All Trends Down

By: Charles Meek | Wed, Oct 13, 2004
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Dow Jones Industrial Average 10,005
Value Line Arithmetic Index 1588
30-Year Treasury Index 4.90%

The Big Picture for Stocks
The 2002-2004 bull market is probably over.

Technical Trendicator (1-4 month trend):
Stock Prices Down
Bond Prices Down

I remain negative on the broad market. I suspect that the cyclical bull market that began in 2002 ended this year, and the market will trend down into 2006. In addition to this 4-year cycle, we are in a longer term secular bear market. Secular bear markets tend to last around 15 years, and are occasionally interrupted by shorter cyclical bull markets. For example, the last secular bear in the U.S. lasted from 1966 till 1982, but there were four cyclical bull markets that ran counter to the major downward trend. Yet the Dow Jones Industrials was as low as 585 in 1982 after being as high as 1000 in 1966! Another example of a secular bear market is Japan, began a long secular bear market in 1989.

Our current secular bear began in 2000, and was interrupted by a nice cyclical bull market from 2002 to 2004. There is no good reason to think that it won't be of similar duration as other secular bear market periods. So, the way I see it right now, all trends are down - secular, cyclical, and short/intermediate (Technical Trendicator).

Some industry groups look particularly worrisome to me. Here are some thoughts that reflect my concerns:

Stock Selection

We were stopped out of our short sales in KBH and BBH. These liquidations lowered our average annualized return on closed positions in our Special Situations list to 251%.

Given the above comments about the financial industry, I am putting an Exchange Traded Fund on the Special Situations list as a short sale. Sell short the Financial Select Sector SPDR (XLF) at the market.

Even though I am negative on the broad market, there are opportunities on the long side. I am adding two stocks to the buy list. Both stocks are speculative bulletin board stocks, but have big upside potential:



Charles Meek

Author: Charles Meek

Charles Meek

Mr. Meek is a Registered Investment Advisor and editor of

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