Friday, June 15, 2007

Third Phase Bull Market

In my opinion, the third phase of the great bull market is now in force.

This is an international bull market, and it's fed by a world overflowing with liquidity, backed by interest rates that are abnormally low. The bull market has moved into "over-drive" with the entrance of China, India, and with one-third of the world roaring into the capitalist system.

Speculative fever is in the air, and most recently we hear about a new source of leverage and excitement. Enter the billion-dollar private equity fund. Now every corporation is a takeover target, regardless of size. This new game dwarfs anything ever seen before. It's global finance on steroids.

The hot names, the new names, are appearing on magazine covers -- Schwarzman, Blankfein, Peterson, Cohen, Kravis, Mack, Pickens. Forget about yesterday's millionaires, today we read about the new breed -- the billionaires. A billion dollars, in case you're not aware of it, is one thousand times a million dollars.

This is a twenty-first century bull market, and the score is no longer kept in mere millions of dollars.

I told you that stock indices around the world are heading skyward in the greatest bull market third phase in history.

Here, I picked out four of my 17 foreign sectors at random. They all look roughly the same. We see Hong Kong, the Netherlands, Spain and Mexico, each with its 200-day moving average. And the direction is due north. I mean, seriously, have you ever seen anything like this? I haven't, and I've been watching markets on a daily basis for half a century.

From: DowTheoryLetter

Thursday, June 07, 2007

Warning: Full House sell signal

Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a "Full House" sell signal for the first time since the dotcom bust. Morgan Stanley warns the 'mid-cycle rally is over'. The triple warning was a "very powerful" signal that had been triggered just five times since 1980. "Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over."

Our model is forecasting a 14 % correction over the next six months, but it could be more serious," he said. Mr Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2% over six months after each "Full House" signal, with falls of 25.2pc after September 1987 and 26.2pc after April 2002. "We prefer to be on the right side of these odds," he said.

Today registered a 90% down day. These usually don't come alone, they tend to come in a series of two or more 90% down-days. Thus, it should not be surprising to see more rotten action ahead, although the Dow has already lost 410 points in only three trading days. Thus, the market could be in for a rest, but I do think it's going lower than today's close.