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55 day rule A number of years ago, we became aware of something called the “55-Day Rule.” I recently saw reference to a similar indicator, called the“Gann Death Zone.” The 55-Day Rule states that after a major top is made, the “average” investor can stand the pain for 55 days (a Fibonacci number, in case you care), but then capitulates. Thus the market stands the chance of a major selloff, or even a crash, 55 days after a top has been made. This “rule” gets most of its credibility from the fact that both the Crashes of 1929 and 1987 occurred exactly 55 calendar days after the top was made. The only other time that I recall it being correct was in 1996, when a major selloff occurred in July – exactly 55 days after the top (that decline was actually the eventual kickoff point for the rest of the bull market; see chart below). We have brought these dates to your attention over the years, but generally they have not been significant in calling other declines. The Gann Death Zone implies that the market can crash anywhere from 49 days to 55 days after the top. We haven’t gone back and researched this, assuming that the Gann people have already done that. Of course, there is a secondary effect: a good buy signal arises out of the “crash.” It can be intermediate-term or longer. Apparently the Gann signal is also concerned with that.The most recent highs were made on March 4th and March 7th by most of the major indices. 55 calendar days later projects a date of May 2nd or 3rd. The Gann Death Zone would be anywhere between April 25th and May 3rd. While I certainly wouldn’t sell everything in anticipation of this date – for it seems like Biorhythms to me – it’s still worth noting, if merely for its call of the two crashes. Tying it to current conditions, if the marketbreaks to a new low (below $SPX 1136) in this timeframe, a panic of sorts may ensue, so any decline at that point could be exacerbated.
The Option Strategist back to top |
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Almanac Investor Recommends... We are recommending 8X8 Inc. (EGHT) as a buy again with a 1.50 Buy Limit. In Monday, May 2’s email Report on May’s Vital Stats we recommended 8X8 with a 1.40 Buy Limit. This level has not been reached since Friday, April 29 so we have upped the Buy Limit accordingly. The major averages have traded in an extremely tight range of 3-4% since Tax Day. The Fed’s latest rate hike was taken in stride. After digesting the expected move, stocks rallied smartly on heavy volume—though still shy of that 2 billion mark on the NYSE and 2.5 billion on NASDAQ that coincides with new bull markets or resumed rallies. The April Employment numbers tomorrow will offer further guidance. Further interest rate hikes, rising inflation and a deceleration of the economy will continue to weigh on the market over the next several months. As we have been asserting over the last four months the market has been in a topping process and is expected to return to the October 2004 lows. That topping process appears complete and we expect the market to struggle through the summer and work its way lower. Our outlook still calls for the market to return to the area of last October’s lows (Dow 9750, S&P 1095 & NAS 1903) before moving higher. NASDAQ has already closed at 1904 making it likely that it will fall below 1900 before this correction is over—perhaps back to the August 2004 low of 1750. The potential also exists for the Dow, S&P and the rest of the market break those October 2004 lows as well. The Almanac Investor mantra for the short term remains Cash is King. During Wednesday’s power rally we were asked about the timeliness of the MACD Sell signal. We asked ourselves, “Does the market have a better chance of going up 10% or down 10%?” After mulling the question for a nanosecond we replied “down of course”. The forces weighing down the market are numerous. Besides the fact that we have entered into the “Worst Six Months” there are inflation concerns, lukewarm earnings, a record trade deficit, major oil and energy concerns, not to mention that pesky war that seems to have no end in sight. Speaking of the war, in the December, January and February issues of the Almanac Investor we examined the market’s behavior throughout history during wartime and peacetime and reached the following conclusion: Markets remain range-bound during wartime. Highs and lows only exceed the previous mark by a slight margin until the military action is over and a real peace breaks out. Then buoyed by pent-up wartime inflation, the stock market climbs to new heights leaving behind for good the previous range—save the Great Depression. Think this market isn’t range-bound? The Dow closed at 10310 on Cinco de Mayo 2004; today it closed at 10340.38. MACD SELL Signal Remember, the Almanac Investor MACD SELL Signal IS NOT a trigger to dump everything in your portfolio. The SELL signal represents that it is time to rotate out of our seasonal investments in broad market index positions such as the ETF's (QQQQ's. DIA's and the SPY's) we recommended when the Almanac Investor MACD BUY signal triggered in October. Our SELL signal is also a signal for people who are risk adverse to move a larger portion of their investment portfolios into cash or cash equivalents. It is also time to become more defensive with your portfolio, tighten your stop losses and take gains when you have them. The market has gained ground during the “Worst Six Months” in the past. Almanac Investors will not buy at every exact bottom nor will they sell at every exact top. No one will! The point of the MACD Seasonal Sell signals is to shift bias during riskier times. As the saying goes, “Bulls make money, Bears make money but Pigs get slaughtered.” Three Peaks and a Domed House The April issue featured an extensive analysis of the Three Peaks and Domed House pattern we have been tracking since last summer. The Dow’s high of 10940.55 on March 4 still holds; and that appears to be the Point 23 Domed House Top. April 1 looks to be point 24 and April 7 point 25. Point 26 appears to have occurred on Wednesday, April 20, 2005 at Dow 10012.36. This pattern will complete at point 28 at levels similar to October’s lows (Dow 9750, S&P 1095 & NAS 1903) at which point this cycle of the Three Peaks and a Domed House will be finished. Until the next cycle of the Three Peaks and a Domed House we will rely on the rest of our indicators and market analyses to anticipate the market’s next moves. Our outlook calls for the market to return to the area of last October’s lows before moving higher. NASDAQ has already closed at 1904 making it likely that it will fall below 1900 before this correction is over—perhaps back to the August 2004 low of 1750. The potential also exists for the Dow, S&P and the rest of the market break those October 2004 lows as well. Once the remainder of this pattern plays out we will be presented with the next solid buying opportunity in the market. Market at a Glance Fundamental: Mixed. Growth has slowed and earnings so far have been mixed. Oil prices, inflation, dollar and deficit concerns are keeping the markets and investors confidence in check. Technical: Mixed. Recent oversold rally is running into resistance. Breadth, new highs and new lows and volume still leave much to be desired. Long-term the Bull is running out of steam and a long consolidation is in the process. Monetary: Still somewhat favorable, but short-term interest rates are still being pushed slowly higher while long rates have settle back flattening out the curve which can become a cause for concern. Seasonal: Bearish. The Best Six Months is over. Tighten all stop loses. Take profits when you have them. Limit new buying and only increase established positions on dips. Pulse of the Market Price and volume action has improved but still is not impressive over all as the market seems to be running into resistance. Breadth only picked up on Wednesday’s rally. The cumulative decliners are still beating advancers since early March. New lows are still abundant. Sentiment has touched pessimistic levels to generate an oversold rally. Put/call never rose above 1.0 on a weekly basis indicating no real bottom has been reached yet. Do not get caught in a bear trap as conditions for a bottom and major buy point are absent. Use any rally as another opportunity to raise cash and prepare for the rest of the drop. Oil Gage Updates Since last issue Occidental Petroleum (OXY) traded below our 65.00 Buy Limit on April 18 and has been add to Dave Kamm’s Oil Gage Portfolio. Panhandle Royalty (PHX) has also been added to the portfolio as it traded below our 25.60 Buy Limit on April 19. Stock Updates Five stocks have been stopped out of the portfolio since last issue by closing below our recommended stop losses: SumTotal Systems (SUMTE: Stopped Out 4/13/05 @ 4.70), Data I/O (DAIO: Stopped Out 4/15/05 @ 2.66), Bioelectronics (BIEL-Pink Sheets: Stopped Out 4/18/05 @ 0.34), SuperGen (SUPG: Stopped Out 4/26/05 @ 4.21), mPhase Tech (XDSL-Pink Sheets: Stopped Out 5/2/05 @0.28). ETF Updates In the Alert on Thursday, April 14, we issued a Confirmation MACD Seasonal Sell for the Dow and S&P and advised selling the rest of our DIA and SPY positions. Use any rallies or bounces to close out those positions if you have not already. NASDAQ’s Best Eight Months MACD Seasonal SELL signal will not trigger until after June 1. On April 14 the Internet Architecture HOLDRS (IAH) traded below our 34.00 Buy Limit and has been added to the portfolio. Neither of the ETF Utilities has traded near their respective Buy Limits, maintain the current advice: iShares DJ US Utilities (IDU), Buy Limit 68.00 and Utilities HOLDRS (UTH) Buy Limit 97.00. The Biotech HOLDRS (BBH) reached our Automatic Sell price of 158.45 for a gain of 14.8% and the position has been closed in the portfolio. Stock Trader's Almanac® back to top |
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STOCK OF THE MONTH: Why I like it Slothower Report back to top |
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STEALTH STOCKS’ WATCH LIST FIVE STOCKS THAT COULD DOUBLE IN A YEAR 1. INNOVO GROUP INC (INNO) $4 — Innovo Group Inc. (Innovo) is engaged in the design, development, and world-wide marketing of branded and private-label denim and denim-related products. Innovo sells its products to retailers, distributors, and private-label customers around the world. For the three months ended 2/26/05, revenues increased 78% to $23.1 million. 2. OPENWAVE SYSTEMS INC (OPWV) $13 — Openwave Systems Inc. is an independent provider of open standards soft-ware products and services for the telecommunications industry. For the six months ended 12/31/04, revenues rose 27% to $177.1 million.Net income totaled $2.8 million versus a loss of $23.4 million.Results reflect higher project revenues,servic-es, and license revenue and interest income. 3. HAWK CORP (HWK) $11 — Hawk Corporation is a supplier of friction products and powder metal precision compo-nents for industrial, agricultural, power sports, and aerospace applications. For the fiscal year ended 12/31/04, revenues rose 19% to $241.2 million. Net income from continuing operations before preference dividend totaled $1.1 million versus a loss of $5.4 million. Results reflect an increase in sales from all product segments and higher gross profit margins. 4. I-SECTOR CORP (ISR) $6 — I-Sector Corporation is a holding company that provides network infrastructure and Internet protocol (IP) telephony solutions, including related implementation and support services for enterprises. For the fiscal year ended 12/31/04, revenues increased 50% to $93.1 million. Net income from continuing operations totaled $1.5 million versus a loss of $2 million. Revenues reflect the increase in the number of IP Telephony service contracts in Iraq. Earnings also benefited from the higher margins. 5. UNICO AMERICAN CORP (UNAM) $9 — Unico American Corporation is an insurance holding company that under-writes property and casualty insurance; provides property, casualty, health, and life insurance; and provides claim administration services, insurance premium financing, and membership association services. For the fiscal year ended 12/31/04, total revenues increased 21% to $61.9 million. Net income totaled $5.7 million, up from $1.1 million. Results reflect a growth in premiums written due to higher premium rates charged by the company, subsidence in price-based competition, and lower commission and salary expenses. Slothower Report back to top |
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Martin’s Potential Buy Candidates Each month we introduce several technically attractive looking stocks.The basis for the selection is that the long-term KSTs are usually below, or close to, zero and above the their EMA’s. Sometimes the stock will have broken out and is an immediate buy, while others will need to be stalked for a short-term correction. Finally, some may appear to be forming bases, but have not broken out. These situations will usually have a short-term KST buy, just requiring the price to confirm. Such stocks are recommended in anticipation of a breakout. Conservative investors may wish to wait for the long-term chart entry point to be achieved, and traders can use the lower numbers on the short-term charts. Some stocks may already be owned by the editors or their clients.
Pring’s Intermarket Review back to top |
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East Meets West — Candlesticks and Oscillators The power of the candlesticks comes into play not only because of their early reversal signals (which are often well in advance of traditional Western technical signals), but also because one can add all Western signals to a candlestick chart. If you think about it, there's no reason to use a bar chart since you can get all bar chart signals on the candlestick chart. Indeed, as will be shown in this issue, by using only bar chart signals, and not harnessing the power of candlesticks, you're trading at a tremendous disadvantage. One of the more popular Western technical indicators is the oscillator. Oscillators are mathematically derived measurements of the market's momentum and include RSI, MACD, stochastics, etc. On the chart of Amazon below I put a stochastics oscillator. While the goal here is not to educate you on all the nuances of stochastics, one way it is used is by monitoring the relationship between the two lines shown on the bottom part of the chart. The faster line is called the % K and the slower line is called the % D line. Once the faster line crosses above the slower line (when stochastics is in oversold territory near 20-25%) it is a potential hint of a bullish turn for prices. Let me caution you, however, that stochastics, or any other oscillator should never be used by itself without candlestick confirmation.
Below is a case in point. At area A there was a bullish crossover in stochastics with the %K line crossing above the slower %D line. While the oscillator gave a positive reading, we need to ask ourselves before considering a long position, "Are there any bullish candlestick signals confirming what the oscillator is suggesting?" And in this case at A the answer was no since there was a doji at that time (a doji is when the open and close are the same). Remember — the doji is a potential signal the bulls are losing steam. So we got a bearish candlestick signal at a time when there was a bullish oscillator reading. So using the insights of the candlesticks we would know not to enter a long position because of the oscillator.
Now let's turn our attention to the next time there was a positive crossover at B on the chart below. We ask the same question we did for the positive crossover at A, specifically, "Are there any bullish candlestick signals confirming the bullish stochastic crossover?" If we turn our attention to the candlestick signals a few days before the crossover we see a bullish engulfing pattern (an exhibit of this bullish pattern is shown below) in which a white real body wraps around a black real body. By carefully looking at the action around B we can glean two facts about the candlesticks:
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Dollar: Another low in the ongoing bear Everything seemed to be bad news for the dollar this month as it continued to slide to levels last seen in 1997. Basically, the problem lies with the Bush administration’s biggest spending spree in U.S. history. His guns, butter and lower tax policy is bad for the dollar. If the dollar were any other currency in the world, it would’ve fallen much more. Spending on Iraq, Afghanistan, the ongoing war on terrorism, the start of the largest expansion in the Medicare program ($400 billion) since its inception in 1965, and the lower tax plan are adding to an out of control budget, and no one seems to care. Tariffs are also bad for the dollar. Plus, interest rates are at 45 year lows with a recent promise by Greenspan that they’ll stay low for a “considerable period.” The dollar can’t compete with the higher yielding currencies. The war in Iraq is also bad for the dollar because it increases fears of another terrorist attack in retaliation. But it’s the twin deficits, the current account and the federal budget, which are the biggest problems for the dollar. Chart 11 shows the current account deficit is over 5% of GDP and it’ll likely top 6% next year. The trade gap is up on record imports from China, as U.S. consumers spend like mad while adding more debt. High deficits like these have always coincided with a large dollar decline. Chart 11 But most alarming is the sharp drop in foreign purchases of U.S. securities to the lowest in five years indicating the U.S. is now finding it difficult to finance the deficit. If the U.S. continues to struggle to attract enough capital, the dollar will fall further, or interest rates will have to rise to attract investors. DOLLAR BIG PICTURE:Bearish A weaker dollar is actually helping the U.S. and no one should be surprised to see a lower dollar. Chart 12A shows the dollar has much further to slide next year, which is the tricky part because at what point will a falling dollar become a real negative for the U.S.? Chart 12 The Bretton Woods system broke down in the early 1970s, and you can see the dollar’s major decline since then. The two worst time periods for the dollar were in 1972 to 1978 and 1985 to 1995 (see arrows). The dollar dropped in the 1970s and the Swiss franc rose 186%. In the mid-80s to mid-90s, the 10 year dollar decline produced Swiss franc gains of 138%. This time around, the third major dollar fall started in 2001 and we believe the dollar is poised to decline to at least the 1995 level, or possibly to the bottom of the channel. This means the dollar could end up at par or lower against the Swiss franc. That is, we could see the euro near 1.50 to 1.60 or higher before the euro rise is over. Meanwhile, the euro is set to become the major competitor to the dollar, and it looks like this is slowly becoming a reality. EURO: Up and away The euro hit another five year high (ECU prior to ’99) and even though it’s already risen 45% since 2001, it has room to rise much further. So far, the strong euro hasn’t hurt German exports as they had their biggest gain in three years in the third quarter. The euro zone is on the road to recovery and German business confidence is the highest in 3½ years. Perhaps that’s why Germany and France aren’t worried about the INDEX Bearish weak dollar, or they may be looking ahead. Remember, in just five months, a total of 25 countries will then make up the European Union, 100 which will have a larger economy than the U.S. and a population 50% 90 greater, and that will provide stiff competition. Plus, the euro’s higher interest rates are keeping it more attractive than the U.S. dollar. Chart 13A shows the euro’s rise of the last two years. The uptrend is solid with major support at 1.14. Reaching 1.20 euro was a milestone in the minds of many. And it’s happening at a time when the leading (medium-term) in dicator is now at a high area (see Chart 13B). Chart 13 This means the euro is starting to jump ahead of itself as it’s becoming temporarily overbought. Some sort of decline or consolidation would be normal at this time, but as you can see the major trend will remain up above 1.14 and the euro’s strong above 1.17. The British pound hit an 11 year high and the Swiss franc is at a seven year high (see Chart 14). The Bank of England raised interest rates in November due to inflation forecasts, which was the first of the world’s top central banks to do so since 2000. Changing times? The major trend for both currencies is up above 1.64 and .7300, respectively. Chart 14 The yen is also on the rise. Japan continues to intervene to control the rise, but this costly intervention could end soon and the yen’s major trend is up above .8600. The “dollars” on Chart 15 have been the strongest currencies, as well as the South African rand. These have benefited more from the rise in gold and commodities. Their major trends are solidly up above .6600 Australian dollar, .5880 New Zealand dollar and .7250 Canadian dollar. Chart 15 The dollar index trend is clearly down below its moving average at 95.50. The fall is due for a rest, but even if it rises to 92.50, the dollar index will remain weak. The U.S. dollar fell to another new low for the bear market and it’s poised to fall further next year. All of the major currencies shot up to new multi-year highs and while the rise is overheating for now, they still have plenty of room to rise further next year. Continue to buy and keep a 50% position in the Australian, New Zealand and Canadian dollars, euro, Swiss franc, British pound and Japanese yen in CDs only and/or in the Franklin Templeton Hard Currency fund (ICPHX-Nasdaq). The Aden Forecast back to top |
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WILL IBM SURVIVE THE NEXT FEW YEARS? Several companies that incorporated between 1911 and 1916 are experiencing major changes as the planet Pluto in the next two years opposes the position of their Sun (and Pluto) at the time they were incorporated. Sears Roebuck and Company (incorporated June 16, 1911) and Kmart incorporated as S.S. Kresge on March 9, 1916 have formed a new incorporation Sears Holdings Corporation on Nov. 23, 2004, 4:49PM, Dover, DE. The new incorporation date is not as strong as the old incorporations of Sears and Kmart. Other companies incorporated in this period and still viable today are: Bausch and Lomb Inc., Brunswick Corp., Chattem, General Motors Corp., Goodrich Co., Hercules Inc., McCormick & Company, Southern Company and Walgreen Co. Because these companies do not have transiting Pluto interacting with the Sun in their incorporation chart, they will probably make some major changes in their structure but survive this cycle. On the other hand, IBM incorporated June 16, 1911, known for many years as International Business Machines, has the Sun conjoined Pluto. The very qualities that made this a strong, enduring company are now being challenged by the transit of Pluto now opposing that Sun and Pluto. The times of greatest stress are 4/30/05, 12/13/05 and finally a direct station of the planet on 9/5/06. Additionally, the transits of Neptune in stress aspect to its Saturn (9/9/05 and 12/11/05) could be very difficult for this company. Will IBM make major changes to the structure of their company or will this be the end of IBM? In the late 1980s, the planet Pluto conjoined the Sun in the Soviet Union’s birth chart and in the incorporation chart of Beatrice Foods. Neither exists today. The following stocks are currently Recommended in the Astro Economics Stock Market Newsletter: COVENTRY HEALTH CARE INC. CVH/NYSE $69 52wk high/low 72/36 Group: Health Care Coventry Health Care Inc. is a managed healthcare company with 2.5 million members. Incorporation data: Dec. 17, 1997, 1:00PM, Dover, DE, 75W31, 39N09. Source: Secretary of State, Division of Corporations. First Trade data: May 16, 2001, 9:30AM, New York, NY, 74W00, 40N43. Source: Bill Meridian. Favorable Jupiter and Pluto transits to Venus, Jupiter, Uranus and Pluto with buying opportunities when transiting Saturn opposes Neptune 9/29. Investor’s Business Daily rating: Relative Strength 94, Earnings Per Share Rank 97, Timeliness A, SMR A, Return on Equity 31% and Sales for the last four quarters average 20%. PREMCOR INC. PCO/NYSE $65 52wk high/low 73/32 Group: Energy Premcor Inc. is an independent petroleum refiner and supplier of unbranded transportation fuels, heating oil, petrochemical feed stocks, petroleum coke an other petroleum products in the US. Incorporation data: Apr. 27, 1999, 12:15PM, Dover, DE, 75W31, 39N09. Source: Source: Secretary of State, Division of Corporations. First Trade data: Apr. 30, 2002, 9:30AM, New York, NY, 74W00, 40N43. Source: Daily Graphs. Favorable Jupiter and Uranus transits to Sun, Jupiter, Uranus and Pluto with buying opportunity on Saturn transit to Sun and Neptune 10/9, 11/2 and 12/12. Investor’s Business Daily rating: Relative Strength 97, Earnings Per Share Rank 82 Timeliness A, SMR A, Return on Equity 30% and Sales for the last four quarters average 81%. ULTRA PETROLEUM CORP. UPL/AMEX $55 52wk high/low 49/13 Group: Oilgas & Exploration Ultra Petroleum Corp. is an independent oil and gas company engaged in development, production, operation, exploration and acquisition of oil and gas properties. Incorporation data:Nov. 14, 1979, time unknown, Victoria, BC, 123W22, 48N25. Source: Michael Munkasey. First Trade data: July 28, 1998, 9:30AM, New York, NY, 74W00, 40N43. Source: Michael Munkasey. Jupiter favorably transits Sun, Jupiter, Uranus and Pluto with no negatives. Investor’s Business Daily rating: Relative Strength 89, Earnings Per Share Rank 99, Timeliness A, SMR A, Return on Equity 52% and Sales for the last four quarters average 150%. VALERO ENERGY CORP. VLO/NYSE $68 52wk high/low 69/27 Group: Energy Valero Energy Corporation is an independent petroleum refiner of environmentally clean fuels, oxygenates and other petroleum products. Incorporation data: June 8, 1981, 3:00PM, Dover, DE, 75W31, 39N09. Source: Secretary of State, Division of Corporations. First Trade data: Jan. 2, 1980, 10:00AM, New York, NY, 74W00, 40N43.Source: Michael Munkasey. Favorable Jupiter and Uranus transits to Sun, Venus, Jupiter and Pluto throughout 2005 with buying opportunity on Saturn transit to Pluto 4/28. Investor’s Business Daily rating: Relative Strength 98, Earnings Per Share Rank 97, Timeliness A, SMR B, Return on Equity 12% and Sales for the last four quarters average 45%. Astro Economics Stock Market Newsletter back to top |
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