highly-regarded-statistical-models-are-bullish-2010-05-26?link=kioskhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.marketwatch.com/story/two-highly-regarded-statistical-models-are-bullish-2010-05-26?link=kioskhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100410.htmlhttp://www.cnbc.com/id/39436305/http://www.cnbc.com/id/39436305/http://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttp://www.marketwatch.com/story/is-there-a-bond-bubble-2010-10-14?link=kioskhttps://guidance.fidelity.com/viewpoints/case-for-riskhttps://guidance.fidelity.com/viewpoints/case-for-riskhttp://articles.moneycentral.msn.com/learn-how-to-invest/mirhaydari-how-to-build-a-million-dollar-401k.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/mirhaydari-get-ready-for-an-epic-bull-market.aspxhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:IND


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If there was any real agreement on stock valuationprices wouldnt go up and down as much as they do.The measures here are tied to company earnings. Theygauge whether the stock market as a whole is pricedreasonably. My favorite is the Morningstar MarketValuation Graph below.

Morningstar.Com Market Valuation Graph (Click tothe Max time period view of the chart.)Status: Following market gains of the past severalweeks, Morningstar sees the market as fairly priced; upfrom the 10% undervalued level hit two months ago. As

far as this Morningstar estimate goes, the market iscertainly not in any bubble.About the indicator: This graph is a fundamentalfinancial analysis / accounting calculation based on long-term projected profits for the thousands of stocksMorningstar tracks. It is a good basic check to see if thestock market pricing makes sense. If the Morningstar netpresent value pricing model is to be believed (a goodbet) then the significant price rise in the stock marketover the past year must reflect recovering earnings andreal business improvement, not any sort of unduespeculation. From this point any further market gainsneed to be justified by advancing real earnings.

S&P-500 to Book Value(Bloomberg, Click on thechart option that gives the 5-year view)Status: The market had a great rise from the depths ofMarch 2009, but seems to have leveled off with themarket price-to-book value well below the typicalhistorical valuation ratio.About the indicator: This is a basic valuation tool forstocks -- how does the price of a stock compare to themoney that could be gained from selling off all thephysical plant and inventory of the company. I don't feelit means too much on its own since valuations can bequite debatable. However, it confirms that stocks are notwildly overpriced today and that plenty of room remains

on the upside..

S&P-500 Price Earnings RatioalsoS&P-500Earnings(Note that the S&P-500 Earnings chart issomewhat out of date. The link above is towww.multpl.com, courtesy of Josh Staiger) Sourcedataavailable onlinecourtesy of Robert Shiller and S&P)Status: By eyeball, P/E ratios are roughly at normal

levels. (But, as the chart shows, P/E ratios don't reallyhave a 'normal' level.) The earnings chart shows what anincredible V-shaped recession we have had. (You reallyshould look at it!) To my mind, there is nothing scaryabout current P/E ratios -- at least as compared to theincredible spike of P/E ratios during the tech bubble of2000!About the indicator: Intuitively, the ratio of a stock'sprice to the company's earnings should be the keyobjective tool for judging if a stock is properly valued andfor comparing multiple stocks. High Price-to-Earningsratios should make investors worry that a stock is over-priced. Likewise, low P/E ratios should help to flagbargains. Unfortunately, as indicated inthis Mark Hulbertarticle, P/E ratios have negligible value in predictingeither one-year or even 10-year stock price moves. P/Eratios today are high compared to 40 years ago or more.Part of this sea change in ratios, however, was probablydue to the shift to investors preferring appreciating stockprices instead of dividends -- all caused by the fact thatthe tax code sets low rates for capital gains and taxesare deferred until the stock is actually sold.

The Fed Model(Wikipedia.org explanation)Sourcedata for S&P Earnings and long interest rates madeavailable courtesy of Robert Shiller.Status: According to the long term pattern of interestrates versus stock prices, the stock market is eithersignificantly undervalued or overvalued depending onthe length of the historical average you want to consider.(Given the current very low long T-Bond rate of 3.55%,and based on experience since 1960, a regressionmodel predicts that the SP&500 P/E should beapproximately:P/E = 1/(0.808 T +0.010)P/E = 1/( 0.808 (0.0355) + 0.010) = 25.8.The current S&P-500 P/E based on 10-year trailingearnings is roughly 21. So, smile; the market must beundervalued. But, the long term average P/E for the

S&P500 since 1881 is roughly 13.5, much lower than thecurrent P/E, so you should worry.) Be happy or worryas you wish. But, dont go crazy My analysis findsno statistical link in the 6-month time frame betweenany gap between the calculated and actual P/E and acorresponding rise or fall in the S&P-500 average. About the indicator: (This indicator is a quantitative

look at the P/E ratio and comes to the same conclusionas the qualitative look of the pervious indicator. I find its



Tom Ts Stock Market Forecast

Market Valuation Measures
http://www.morningstar.com/cover/pfvgraph.htmlhttp://www.morningstar.com/cover/pfvgraph.htmlhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.multpl.com/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/http://www.multpl.com/http://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://en.wikipedia.org/wiki/Fed_modelhttp://en.wikipedia.org/wiki/Fed_modelhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://en.wikipedia.org/wiki/Fed_modelhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://www.marketwatch.com/story/are-stocks-really-undervalued-2010-09-03http://www.econ.yale.edu/~shiller/data.htmhttp://www.econ.yale.edu/~shiller/data.htmhttp://www.multpl.com/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/s-p-500-earnings/http://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.morningstar.com/cover/pfvgraph.htmlhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.multpl.com/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:IND


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results to be nearly worthless in the 6-month timeframe.) This popular classic stock market valuationmodel starts from the simple premise that the earningsto price ratio (E/P) of basket of quality stocks like theS&P 500 index and the yield from long term qualitybonds should be just about the same, with the stockshaving a little higher return to reflect their higher inherentrisk.

As shown in the chart above, earnings per share (E/P oreps) and the 10-year Treasury bond interest rate arefairly closely linked. Statistically, more than half of thelong term variation of the E/P or P/E ratio of the S&P-500 can be explained directly from the level of long term

interest rates. The link is even closer between interestrates and fairly long term averaged earnings rather than

just current earnings. The upshot is that interest ratesand a moving average of the markets P/E can be usedto forecast stock market values. Thats really quiteamazing! No wonder that market commentators dote onevery twitch made by any of the directors of the FederalReserve related to interest rates.

.

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00.020.040.060.080.1

0.120.140.160.18

1960.

01

1962.

11

1965.

09

1968.

07

1971.

05

1974.

03

1977.

01

1979.

11

1982.

09

1985.

07

1988.

05

1991.

03

1994.

01

1996.

11

1999.

09

2002.

07

2005.

05

2008.

03

SP500 E/P vs 10yr Treasury1960 - 2010

eps INT10


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Despite all of its semi-random craziness, eventually thestock market needs to reflect corporate profits which inturn reflect the economy and especially interest rates.Usually the stock market anticipates economicconditions by several months. (The old adage is thatsince 1948 the stock market has predicted 20 of the last10 recessions.) The indicators here are my favorites forlooking ahead 6 months to a year.

Economic Cycles Research Institute (Bottom ofthe page)U.S. Leading Economic Indicator (See bottom of linkpage.)Conference Board Leading Economic IndexOrganization for Economic Cooperation andDevelopment.Status: The ECRI leading indicator turned down overthe summer convincing many commentators that theeconomy was falling back into recession. Now it hasleveled off, creating a bit more confidence that theeconomy hit a "soft patch" rather than a serious pot hole.About the indicators: These are just a few of thegroups that compile statistics of economic factors thattend to lead the economy both up and down. Stockmarket performance is typically part of the group ofmeasures that makes up a leading economic indicator,so by definition, that part of the leading indicator cannotlead the stock market. Other parts of an LEI, however,can lead the stock market. Changes and directions ofthe leading economic indicators are worth payingattention to.

Anxious Index (Philadelphia Fed. xls file)Status: Economists are starting to hedge their bets a biton avoiding another round of recession. The Augustupdate of this indicator shows that a few more

economists are afraid of a double-dip recession. Thenumber is still small, but the key point is that the concernis rising rather than falling. (Next update in mid-November)About the indicator: Thisarticle by David Leonhardt inthe NY Times in February, 2008 said the Index pointedtoward an economic recession. Clearly it was right. Henoted this Survey of Professional Forecastersmaintained by the Philadelphia Federal Reserve hasn't

missed calling a recession or called a false positive inthe years since 1968 when it was started. The AnxiousIndex is the successor to the earlier Livingston Index apersonal project of a Philadelphia journalist.Hereis aninteresting article on it from the Philly Fed web site. (OK,you may think it is terribly boring, but I think that it ispretty neat that a small-time single individual couldcreate one of the most important economic toolsaround.) I find that the Anxious Index is a much betterleading indicator than is actual GDP.

Effective Federal Funds RateandTarget InterestRate(from St. Louis Federal Reserve)Status: The Fed is effectively paying banks to borrow!Eventually rate cuts will stimulate the economy. But,because of lag times, for now it is still a contraryreminder of just how worried they are at the FedAbout the indicator: The Federal Reserve largelycontrols interest rates. Interest rates largely determinebusiness profitability. And profitability controls the stockmarket. Enough said.MarketWatch.com forecast ofinterest rates

Probability of Recession Predicted by InterestRate Spread(NY Federal Reserve. See the chart loweron the link page.)Status: With short term interest rates near zero, thisindicator says that there is practically no chance of adouble dip recession..About the indicator: When the Federal Reserve raisesshort term interest rates high enough the economyquiets down -- and possibly goes into recession. Whenthe Fed lowers interest rates it supplies a majoreconomic stimulus. This well documentedindicator fromthe New York Federal Reserve is an econometric modelof the probability of economic recession based on the

difference between short term interest rates and the rateon the 10-year Treasury Note. Raw data




Economic Indicators
http://www.businesscycle.com/resources/http://www.businesscycle.com/resources/http://www.e-forecasting.com/US_Leading_Economic_Indicator.htmhttp://www.conference-board.org/data/bcicountry.cfm?cid=1http://www.conference-board.org/data/bcicountry.cfm?cid=1http://stats.oecd.org/Index.aspx?DatasetCode=MEI_CLIhttp://stats.oecd.org/Index.aspx?DatasetCode=MEI_CLIhttp://stats.oecd.org/Index.aspx?DatasetCode=MEI_CLIhttp://www.philadelphiafed.org/files/spf/anxious_index_chart.xlshttp://www.philadelphiafed.org/files/spf/anxious_index_chart.xlshttp://www.nytimes.com/2008/02/12/business/12cnd-econ.html?ref=businesshttp://www.nytimes.com/2008/02/12/business/12cnd-econ.html?ref=businesshttp://www.nytimes.com/2008/02/12/business/12cnd-econ.html?ref=businesshttp://www.philadelphiafed.org/research-and-data/publications/business-review/1997/march-april/brma97dc.pdfhttp://www.philadelphiafed.org/research-and-data/publications/business-review/1997/march-april/brma97dc.pdfhttp://www.philadelphiafed.org/research-and-data/publications/business-review/1997/march-april/brma97dc.pdfhttp://research.stlouisfed.org/fred2/series/FFhttp://research.stlouisfed.org/fred2/series/FFhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdfhttp://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdfhttp://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdfhttp://www.newyorkfed.org/research/capital_markets/ycfaq.htmlhttp://www.newyorkfed.org/research/capital_markets/ycfaq.htmlhttp://www.newyorkfed.org/research/capital_markets/ycfaq.htmlhttp://www.newyorkfed.org/research/capital_markets/allmonth.xlshttp://www.newyorkfed.org/research/capital_markets/allmonth.xlshttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.newyorkfed.org/research/capital_markets/allmonth.xlshttp://www.newyorkfed.org/research/capital_markets/ycfaq.htmlhttp://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdfhttp://www.newyorkfed.org/research/capital_markets/Prob_Rec.pdfhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://www.marketwatch.com/news/economy/economic_calendar.asp?siteIdhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://research.stlouisfed.org/fred2/series/DFEDTARhttp://research.stlouisfed.org/fred2/series/FFhttp://www.philadelphiafed.org/research-and-data/publications/business-review/1997/march-april/brma97dc.pdfhttp://www.nytimes.com/2008/02/12/business/12cnd-econ.html?ref=businesshttp://www.philadelphiafed.org/files/spf/anxious_index_chart.xlshttp://stats.oecd.org/Index.aspx?DatasetCode=MEI_CLIhttp://stats.oecd.org/Index.aspx?DatasetCode=MEI_CLIhttp://www.conference-board.org/data/bcicountry.cfm?cid=1http://www.e-forecasting.com/US_Leading_Economic_Indicator.htmhttp://www.businesscycle.com/resources/http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://research.stlouisfed.org/fred2/series/FFhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:IND


6/16


Long Treasury Bond vs DiscountRate (InvestmentTools.com)Status: The Fed has dramatically lowered short termlending rates creating a major stimulus to try to pump upthe economy. The difference between the short and longrates is seldom greater than it is now. In the past coupleof months the gap between long and short rates hasstarted to close, primarily because long-term rates havecontinued to fall.Liz Ann Sonders at Schwab writes(10/7/2010) that this is a positive rather than negativedevelopment.(MarketWatch.com forecast, bottom oflinked page)(Sometimes MW posts it there andsometimes not :o)About the indicator: Interest rates are a primedeterminant of profitability and of economic activity. Thisis a major long term telltale of where the market will gonext. For now the big question is when will the FederalReserve raise rates? Unfortunately, the flip side of this isthat low rates like we now have are a direct statementthat the Fed remains really worried about the economy.

TED Spread(Bloomberg)Status: The Greek bond default fear spike of the past

few months -- appears to be fading. The spike was alsofairly small -- TED remains significantly BELOW normalshowing a major return of credit confidence. (Click to the5-year view to see this.) LIBOR is also low again.About the indicator: Credit only counts when you don'thave it! This indicator tracks the difference between the3-month Treasury rate and the 3-month LIBOR(click tothe 5 year chart) -- the interest rate at which banks loanto one another. As the credit crisis started to hit in midOctober, 2008 the banking panic froze the credit marketsand caused the LIBOR to skyrocket despite fallingTreasury rates. The TED spread had never been higher.Now, the situation has calmed tremendously. Bond

spreads also continue to improve with continuingdeclines in perceived risk.

Building PermitsandHousing Starts(St. LouisFederal Reserve)Status: Construction remains as low as it has been atany point since WWII. Housing probably has bottomedout and a multi-year rebound is just starting --- withrecovery much slower than is typical following arecession.About the indicator: Housing and construction areimportant leading indicators, usually leading the stockmarket by about a year. Housing related activity -- not

just construction, but including all factors such as newappliances -- constitutes roughly 15% to 20% of the U.S.economy. It is much too big a sector to ignore. Theselinked charts from the St. Louis Federal Reserve showclearly that if you have several years of over-buildingthen payback in the form of a dead market for newconstruction must eventually follow.

U.S. Dollar(ClearStation.com) orDollar Index(Bloomberg. Click to the longest view)Dollar Index(MarketWatch.com)Status: Since June, the Dollar has fallen considerably --a good sign of returning financial confidence followingthe bond default fears last spring for Portugal, Greece,Spain, Ireland and Italy, The falling Buck is also anexpectation that further quantitative easing (creatingmassive amounts of dollars out of thin air) is highly likelyAbout the indicator: Watch the dollar slideits goodfor the stock market and rebalancing the U.S. economy,but it is bad for your personal wealth. The flow of dollarsfrom the U.S. is at flood stage. To try to bring the U.S.balance of payments at least a little bit under control theBush administration set the value of the U.S. Dollar on abig long slide while pretending in public ("Strong Dollar" )that it had nothing to do with the slide. The Obamaadministration continues that policy. The only alternativemeans to restore some semblance of a trade balancewould have been to cut use of foreign oil or resurrect theold strong array of trade barriers and tariffs. The race tothe bottom of world currencies is now at high pitch asillustrated bythis Bloomberg.com storyon the October,

2010 G20 meeting.

Household Net Worth (Federal Reserve, see Line42)Status: As a Nation we are a lot less wealthy than wewere a few years ago. After falling off a cliff with thecollapse of housing prices and the stock market crash,personal net worth appears to have bottomed out, but itis not yet seriously rising. It is not yet time to celebrate. Itis no surprise at all that Treasury and the Fed are doingeverything possible to block further drops in houseprices and to increase business profitability by reducingborrowing costs.

About the indicator: Net worth is the score that countsPersonal wealth fell by 18 trillion dollars during the GreatRecession, equivalent to a full year of GDP, and it couldhave been much worse. All that would have beenneeded was for cascading bank, business and personalwealth failures to get rolling as they did in the GreatDepression. The couple of trillion dollars that theGovernment threw down as part of the TARP andstimulus efforts looks like a smart investment if it savedus from another ten or twenty trillion dollars of damage.

U.S. Federal Deficit(St. Louis Federal Reserve)Status: Watch the knife fall! They are going to have to

shift the axis on the graph because the deficit will neverhave been as bad as it is going to be!About the indicator: A lot of investors make a lot ofnoise about the deficit, but it does not correlate very wellwith changes in the stock market because changesmove so slowly. Still, fear of the rising deficit hasstopped any chance of further stimulus from Congress.
http://www.investmenttools.com/thefed/long_term_t_bond_rate_minus_discount_rate.htmhttp://www.investmenttools.com/thefed/long_term_t_bond_rate_minus_discount_rate.htmhttp://www.investmenttools.com/thefed/long_term_t_bond_rate_minus_discount_rate.htmhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100710.htmlhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100710.htmlhttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100710.htmlhttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:INDhttp://www.liborated.com/libor_rates_graphs.asphttp://www.liborated.com/libor_rates_graphs.asphttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://research.stlouisfed.org/fred2/series/HOUST?cid=97http://research.stlouisfed.org/fred2/series/HOUST?cid=97http://research.stlouisfed.org/fred2/series/HOUST?cid=97http://clearstation.etrade.com/cgi-bin/details?Symbol=RDPIX&csize=10&PositionId=4542484&Event=peek&period=dhttp://clearstation.etrade.com/cgi-bin/details?Symbol=RDPIX&csize=10&PositionId=4542484&Event=peek&period=dhttp://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AINDhttp://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AINDhttp://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AINDhttp://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=20&freq=2&comp=Enter%20Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013http://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=20&freq=2&comp=Enter%20Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013http://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=20&freq=2&comp=Enter%20Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013http://www.bloomberg.com/news/2010-10-07/g-20-mega-trend-interventions-risk-protectionist-wave-as-officials-meet.htmlhttp://www.bloomberg.com/news/2010-10-07/g-20-mega-trend-interventions-risk-protectionist-wave-as-officials-meet.htmlhttp://www.bloomberg.com/news/2010-10-07/g-20-mega-trend-interventions-risk-protectionist-wave-as-officials-meet.htmlhttp://www.federalreserve.gov/releases/z1/current/z1r-5.pdfhttp://www.federalreserve.gov/releases/z1/current/z1r-5.pdfhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.federalreserve.gov/releases/z1/current/z1r-5.pdfhttp://www.bloomberg.com/news/2010-10-07/g-20-mega-trend-interventions-risk-protectionist-wave-as-officials-meet.htmlhttp://www.marketwatch.com/investing/index/DXY/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=20&freq=2&comp=Enter%20Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&type=2&size=1&optstyle=1013http://www.bloomberg.com/apps/cbuilder?ticker1=DXY%3AINDhttp://clearstation.etrade.com/cgi-bin/details?Symbol=RDPIX&csize=10&PositionId=4542484&Event=peek&period=dhttp://research.stlouisfed.org/fred2/series/HOUST?cid=97http://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.liborated.com/libor_rates_graphs.asphttp://www.bloomberg.com/apps/cbuilder?ticker1=.TEDSP:INDhttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.marketwatch.com/news/economy/economic_calendarnext.asphttp://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_100710.htmlhttp://www.investmenttools.com/thefed/long_term_t_bond_rate_minus_discount_rate.htmhttp://www.investmenttools.com/thefed/long_term_t_bond_rate_minus_discount_rate.htmhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://www.research.stlouisfed.org/fred2/series/FYFSDhttp://en.wikipedia.org/wiki/List_of_countries_by_public_debthttp://research.stlouisfed.org/fred2/series/PERMIT?cid=97http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:IND


7/16


U.S. Balance of Payments(Federal Reserve link.)Status: The balance of payments has turned worse inthe past few months which is probably a positive sign ofimproving international confidence and a recovering U.S.consumer.About the indicator: This probably means little in theshort term, but is a major negative long term problem forthe U.S. over the years. The persistent balance ofpayments deficit is the central issue in the current roundofcompetitive currency devaluationsunderway aroundthe world. (WashingtonPost.com, free subscriptionrequired)

Baltic Dry Index(InvestmentTools.com Scroll downa bit to see the graphs.)BDI(Bloomberg. Click to the 5year view.)HARPEX(Harper Peterson Containershipping index)Status: Bulk material shipping rates reflected in theBaltic Dry Index started to pick up again during July.Container shipping rates covered by the HARPEXmore closely related to expectations of retailers -- areclimbing fast. Some in the field are even saying that acrisis is developing. A hopeful sign was a Bloomberg

report in mid-July that there is a severe shortage inChina of shipping containers.About the indicator: OK, now you can feel truly erudite:o) This important long-lead indicator accuratelyforeshadowed the big market turn around last year. Nowshipping rates are somewhere near normal levels, butstill far below the boom levels of 2006. The Baltic DryIndex(Wikipedia) ,The Best Economic Indicator You'veNever Heard oftracks the cost of moving materials bysea. A higher value indicates rising shipping levels andtherefore points to economic expansion.This Wall StreetJournal articlesays that the Baltic Dry Index may give afuzzy indication of world economic activity this year

because of an unusually large number of new ships thisyear. TheDow Jones Transportation Index(click to the5-year view) seems to lag the BDI a bit. It returnednearer to normal levels since the late winter and seemssolidly in a strong and continuing price upswing. It stillhas far to rise to get to 2006 to 2008 normal levels.
http://research.stlouisfed.org/fred2/series/BOPGSTBhttp://research.stlouisfed.org/fred2/series/BOPGSTBhttp://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102100306.htmlhttp://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102100306.htmlhttp://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102100306.htmlhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AINDhttp://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AINDhttp://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AINDhttp://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://en.wikipedia.org/wiki/Baltic_Dry_Indexhttp://en.wikipedia.org/wiki/Baltic_Dry_Indexhttp://en.wikipedia.org/wiki/Baltic_Dry_Indexhttp://www.slate.com/id/2090303/http://www.slate.com/id/2090303/http://www.slate.com/id/2090303/http://www.slate.com/id/2090303/http://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://finance.google.com/finance?q=INDEXDJX%3A.DJThttp://finance.google.com/finance?q=INDEXDJX%3A.DJThttp://finance.google.com/finance?q=INDEXDJX%3A.DJThttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://research.stlouisfed.org/fred2/series/BOPGSTBhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://research.stlouisfed.org/fred2/series/BOPGSTBhttp://finance.google.com/finance?q=INDEXDJX%3A.DJThttp://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://finance.yahoo.com/banking-budgeting/article/108953/baltic-drying-up-as-a-gaugehttp://www.slate.com/id/2090303/http://www.slate.com/id/2090303/http://en.wikipedia.org/wiki/Baltic_Dry_Indexhttp://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.harperpetersen.com/harpex/harpexRH.do?showData=true&period=7&&checkedIndexes=0&floatleft=0&floatright=0&exponleft=0&exponright=0&indicator=0http://www.bloomberg.com/apps/cbuilder?ticker1=BDIY%3AINDhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://www.washingtonpost.com/wp-dyn/content/article/2010/10/21/AR2010102100306.htmlhttp://research.stlouisfed.org/fred2/series/BOPGSTBhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://research.stlouisfed.org/fred2/series/BOPGSTB


8/16


None of these short-term tell tales are part of my 6-month forecasting model. At best they may help to finetune a buying or selling opportunity. (i.e. Buy the dip.)Any of my trend guesses here will probably be out ofdate by the time you read this. At the end of October themarket appears over bought on a short term basis.

Technical Analysts, like palm readers, astrologers, andother pseudo-scientists, believe that they have specialtools that really show what is happening in the market.Most of these market timing tools are based on graphingprices in various ways to highlight or identify trends.Usually these graphs involve some sort of movingaverage in order to smooth out any undue influence (ahead fake) from a few days of erratic trading.Unfortunately, using moving averages means that theindicators always react with a time delay; the longer theaveraging period of the moving average, the slower thereaction time.

For the part-time investor trend following is dangerousyou enter the trend too late and miss most of the gains.Then the inevitable crash happens before you can reactin time. Using short term trading indicators is a lot like

playing a carnival game it looks so simple, butsomehow you always lose.

% Stocks Trading Above 50-Day Average(StockCharts.com)Status: The level of this very short term indicatorcollapsed in June to less than 6% of stocks above their50-day average. That was a definite buy point for thisshort-term trading indicator. Today at 81%, it impliesthat the market is significantly somewhat overbought forthe short term.About the indicator: This is a very short term indicatorfor prices being over bought or over sold. Only traders

should pay much attention to it.Importantly, this indicator can say completely oppositethings for the short term as opposed to the long term.According tothis 4/21/2010 MarketWatch article by MarkHulbert, moments when more than 90% of stocks tradingabove their 50-day moving averages are very rare (12times in the past 43 years). It is also and strongly bullishmarket signal for the long term. On average, returns overthe next year are 19.7%. Hulbert cites research

performed by Ned Davis Research indicating that stocksare rising with great breadth. On the other hand for theshort term, however, too high a reading or too low a leveis a strong contrarian indicator.

Ratio of NYSE Highs to Lows (StockCharts.com)Status: The ratio remains in an uptrend.About the indicator: I like this short term indicator. Abullish signal occurs when the ratio is in an uptrendScroll down on the link and pay attention mainly to the

lower of the two charts. An alternative view of the datais contained inNYSE New Highs & New Lows(www.InvestmentTools.com) In this chart the number ofhighs makes the market appear somewhat overboughtat the moment.

NYSE Daily - Weekly Advance Decline Line(StockCharts.com)Status: Talk about a bouncing ball! Buy when theweekly line bounces off a temporary bottom.About the indicator: These charts are only for tradersor for picking an auspicious moment to buy or sell. Theinitial view of this short term indicator is daily Advances-

Declines -- Do a good few days follow a bad few days orwhat? Reset the chart to see a weekly view, again usingthe line view Type rather than the "candlestick: view.Every couple of weeks there is a relatively good time tosell and one to buy.

A Completely Opposite Opinion( Simon Maierhofer,Thursday May 13, 2010 Yahoo Finance)Crash is DeadAhead Sell Get Liquid Now!... Paul FarrellMarketWatch.com)Is Another Market Crash Coming?Brent Arends, WSJ.More Brent Arends WSJ 9/10/2010"Stocks Still Aren't Cheap -- Ignore the Bullish Talk".Status: Over most of the summer it was easy to find

negative opinions, but there seem to be fewer negativesin October. The first linked piece that talks of "5 BullMarket Game Changers" says that "investors have beenasleep at the wheel" and indicates the market may be"setup for a waterfall decline." The Paul Farrell column isChicken Little to a "T".About the indicator: At the market for every buyerthere is a seller with the exact opposite opinion. So, itonly makes sense to see what the other side is thinking -- roughly half of the time they are right!


Trader Signals - FastTrader Signals - SlowInternationalViewTesting my forecast modelsAbout This Forecast


Trader Signals Fast (well, relatively)
http://stockcharts.com/h-sc/ui?s=$spxa50rhttp://stockcharts.com/h-sc/ui?s=$spxa50rhttp://www.marketwatch.com/story/a-rare-buy-signal-with-a-good-record-2010-04-21http://www.marketwatch.com/story/a-rare-buy-signal-with-a-good-record-2010-04-21http://stockcharts.com/charts/gallery.html?$NYHLhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://stockcharts.com/h-sc/ui?s=$nyadhttp://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/newsmedia/pressreleases/pressreleasedetail/!ut/p/c4/RY1Lr4IwFIR_iwtWLM6hlFqWupBrTLw-E2XTnJaKjVCMNN7cfy8-EjObmcyXGShhkKe7qym4zlMDByiFWu43KKfJBOWqQJwvJM6y9SxFweAI5fjb_y7XYujnm0Va_CAWCeyei6bzwfqwonCGY4R_pm2cVu0lqP5MN1upDxBh5e6ufz3H5Kv4Zut3-ABx74KN0HTtlfx_3FOEddPpAXhaYfgpG0vkjOfcVDxnRmhGjGOukzxLYWu92m_heiEtJ6PRA9fdQCs!/http://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/newsmedia/pressreleases/pressreleasedetail/!ut/p/c4/RY1Lr4IwFIR_iwtWLM6hlFqWupBrTLw-E2XTnJaKjVCMNN7cfy8-EjObmcyXGShhkKe7qym4zlMDByiFWu43KKfJBOWqQJwvJM6y9SxFweAI5fjb_y7XYujnm0Va_CAWCeyei6bzwfqwonCGY4R_pm2cVu0lqP5MN1upDxBh5e6ufz3H5Kv4Zut3-ABx74KN0HTtlfx_3FOEddPpAXhaYfgpG0vkjOfcVDxnRmhGjGOukzxLYWu92m_heiEtJ6PRA9fdQCs!/http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://articles.moneycentral.msn.com/Investing/Extra/is-another-market-crash-coming.aspxhttp://articles.moneycentral.msn.com/Investing/Extra/is-another-market-crash-coming.aspxhttp://articles.moneycentral.msn.com/Investing/Extra/is-another-market-crash-coming.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/MutualFunds/is-the-smart-money-buying-now.aspxhttp://articles.moneycentral.msn.com/Investing/Extra/is-another-market-crash-coming.aspxhttp://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25http://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/newsmedia/pressreleases/pressreleasedetail/!ut/p/c4/RY1Lr4IwFIR_iwtWLM6hlFqWupBrTLw-E2XTnJaKjVCMNN7cfy8-EjObmcyXGShhkKe7qym4zlMDByiFWu43KKfJBOWqQJwvJM6y9SxFweAI5fjb_y7XYujnm0Va_CAWCeyei6bzwfqwonCGY4R_pm2cVu0lqP5MN1upDxBh5e6ufz3H5Kv4Zut3-ABx74KN0HTtlfx_3FOEddPpAXhaYfgpG0vkjOfcVDxnRmhGjGOukzxLYWu92m_heiEtJ6PRA9fdQCs!/http://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/newsmedia/pressreleases/pressreleasedetail/!ut/p/c4/RY1Lr4IwFIR_iwtWLM6hlFqWupBrTLw-E2XTnJaKjVCMNN7cfy8-EjObmcyXGShhkKe7qym4zlMDByiFWu43KKfJBOWqQJwvJM6y9SxFweAI5fjb_y7XYujnm0Va_CAWCeyei6bzwfqwonCGY4R_pm2cVu0lqP5MN1upDxBh5e6ufz3H5Kv4Zut3-ABx74KN0HTtlfx_3FOEddPpAXhaYfgpG0vkjOfcVDxnRmhGjGOukzxLYWu92m_heiEtJ6PRA9fdQCs!/http://stockcharts.com/h-sc/ui?s=$nyadhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://stockcharts.com/charts/gallery.html?$NYHLhttp://www.marketwatch.com/story/a-rare-buy-signal-with-a-good-record-2010-04-21http://stockcharts.com/h-sc/ui?s=$spxa50rhttp://www.investmenttools.com/equities/weekly/weekly_nyse_new_highs_and_new_lows.htmhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:IND


9/16


VIXandNYSE ARMS IndexImplied Volatility(StockCharts.com. Shift to the weekly view with the linesetting -- I can't understand their default view.)Status: September has been unusually good whichmeans that some sort of retrace is highly likely.About the indicator: Most catastrophes don't last verylong. So if you survive the disaster, it is probably time forrebuilding. The CBOE (Chicago Board OptionsExchange) Volatility Index

(VIX

) is a key measure of

market expectations of near-term volatility conveyed bystock index option prices. According to the CBOE "sinceits introduction in 1993, VIX has been considered bymany to be the world's premier barometer of investorsentiment and market volatility". When the VIX shoots upyou are in the midst of a crisis - if you didn't know thatalready.The $TRIN is the NYSE Short Term Trading ARMSIndex which multiplies how many stocks moved in adirection by the trading volume of the stocks. (OK, this ispretty abstruse.) But, when it gets high (at or above 3.0),it is another sign of a buying or selling panic.

MACD Moving Average Convergence /DivergenceStatus: The fast moving average is above the slowmoving average, so this is interpreted as a positive sign.About this Indicator: Moving averages are plots of thearithmetic or exponential mean of prices for some periodof time in the past. The one shown in the link is the S&P500, the most commonly followed average for MACDcharts. The Moving Average Convergence Divergence isa plot of two moving averages; a slow moving averagethat includes more days than the second fast average.A positive divergence occurs when the fast average hasrisen above the level of the slow average. I am not

really a big fan of these moving averages. If you usevery long time periods for your MACD then it generatesbuy and sell signals too late to be of real value. Usingshorter periods for your MACD graph generates manymore false buy and sell signals.

That Sinking Feeling in your gutStatus: Through May and June some panic anddesperation were in the air. My instincts said to flee!Instead, I fought my churning gut and bought some stuff.The edge of fear seems to be receding from the market,but there is still plenty of investor worry. For thiscontrarian indicator, thats a great sign!About the Indicator: As Brent Arends, a writer for theWall Street Journal notesin this MSN article on WhyMarket Timing Works our feelings are terrible guides..

It often pays off to think of market gyrations as a biggame set up with the sole purpose of tricking you andstealing all of your money. It works by enticing you tobuy with hints of untold wealth when the market is rising.Then shortly after you buy the market falls off a cliff. Thatnasty feeling in the pit of the stomach gets innocents to

sell out and thereby lose most of their money. Likewise,when the market is rising wonderfully and you feel great

joy, it is merely a trick. Ask yourself: "What part of BuyLow and Sell High don't I understand?"

Multiple Stock Market Views(Click to the max view):Status: Since the start of September all marketaverages have been on a roll!About the indicator: TheDow-30and theS&P-500arewhat most people usually thing of as 'The Stock Market.'Take a look at some of these other long term graphs. Iprefer:

VAYAppears to have nearly caught up with its longterm trend making the slingshot rebound weaker TheValue Line Arithmetic Average includes the top 1800companies in the U.S. -- all weighted equally.Historically. It has had an amazingly consistent growthpattern. Until this year, that is. To me it looks like it had adouble bottom and is likely to regress to the historicmean.

EEMThe MSCI Emerging Markets Fund represents

valuations of the markets that have the greatest potentiafor growth. Profits need to grow, but this average still iswell below trend.
http://stockcharts.com/h-sc/ui?s=$vixhttp://stockcharts.com/h-sc/ui?s=$vixhttp://stockcharts.com/h-sc/ui?s=$TRIN&p=D&b=5&g=0&id=p03452023072http://stockcharts.com/h-sc/ui?s=$TRIN&p=D&b=5&g=0&id=p03452023072http://stockcharts.com/h-sc/ui?s=$TRIN&p=D&b=5&g=0&id=p03452023072http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=2&MA0=256&MA1=0&CF=2&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=2&MA0=256&MA1=0&CF=2&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=2&MA0=256&MA1=0&CF=2&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=ytd;compare=eem+^dji+îxic+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=ytd;compare=eem+^dji+îxic+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eDJU#chart1:symbol=^dju;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eDJU#chart1:symbol=^dju;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eDJU#chart1:symbol=^dju;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eGSPC#chart2:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eGSPC#chart2:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eGSPC#chart2:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://finance.yahoo.com/echarts?s=EEM#chart1:symbol=eem;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=EEM#chart1:symbol=eem;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=EEMhttp://finance.yahoo.com/echarts?s=^VAYhttp://finance.yahoo.com/echarts?s=EEMhttp://finance.yahoo.com/echarts?s=^VAYhttp://finance.yahoo.com/echarts?s=EEM#chart1:symbol=eem;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://finance.yahoo.com/echarts?s=%5eGSPC#chart2:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eDJU#chart1:symbol=^dju;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://finance.yahoo.com/echarts?s=%5eVAY#chart1:symbol=^vay;range=ytd;compare=eem+^dji+îxic+^gspc;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefinedhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://www.statestreet.com/wps/portal/internet/corporate/home/aboutstatestreet/newsmedia/pressreleases/pressreleasedetail/!ut/p/c4/RY1Lr4IwFIR_iwtWLM6hlFqWupBrTLw-E2XTnJaKjVCMNN7cfy8-EjObmcyXGShhkKe7qym4zlMDByiFWu43KKfJBOWqQJwvJM6y9SxFweAI5fjb_y7XYujnm0Va_CAWCeyei6bzwfqwonCGY4R_pm2cVu0lqP5MN1upDxBh5e6ufz3H5Kv4Zut3-ABx74KN0HTtlfx_3FOEddPpAXhaYfgpG0vkjOfcVDxnRmhGjGOukzxLYWu92m_heiEtJ6PRA9fdQCs!/http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=2&MA0=256&MA1=0&CF=2&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=2&MA0=256&MA1=0&CF=2&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://stockcharts.com/h-sc/ui?s=$TRIN&p=D&b=5&g=0&id=p03452023072http://stockcharts.com/h-sc/ui?s=$vixhttp://finance.yahoo.com/echarts?s=EEMhttp://finance.yahoo.com/echarts?s=^VAY


10/16


Several of these slow moving trading indicators mayseem far-fetched, irrational or bizarre. Maybe they are.None the less, a few are probably the most helpfulmarket timing tools for a part-time investor.

Halloween Indicator:Status: We have entered the half of the year thatstatistically is responsible for all of the gains in the stock

market over time. Plenty of people believe in thisindicator and sell out for the summer. They will bebuying back -- or judging from September's price risesome investors jumped back early.About the indicator: If you had to pick just a singlestock market timing signal, this crazy-seeming one mightwell be the best. Statistically, performance of stockmarkets worldwide during the summer months is not asgood as during the winter. When the market crashes itusually is during September and October. The summer -winter trading pattern has been shown to occur in manymarkets world wide for the past several hundred years.ThisMark Hulbert article from MarketWatch.com cites adefinitive study showing that the pattern has been validfor at least 317 years in the U.K. This MarketWatchcolumn by Sy Hardingsummarizes his variant on theapproach which includes also being invested onholidays. My own analyses show that the HalloweenEffect is greatest when the economy is heading into arecession. On the other hand, when coming out of arecession like last year the effects of a rising economyoverpower the semiannual pattern.

3rd Year of the Presidential Cycle(Mark Hulbert,MarketWatch.com) Second articleby Hulbert.Status: Starting in September, 2010 (see the linkedarticle) the stock market should be benefiting from this

strange, but statistically valid cycle. Typically, year 3 of apresident's term yields 15% gains versus squat for year2 which we are now leaving.About the Indicator:According to Mark Hulbert'sstatistical calculationsof the Dow Jones Industrials since1896 there is statistical validity at the 95% confidencelevel that year 3 of the presidential election cycle yieldsoutsize gains. Year 4 should also be better thanaverage. Year 2 typically yields nearly zero. Since 1945,

Hulbert calculates that the 3rd

year returns haveaveraged an outstanding 24%.Hereis Liz Ann Sondersslightly different take on the cycle which starts to definethe pattern over the course of each year. From thisperspective the first half of the mid-term year is typicallyrotten (It was.) and the fourth quarter that we are nowentering is typically fantastic. I have not analyzed thepresidential cycle, but my hunch is that the presidentialelection cycle has a big impact on Federal Reservepolicy -- the Fed takes the punch bowl away from theparty when the president is clearly a lame duck. (True for

Carter, Reagan, Clinton, Bush 1 and Bush 2) The Fedaction, in turn, damps down a frothy economy leading toa tough new year for the new president. Well, at least hegets to blame his predecessor.

Congressional Gridlock is Good?Status: Coming up on the mid-term election it looks likethe solid Democratic control of Congress may be overor, at the least, may be weaker. Will this affect stockprices? There are plenty of conflicting analyses outthere. I dont have an answer. :o)About the indicator: The question of congressionalgridlock and the stock market is hot right now, before the

mid-term election. So far I have found four quantitativeanswers and they dont agree. Liz Ann Sonders ofCharles Schwab inthispost writes that data from NedDavis Research appears to prove that the effect is real,with the best situation being a Democrat as Presidentand Republicans controlling Congress. The second viewis from Fidelity Investments,their postfinds no realdifference based on control of Congress. Mark Hulbertfoundno significant difference in 3

rdyear gridlock or non-

gridlock gains. Finally, Robert Powellwritesthat politicagridock is bad for your stock portfolio. So, decide foryourself. (My econometric model does not consider thisfactor.)

Miscellaneous Seasonality FactorsStatus: Per the norm -- since Congress is going out ofsession for the elections that should be good news.About the indicator: I mainly pay attention to the "Sellin May" seasonal trading strategy since my goal is tominimize trading -- Studies repeatedly have shown thatthe more frequently retail investors trade, the lower theirreturns are likely to be. That said, IF you are trading in




Trader Signals - Slow
http://www.marketwatch.com/story/the-halloween-indicator-kicks-into-gear-2010-10-29http://www.marketwatch.com/story/the-halloween-indicator-kicks-into-gear-2010-10-29http://www.marketwatch.com/news/story/if-you-sold-may-should/story.aspx?guid=%7B0D95807D-0AEF-4EC9-B852-215D5F664605%7Dhttp://www.marketwatch.com/news/story/if-you-sold-may-should/story.aspx?guid=%7B0D95807D-0AEF-4EC9-B852-215D5F664605%7Dhttp://www.marketwatch.com/news/story/if-you-sold-may-should/story.aspx?guid=%7B0D95807D-0AEF-4EC9-B852-215D5F664605%7Dhttp://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04http://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06https://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://guidance.fidelity.com/viewpoints/midterm-electionshttps://guidance.fidelity.com/viewpoints/midterm-electionshttps://guidance.fidelity.com/viewpoints/midterm-electionshttp://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04http://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04http://www.marketwatch.com/story/political-gridlock-is-bad-for-stocks-2010-10-27http://www.marketwatch.com/story/political-gridlock-is-bad-for-stocks-2010-10-27http://www.marketwatch.com/story/political-gridlock-is-bad-for-stocks-2010-10-27http://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://www.investmenttools.com/futures/bdi_baltic_dry_index.htmhttp://www.marketwatch.com/story/political-gridlock-is-bad-for-stocks-2010-10-27http://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04https://guidance.fidelity.com/viewpoints/midterm-electionshttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttps://www.schwab.com/public/schwab/research_strategies/market_insight/todays_market/sonders/sonders_091310.htmlhttp://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.marketwatch.com/story/mid-term-elections-impact-on-stocks-2010-10-04http://www.marketwatch.com/story/looking-to-year-3-of-presidential-cycle-2010-08-06http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.marketwatch.com/news/story/if-you-sold-may-should/story.aspx?guid=%7B0D95807D-0AEF-4EC9-B852-215D5F664605%7Dhttp://www.marketwatch.com/news/story/if-you-sold-may-should/story.aspx?guid=%7B0D95807D-0AEF-4EC9-B852-215D5F664605%7Dhttp://www.marketwatch.com/story/the-halloween-indicator-kicks-into-gear-2010-10-29http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm


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the time frame of weeks and months it might be worthpaying attention to several statistically valid markettiming patterns. According to Mark Hulbert, of all thestrategies he tracks, the best has been theSeasonalityTrading System: buy before holidays and prior to the endof any month; sell four days later.Another Hulbertcolumnfocuses on recesses of the U.S. Congress --when Congress is unpopular and it goes out of session(schedule) the stock market breathes a sigh of relief andgoes up. The study he cites found that "about 90% of thecapital gains over the life of the Dow Jones IndustrialAverage have come on days when Congress is out ofsession." (Click here to read the study.)Hereis anothercolumn on seasonality. Another effect worth payingattention is selling in the fall of the year in order to booktax losses(link).

Stock Market Slow Moving Average(12 month SP-500 moving average)Status: The 50-day price moving average of the S&P500has just crossed abovethe 200-day movingaverage. In the voodoo world of Technical Analysts thatis very big and positive news. Many technical traders will

pounce once they feel clear which way the market hasturned. In the meantime, all of this trader uncertaintyleads to big short lived price swings. Mark Hulbert hadthisinteresting column on the subject.About the indicator: If all of your stocks are pricedabove their 200-day moving average you should sleepeasy at night. A moving average helps a trader to seelonger trends rather than day to day seemingly randomprice moved. Moving averages have been popular withTechnical Analysts since the 1920's to identify markettrends and serve as a market timing signal. A longperiod moving average, such as 200 day or 12 month isa simple way to call major market shifts for a trader who

only wants to sell or buy once or twice a year. The basicrule is to run from the market when the price line crossesbelow the moving average, and jump back in when theprice is above the slow moving average. In a strong bullmarket price could stay above the slow moving averagefor years. The two problems with this indicator are: (1) Itis prone to false calls -- fairly often prices will touch orcross over the moving average only to stage a suddenreverse. The shorter the averaging period, the morefalse calls occur; (2) The long averaging period meansthat the indicator will be slow in calling the end of a bullrun and slow in calling the end of a bear decline.ThisMSN MoneyCentral articlebyAnthony Mirhaydari

describes the approach. It is no panacea, but it sorts outmajor Bull and Bear trends.This MarketWatch article byMark Hulbertcomes to the same favorable conclusion.

% Stocks Trading Above 200-Day MovingAverage(number) (Barchart.com)chart(stockcharts.com --change to the weekly view)Status: At 72% the indicator doesn't say much ofanything. Worry when it hits 85% or more.

About the indicator: As a general rule, when a stock'sprice is above its 200-day moving average, the stock isin a long-term price rise. So, an increasing percentage ofstocks priced above their 200-day moving average isgenerally a good sign. However, when 80% to 90% ofstocks are trading above their averages it is usually asignal that euphoria has gotten out of hand and a marketcorrection is due. Similarly, when only 20% to 30% ofstocks are trading above average, a sharp bullishupswing becomes very likely.

NYSE Advance -Decline Line (cumulative)(Bloomberg.com)Status: To me, it looks to be on a fairly steady rise.Thats good.About the indicator: The indicator is a cumulative countof advances on the NYSE minus declines since 1996.Click to the 5-year view. This good MID-TERM indicatortends to form a rounded top before falling as part of abroad Bear market. Interpreting it, however, is a lot liketaking an ink blot test and tends to pull out your currenthopes and fears.

Mutual Fund Flows(Investment Company Institutedata)Status: Money has been flowing out of stock mutualfunds and into bond funds ever since the DotCombubble burst in 2000. Maybe it has slowed somewhat?The outflows from stock mutual funds over the summerbeen terrible. In just the first 7 months of 2010 retailinvestors cashed in over $30 B of stock mutual funds.(NY Times 8.21.2010) Mutual fund money is still solidlyon the sidelines of this bull market. The end of the bullmarket won't come until the retail investors have joinedin -- in time to go to slaughter some years from now afterinterest rates eventually go up.

About the indicator: The Investment Company Institutetracks sales and redemptions of equity and bond mutualfunds offered by ICI's member companies. Their datashow a decade-long flow of money to bond funds fromstock funds. When this situation eventually reverseswhen interest rates finally start going up the stage willbe set for a return of private investors that could makethe boom of the 1990w seem tame.Hereis BrentArends Wall Street Journal opinion on going against theherd and moving in the OPPOSITE direction of the ICIfunds flow.

Investor Confidence(StateStreet.com)

Status: Investor confidence tanked in August, gettingnearly as low as during the crash of 2008-2009. I takethis as a very strong positive and contrary indicator.Retail investors are usually wrong. (except when theyare right :o)About the indicator: Most investor sentiment surveyshave a track record as lagging market behavior or evenbeing contrary indicators -- i.e. retail investors always geit wrong. This investor confidence indicator may be
http://www.marketwatch.com/story/update-on-highest-ranked-timing-system-2010-02-04http://www.marketwatch.com/story/update-on-highest-ranked-timing-system-2010-02-04http://www.marketwatch.com/story/update-on-highest-ranked-timing-system-2010-02-04http://www.marketwatch.com/story/update-on-highest-ranked-timing-system-2010-02-04http://www.marketwatch.com/story/how-congress-recess-affects-markets-2010-08-04http://www.marketwatch.com/story/how-congress-recess-affects-markets-2010-08-04http://www.marketwatch.com/story/how-congress-recess-affects-markets-2010-08-04http://www.marketwatch.com/story/how-congress-recess-affects-markets-2010-08-04http://www.house.gov/house/House_Calendar.shtmlhttp://www.house.gov/house/House_Calendar.shtmlhttp://www.house.gov/house/House_Calendar.shtmlhttp://ssrn.com/abstract=687211http://ssrn.com/abstract=687211http://ssrn.com/abstract=687211http://www.investopedia.com/articles/05/seasonaltrends.asphttp://www.investopedia.com/articles/05/seasonaltrends.asphttp://www.investopedia.com/articles/05/seasonaltrends.asphttp://findarticles.com/p/articles/mi_m4130/is_4_28/ai_59331448/http://findarticles.com/p/articles/mi_m4130/is_4_28/ai_59331448/http://findarticles.com/p/articles/mi_m4130/is_4_28/ai_59331448/http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=0&MA0=256&MA1=0&CF=0&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=0&MA0=256&MA1=0&CF=0&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://www.bloomberg.com/news/2010-10-13/-golden-cross-seen-as-s-p-500-buy-signal-to-heed-chart-of-day.htmlhttp://www.bloomberg.com/news/2010-10-13/-golden-cross-seen-as-s-p-500-buy-signal-to-heed-chart-of-day.htmlhttp://www.bloomberg.com/news/2010-10-13/-golden-cross-seen-as-s-p-500-buy-signal-to-heed-chart-of-day.htmlhttp://www.marketwatch.com/story/track-record-of-the-death-cross-2010-07-09http://www.marketwatch.com/story/track-record-of-the-death-cross-2010-07-09http://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://articles.moneycentral.msn.com/Investing/top-stocks/anthony-mirhaydari.aspxhttp://articles.moneycentral.msn.com/Investing/top-stocks/anthony-mirhaydari.aspxhttp://articles.moneycentral.msn.com/Investing/top-stocks/anthony-mirhaydari.aspxhttp://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www2.barchart.com/momentum.asphttp://www2.barchart.com/momentum.asphttp://stockcharts.com/h-sc/ui?s=$spxa200rhttp://stockcharts.com/h-sc/ui?s=$spxa200rhttp://stockcharts.com/h-sc/ui?s=$spxa200rhttp://www.bloomberg.com/apps/cbuilder?ticker1=TRADCANY:INDhttp://www.ici.org/pdf/flows_data_2010.pdfhttp://www.ici.org/pdf/flows_data_2010.pdfhttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www2.barchart.com/momentum.asphttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www2.barchart.com/momentum.asphttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www2.barchart.com/momentum.asphttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www2.barchart.com/momentum.asphttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://www2.barchart.com/momentum.asphttp://internet.statestreet.com/industry_insights/investor_confidence_index/ici_overview.htmlhttp://articles.moneycentral.msn.com/learn-how-to-invest/why-timing-the-market-works.aspxhttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://www.nytimes.com/2010/08/22/business/22invest.html?_r=1&hphttp://www.ici.org/pdf/flows_data_2010.pdfhttp://www.bloomberg.com/apps/cbuilder?ticker1=TRADCANY:INDhttp://stockcharts.com/h-sc/ui?s=$spxa200rhttp://www2.barchart.com/momentum.asphttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.bloomberg.com/apps/cbuilder?ticker1=.SPXBOOK:INDhttp://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://www.marketwatch.com/story/using-the-200-day-moving-average-2010-03-17http://articles.moneycentral.msn.com/Investing/top-stocks/anthony-mirhaydari.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://articles.moneycentral.msn.com/learn-how-to-invest/stock-markets-real-return-paltry.aspxhttp://www.marketwatch.com/story/track-record-of-the-death-cross-2010-07-09http://www.bloomberg.com/news/2010-10-13/-golden-cross-seen-as-s-p-500-buy-signal-to-heed-chart-of-day.htmlhttp://moneycentral.msn.com/investor/charts/chartdl.aspx?PT=9&showchartbt=Redraw+chart&compsyms=&D4=1&DD=1&D5=0&DCS=0&MA0=256&MA1=0&CF=0&D7=&D6=&symbol=%24US%3ASPX.X&nocookie=1&SZ=0http://findarticles.com/p/articles/mi_m4130/is_4_28/ai_59331448/http://www.investopedia.com/articles/05/seasonaltrends.asphttp://ssrn.com/abstract=687211http://www.house.gov/house/House_Calendar.shtmlhttp:/

tomt stock market model october 31 2010

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