2003 Vancouver Investment Conference. January 26 & 27, 2003.
Featuring an incredible line-up of speakers - covering all
types of direct investments in Canadian public companies -
speculative investing, resource exploration, oil & gas, world
outlook, investment strategies - and more! Register at www.cambridgehouse.ca
Dear Subscriber,
"You don’t know what’s going on
You’ve been away for far too long
You can’t come back and think you are the
steal man
You’re out of touch my baby
My gorgeous, darling baby….
Well baby baby baby you’re outta time
Cause baby baby baby you’re outta time"
The Rolling Stones
We guess you could call us your pop culture
analysts. While others quote Socrates, Churchill, Nixon and
Smith we quote The Rolling Stones, The Beatles, Iggy Pop and
INXS. Maybe it is our need to be different or our "fun"
approach to the markets. Either way we feel that this game
should not be taken overly serious. Ironically, the only way
to make a lot of money is not too care about money, as then
you do not stress yourself out in the attempt to make a killing.
After all we must remember that we enter the world with nothing
and leave it with nothing and the only thing that really matters
are our experiences and the people we meet along the way.
Anyhow like the character in the Rolling Stone’s
"Out of Time" the market is running out of time.
As we can see from the chart below both the Dow and S and
P 500 have been in very sideways tight trading ranges since
early December. Usually when such a tight range is set up
the break in either direction is vicious. The market is RUNNING
OUT OF TIME and should break shortly. For reasons outlined
below we think the break will be to the downside.
Here are the reasons we feel that the market
will break to the downside:
- Overly Bullish Investors - Investor’s
Intelligence (a gage of investment advisers and newsletter
writers) is showing 50% bullishness and only 28% bearishness.
This overly bullish and a sign that the market should drop.
In addition, the VIX (CBOE Volatility Index) traded as low
as 26 during this rally, showing us complacency in the market.
We should also note that Put/Call ratios also reached levels
normally seen near market tops.
- Rising Inflation – Oil is approaching
33 dollars a barrel, Natural Gas 6 dollars, Gold 370 dollars
an ounce and the CRB index is breaking out to near 5-year
highs. With inflationary pressures on the rise there is
no way interest rates can stay as low as they are for much
longer.
- Classic Bear Market Trading Action –
It is often said that bear market rallies are fast and ferocious.
We have noticed that every rally during this bear market
has been basically the same. This being ferocious 2-week
to 5-week rallies which are then followed by trading ranges
of 1 or 2 months. The ranges serve as fodder to sucker the
lambs in. Investors look at the range and say "Look
at how well the market is holding its gains!" they
then buy in and are slaughtered as the market turns lower.
This is EXACTLY what we have seen over the past few months.
- Long Term Technicals – We can see
that the Dow has broke out of its long term topping pattern
in the 10,000-11,700 area and that the S and P 500 and NASDAQ
both possess massive head and shoulders topping formations.
The shoulders on the S and P 500 are at 1,180 and on the
NASAQ they are at around 2,000. These major technical formations
are calling for much lower prices.
- There is a Major Shift Going in Valuation
of Stocks -- We are moving from one extreme to another
in terms of valuations on stocks. Stocks are still overvalued
and should fall from here.
We are also seeing a major breakdown in the
U.S. Dollar. The dollar is very oversold but has been unable
to muster rally. This is of course is classic bear market
action.
As for gold. It has been on a tear. The shorts
are panicking and covering left, right and center. Couldn’t
happen to a nicer bunch of scumbags. The HUI index is having
trouble with its intra-day high of 155 reached back in June
2002. However, if/when the HUI takes out this key resistance
level it should be able to muster an additional rally of 20-30%
before the next major pullback. We should note that there
maybe a bit of a war premium in gold at the moment, but we
must remember that gold is going up because of major secular
technical, monetary and economic reasons and NOT just because
of war if that is what the talking heads on the major networks
would have us believe.
Please note that I will be away at the Cambridge
House Vancouver Investment Show from January 24th
to 29th. During that time it will be easier to
reach me by either my secondary email address at addictedtoprofits@hotmail.com.
Sincerely,
Dave Skarica
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