Major Turning Points: Spring 2004

The alert analyst must always be cautious that his long term analysis as well as his political cynicism does not hinder his analysis of the immediate situation of the market. This is not always easy when the at hand economic situation is so clearly setting up an economic disaster of Titanic proportions. An admitted federal deficit of a half a trillion dollars and off budget expenses of (they say) $87 B (a year we suspect) for the Iraq quagmire as well as tax policies which encourage sleazy avoidance cannot but give any economist except Laffer heartburn. It gives us heartburn.

Back when the deficit was only $300B we had heartburn (imagine what we've got now that it's 1/2 a trillion), and when the market bottomed in Oct. 02 we adopted the extremely conservative posture that the neckline of the Kilroy bottom had to be penetrated before reentering the market on the long side. Consequently we gave up about 18 points before reentering on the long side. Basis the Dow (DIA) we reentered at 91 (7/5/03) and exited at 103.25 (3/10/04).

It is our analysis that there is not enough potential left in the market to justify hanging around, and that the prices here for shorting are too juicy to resist.

We base our analysis on these facts in the DIA: Penetration of trendlines of March 03 and Sept. 04 . In addition the resistance at 102-110 augurs years of heartbreak. Of course, having been fashionably late into this bull market (or bull market trap) we will now balance that out with being early into the coming bear market. (Wry irony.) We always however try to distinguish our advice for the aggressive speculator from that for the prudent investor. The prudent investor should be liquidating longs or hedging. And assuming that our prudent investor readers accept our dictum that prudent investors short the market when appropriate, we think they might begin shorting when the 40 day moving average is broken, knowing that the recent highs are good stop points.