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November 20, 2005

Running of the Bulls - Are You Listening?
by Greg Miller

Opening Whisper

The Pamplona Running of the Bulls festival is held each July. There are several rules which are strictly enforced during the bull run. Many of them are so humorously applicable to today's metaphor relating to the recent stock market rally, that I thought I just must publish all of them.

For those of you thinking of running with the bulls, you should know it is expressly forbidden:

1.- To admit anyone under the age of 18 into the course as minors are totally prohibited from running or participating. (Stay on the sideline if you have no experience)

2.- To go over the police barriers which the authorities see fit to erect. (Support/Resistance)

3.- To place oneself in the zones and areas of the itinerary which are expressly indicated by the agents of the authorities. (Bollinger Bands)

4.- To hide oneself before the release of the bulls in corners, dead angles or doorways of houses or establishments located throughout the length of the course. (Staying in Cash)

5.- To leave open the doors of the houses along the course, the owners or tenants of the said property being responsible for this. (Exiting too early - trying to pick the top)

6.- To enter into the route in a state of drunkenness, under the effects of drugs or in any inappropriate state. (Not a good thing for trend followers either)

7.- To carry objects which may impede the correct running of the Bull Run. (Wrong indicators)

8.- To wear clothes or shoes which are not appropriate for the run. (Optimized parameters)

9.- Call the animals or distract them in any way and for whatever reason in the course or during the rounding up in the Bull Ring. (Name calling has no effect!)

10.- To stop in the Bull Run or station oneself on the walls or barriers or in the doorways in such a way as to impede the run or the defense of the runners. (Getting run over - ouch!)

11.- To grab onto, harass or mistreat the animals or obstruct their exit enclosure by any action during the amateur bullfight. (The trend is your friend, don't mistreat the beast!)

12.- To take photographs from the streets, walls or barriers without due authorization. (Charting and indicators are allowed however)

13.- Any other action which may impede the normal running of the Bull Run. (Can't imagine how we could do this?!)

As we have seen in recent days, the markets can move into overbought territory, stay there, and then still seem to have enough momentum to keep from back-tracking. Just about the time that you think that we have topped out, another bull comes at you from the backside and gores you into submission. Those gored souls need to be reminded that running with the pack is better than trying to tell a bull when it should cease trampling. It's at times like this that we more fully understand and appreciate the benefits of having a fault tolerant cash safety stop level (barricade) to protect us not only from reversals in the market, but to protect us from our emotional interpretation of when, exactly, the top arrives.

The Pamplona Bull Run rules go on to say;

Furthermore, in the event that any of the animals suffers an accident, or, for whatever other reason, any of them "looses" themselves or remains "unattached" to the herd, the runners should listen to the instructions of the technical personnel (the Market Listener philosophy) on hand during the running of the Bull Run.

The market rally of the last month has produced overbought conditions in daily, weekly and monthly time frames. Has the running of the bulls completed its course or are there more shorts left to get gored in the stampede? The following chart reveals that the SPX has not quite reached previous levels of bullish exhaustion, but is getting very close.

3 Year Weekly - S&P 500 Stock Above 50 DMA

What Is The Current Market Sentiment?

Once again this week the $VIX and $CPC have continued on their bullish descent and are getting close to reaching "Sell Alert" levels. (Charts not shown) Our best proprietary adaptive indicators however are showing no signs of rolling over yet.

The Bullish Percent Index of the Nasdaq Composite continues its bullish move, but is not near the bullish levels seen in the early August peak. You can interpret this chart in one of two ways; First, this bull has room to run or secondly, any reversal at this point would indicate that we losing longer term momentum and this second interpretation would indicate extreme bearishness (big sell-off coming). I will leave you to your own interpretation and based on what we see in the next few weeks.

6 Month - Nasdaq Composite Bullish Percent Index

TREND FOLLOWING COMPLIANCE

The ZigZag chart (below) of the NDX confirms the bullish trend. The strength and speed (slope) of this trend leg conforms well to prior up-trends in May and July. Those prior leg lengths might indicate that we could be about ready for a reversal of some degree before possibly moving higher. Next week is a holiday-shortened week with no trading on Thursday and a short day on Friday. Since many traders may make the Thanksgiving holiday a 4 day event, we might expect to see some profit taking on Tuesday and Wednesday.

1 Year - NDX ZigZag Trend Compliance Chart 5%

Our Trading System - What The Numbers Are Telling Us

Only current paid subscribers receive our current trading system model, analysis and signals. Our website is under construction and we will be accepting additional subscribers in the near future. www.MarketListener.com

Sector Analysis

We have taken a look at the Semiconductor sector (SMH & $SOX) as well as the Financials (XLF) and Broker Dealers ($XBD). The XLF and $XBD have shown great relative strength lately. This may be due to good trading profits on derivative trades and the prediction that the FOMC will soon stop raising the Fed Funds target rate. I am still trying to sort out whether the Dollar Index and Treasury Note yields are telling us anything of significance.

1 Year - SMH / $SPX Relative Strength

The Semiconductor relative strength gave us a short term pop on November 1, but has since given up its momentum. The Slow Stochastic on this ratio has turned DOWN! If you believe that the semi's must lead if we are to go higher, then I suggest that you must admit that their lack of out-performance at this juncture is becoming a bearish indication for the entire market.

Don't Get Gored - Run With the Bulls!

The Markets Are Whispering - Are You Listening?

********************************
Our Market Listener Trader YTD return in the hypothetical account is approximately
+ 30.7 as of November 18 { The 6 mo. Return= 7.4%, 12 mo.= 42.9% }

The above results are based on trading Rydex Dynamic funds (leverage x2.0).
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Listen To What He Says

NASB Ephesian 2:4-9 But God, being rich in mercy, because of His great love with which He loved us, even when we were dead in our tansgressions, made us alive together with Christ (by grace you have been saved), and raised us up with Him, and seated us with Him in the heavenly places in Christ Jesus, so that in the ages to come He might show the surpassing riches of His grace in kindness toward us in Christ Jesus. For by grace you have been saved through faith; and that not of yourselves, it is the gift of God; not as a result of works, so that no one may boast.

I am working on the art of listening and hope that you are also.

Best Profits,

Gregory W. Miller, P.E.
The Market Listener
An Educational Newsletter for Stock Market Trend Timers

Paid Subscribers receive mid-week alerts to market changes that impact our system. The alerts advise of changes in stop level or signal changes prior to the Friday close of trading.

The Market Listener Trading System - My adaptive trend following trading system is the result of years of mistakes. I always seemed to be zigging when I should be zagging. My investing was based too much on emotion and inputs from so many varied newsletters and methods. After what has been literally years of personal research into cycles, Elliott Waves, artificial intelligence and many other systems, I have learned that my own trading style is best handled by avoiding the "art" of prediction at all costs!!! When I looked at moving averages for indication of trend direction, it seemed that they too were always 180 degrees out of phase with what I should have done. My conclusion, after many losses and much frustration, is that I needed to keep it very simple and let the market tell me what it wanted to do. In particular, I wanted to follow the trend, which is your friend, until the market whispered, or shouted to me that it wanted to change directions. And then, I found that Stochastics and Rate of Change indicators help me go to cash until the trend reverses or continues. Thats how my trend following system & its cash management component developed. I trade Rydex Venture and Velocity funds by which I can go short (x2) or long (x2) the NDX (NASDAQ 100 Index). I hope my newsletter and its insights can give you an education on alternative investment strategies. You might find your own technique or modify mine.

Links:
Rydex Funds: www.RydexFunds.com
Stock Charts: www.StockCharts.com

About the Author: Gregory Miller is a registered Professional Engineer (PE) in the State of Texas. He has been involved in electrical engineering and projects in the U.S. and some far-flung regions of the world. Greg has studied the markets for decades and enjoys applying his analytical abilities and computer number crunching to the science of investing.

Copyright © 2005-2006 All Rights Reserved by Gregory W. Miller

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