Financial Markets Forecast and Analysis

By: Robert McHugh | Sun, Oct 31, 2004
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Summary of Index Daily Closings for Week Ending October 29, 2004

Date DJIA Transports S&P NASDAQ Jun 30 Yr Treas
Oct 25   9749.99 3380.17 1094.80 1914.00 114^11
Oct 26   9888.45 3434.61 1111.10 1928.79 114^06
Oct 27 10002.03 3475.20 1125.42 1969.99 113^02
Oct 28 10004.54 3484.45 1127.44 1975.74 113^05
Oct 29 10027.47 3497.42 1130.20 1974.99 113^27

(Next Two Weeks)
Substantial Rise Low      
Market Rise Medium   Very High   80%
Sideways High   High   60%
Market Decline Medium   Medium   40%
Substantial Decline Medium   Low   20%
      Very Low Under   20%
(Next 12 Weeks)
TREND PROBABILITY   Substantial   800 points+ (DJIA)
Substantial Rise Low   Market Move   200 to 800 points (DJIA)
Market Rise Medium   Sideways   Up or Down 200 (DJIA)
Sideways Medium      
Market Decline High      
Substantial Decline High      

This week the Dow Jones Industrial Average closed up 269.66, ending the month of October down 0.5 percent. No incumbent president has ever been reelected when the DJIA fell more than 0.5 percent in the preceding October. So Dubya sits on the ledge on this one. Could go either way. Last week our Short-term TII reading of (15.00) was calling for a bit more decline, which we got on Monday, the DJIA bottoming for the move down since 9/7/04 within one day of our October 22nd Fibonacci turn date, and inside our Fibonacci turn date cluster. Short-term, markets were oversold and with an election next week, there was just too much incentive for this market to climb back above the psychological 10,000 level. The DJIA froze once it got there, doing very little the past two days. Up until now, 10,000 represented strong support. If this rally doesn't get legs next week, 10,000 becomes a point of strong resistance.

Since Dubya was elected President in 2000, the S&P 500 is down 21.0 percent, the Dow Industrials are down 8.4 percent, the Dow Transportation Average is up 26.0 percent, and the NASDAQ Composite is down 42.2 percent through Friday, October 29th, 2004. So, if you are in shipping, you are happy. Otherwise, perhaps not.

Equities Markets Technical Indicator Index (TII) ™    
Week Ended Short Term Index Intermediate Term Index    
June 25, 2004 (34.00) (26.10)   Scale
July 2, 2004 (41.50) (27.64)    
July 9, 2004 (32.50) (30.21)   (100) to +100
July 16, 2004 (33.75) (41.99)    
July 23, 2004 (59.00) (49.98)   (Negative)  Bearish
July 30, 2004 46.25 (52.18)   Positive  Bullish
Aug 6, 2004 (38.00) (50.40)    
Aug 13, 2004 (15.75) (49.03)    
Aug 20, 2004 9.25 (43.82)    
Aug 27, 2004 9.25 (39.81)    
Sep 3, 2004 (39.25) (40.06)    
Sep 10, 2004 (49.25) (45.78)    
Sep 17, 2004 (69.00) (44.73)    
Sep 24, 2004 (52.25) (42.02)    
Oct 1, 2004 25.50 (37.23)    
Oct 8, 2004 (58.50) (35.56)    
Oct 15, 2004 (24.50) (35.48)    
Oct 22, 2004 (15.00) (36.93)    
Oct 29, 2004 39.50 (40.06)    

This week the Short-term Technical Indicator Index comes in at positive 39.50, indicating a market rally is probable - at least through the election. Should uncertainties occur, a decline could follow as many short-term indicators are approaching overbought levels. This indicator is a useful predictor of equity market moves over the next two weeks, both as to direction and to a lesser extent strength of move. For example, readings near zero indicate narrow sideways moves are probable. Readings closer to +/-100 indicate with a higher degree of confidence that an impulsive move up or down is likely over the short run. Market conditions can change on a dime, or the Plunge Protection Team can come in and temporarily stop market slides, so it may be unwise to trade off this weekly measured indicator.

The Intermediate-term Technical Indicator Index is useful for monitoring what's over the horizon - over the next twelve weeks. It serves as an early warning system for unforeseen trend changes of considerable magnitude. This week the Intermediate-term TII comes in at negative (40.06).

If you believe the Call/Put ratio, if you believe the VIX reading, if you believe the happy folks on CNBC, you'd swear we had just ended an eight-month temporary correction in an ongoing Bull market that started in October 2002. Transports are skyrocketing, announcing the new paradigm that Chinese imports can support U.S. rails, trucks, and planes thank you very much, so who needs the Dow Industrials to confirm? Nice rallies this week, there is a new year ending in a "5" coming up, uncertainty with the Presidential election is about to be removed - hey, happy days are here again, right?

Don't think so. Wisdom is a beautiful thing. It was what Solomon asked for from God, instead of riches or power, pleasing God so much that He gave him all three. Well, in the investment world, in the technical analysis investment world, wisdom comes from the ages. From the fathers of Technical Analysis like Charles Dow and William Peter Hamilton and modern day sage Richard Russell on the Dow Theory, like Ralph Nelson Elliott and modern day sage Robert Prechter on the Elliott Wave Analysis.

History repeats itself. The psychology of man repeats itself. Price patterns repeat themselves. Life is cyclical. The Writer of Ecclesiastes made this point in the first chapter: "That which has been is that which will be, and that which has been done is that which will be done." God said this. The wise sages of Technical Analysis simply take Him at His word, and find truth from the exercise. This is why we can predict market price movements and trends by simply studying past price patterns and trends. The market speaks its own language and tells us where it is going next. Fibonacci Ratios repeat over and over again in markets and throughout all of nature because that is the way God set things up. The fact that markets seek order, and so often turn direction on Fibonacci Ratio dates and price levels tells us that God has a sense of humor. That for all of man's arrogance and efforts, that in spite of billions of people making business transactions, and hundreds of millions carefully planning investment strategies, and millions of people marketing products, and influencing corporate revenues and earnings, and so on, that it all boils down to order, to simple tops and bottoms predictable based upon Fibonacci Ratios, or Dow Theory signals, or Elliott Waves, or Price Patterns, or Cycles of time (see Tim Wood's site at It says that the sum total of all man's efforts are ultimately determined by God. Period. "The mind of man plans his way, but the Lord directs his steps." (Proverbs 16:7).

Where I'm going with this will be clear over the next several pages. Let's start first with the question, "Is the decline since February in the Dow Industrials about over? Has the primary trend down bottomed and a new primary trend up started? Has the decline from February been a secondary countertrend move within a rally since October 2002? For the answer, let's look at a rule of thumb from the former editor of the Wall Street Journal, one of Dow Theory's founding Fathers, William Peter Hamilton. He wrote in 1903 (and has been proven right again and again throughout the decades since), "It is characteristic of the main or primary movement that the secondary swings in the same direction as the main movement are accomplished more slowly than what might be called the eddies. In the great decline of 1903 the downward secondary swings averaged 32 days while the rallies averaged but 12 days." (The Dow Theory, by Robert Rhea, Fraser Publishing Company, Burlington, Vermont, 1993).

Let's analyze the DJIA's move down since February 2004:

* From the 2/11/04 top, prices declined 29 trading days until 3/24/04's closing bottom.
* From the 3/24/04 bottom, prices rallied for 9 trading days until 4/6/04's closing top.
* From 4/6/04's top, prices declined for 28 trading days until 5/17/04's bottom.
* From 5/17/04's bottom, prices trended higher for 25 trading days until 6/23/04's top.
* From 6/23/04's top, prices trended lower for 35 trading days until 8/12/04's bottom.
* From 8/12/04's bottom, prices rallied for 17 trading days until 9/7/04's top.
* From 9/7/04's top, prices declined 34 trading days until 10/25/04's bottom.

The average number of trading days for up trends in 2004 was 17. The average number for down trends was 31.5. The longest rally did not surpass the shortest decline. Clearly, these secondary down trends were accomplished more slowly, indicating that the primary trend remains down.

Further, the larger degree wave down from 1/14/00 through 10/9/02 lasted 687 trading days whereas the secondary move up from 10/9/02 to 2/11/04 (if you want to call that the top) lasted only 337 trading days. If you consider the top ending 6/23/04, then the secondary rally still lasted only 428 trading days. Any way you cut it, clearly the main or primary trend remains down.

Below is a schedule showing the phi relationship between significant tops and bottoms throughout this Bear market. Since January 14th, 2000 when the Bear Market began in the DJIA, every single significant price trend's ultimate top or bottom has occurred in a .618 to .382 relationship with the total number of days from January 14th, 2000 and another top or bottom in sequence. This relationship of .618 to .382 is known as the Golden ratio, made famous by 12th century mathematician Leonardo Fibonacci. The two charts on the prior page highlight these pairs of tops/bottoms since 2000, with the first chart projecting the next key Fibonacci phi turn date based upon the last unpaired top or bottom in sequence. If you have been following this newsletter for a while now, you'll see we projected June 23rd's, September 7th's, and October 25th's turn dates using this projection method. October 25th's turn date was a bottom that was 1201 trading days from 1/14/00. It was also exactly 459 trading days from December 27th, 2002's bottom, while12/27/02 was exactly 742 trading days from 1/14/00. So 12/27/02's bottom ended up occurring an exact .618 (742/1201 = .6178) of the time from 1/14/00 to 10/25/04, while the time from 12/27/02's bottom to 10/25/04's bottom was an exact .382 (459/1201 = .3821) of the total time from 1/14/00 to 10/25/04. Both 10/22/04 and 10/25/04 would have fulfilled this ratio relationship. Next up is November 17th, 2004. It will be 1218 trading days from 1/14/00 and 465 trading days from 1/14/03's top, another .618 to .382 relationship. November 18th also works.

* 3/7/2000's low is 38.0% of the total # of trading days from 1/14/2000's High to 5/26/2000's Low
* 5/26/2000's Low is 38.0% of the total # of trading days from 1/14/00's High to 12/20/00's Low
* 9/6/2000's High is 38.3% of the total # of trading days from 1/14/00's High to 9/21/01's Low
* 10/18/2000's Low is 38.8% of the total # of trading days from 1/14/00's High to 1/4/02's High
* 11/6/2000's High is 37.6% of the total # of trading days from 1/14/00's High to 3/19/02's High
* 11/22/2000's Low is 37.9% of the total # of trading days from 1/14/00's High to 4/29/02's Low
* 12/5/2000's High is 38.7% of the total # of trading days from 1/14/00's High to 5/14/02's High
* 1/3/2001's High is 37.6% of the total # of trading days from 1/14/00's High to 8/22/02's High
* 3/22/2001's High is 37.9% of the total # of trading days from 1/14/00's High to 3/11/03's Low
* 5/21/2001's High is 62.6% of the total # of trading days from 1/14/00's High to 3/19/02's High
* 9/5/2001's High is 38.0% of the total # of trading days from 1/14/00's High to 5/17/04's Low
* 9/21/2001's Low is 61.6% of the total # of trading days from 1/14/00's High to 10/9/02's Low
* 1/4/2002's High is 61.5% of the total # of trading days from 1/14/00's High to 3/31/03's Low
* 3/19/2002's High is 63.4% of the total # of trading days from 1/14/00's High to 6/17/03's High
* 7/23/2002's Low is 61.7% of the total # of trading days from 1/14/00's High to 2/11/04's High
* 8/22/2002's High is 62.1% of the total # of trading days from 1/14/00's High to 3/24/04's Low
* 10/9/2002's Low is 61.6% of the total # of trading days from 1/14/00's High to 6/23/04's Low
* 11/6/2002's Top is 61.5% of the total # of trading days from 1/14/00's High to 8/12/04's Low
* 11/27/02's High is 61.8% of the total # of trading days from 1/14/00's High to 9/7/04's High
* 12/27/02's Low is 61.8% of the total # of trading days from 1/14/00's High to 10/25/04's Low

The above chart updates the SPX/VIX Ratio, a contrary sentiment gauge of major tops and bottoms based upon similar readings over the past six years. For nearly a year now, this indicator has been warning that the S&P 500 sits at an extreme high, a major top area that should devolve into an intermediate- term precipitous decline. What is most interesting at this time is the similitude between peak patterns at the start of this Primary Bear market in 2000 and the past few months. If history is about to repeat, then a major Crash is imminent - perhaps only a few days or weeks away, perhaps a few months away. Perhaps it is already underway. If we look back at prices five years ago, we see the Primary Trend topping process took several months. If we look at 2004, we see again a multi-month topping pattern. Back then prices fell nearly fifty percent over the next two years. Is that what we are about to see happen again?

Another indicator measuring equity market sentiment, a contrary indicator of tops and bottoms is the 10 Day Average Call/Put Ratio. We have found that whenever this ratio approaches a value of 1.00, it is indicative of a bottom. Whenever this indicator rises above 1.40, it warns of a significant top. The last time this indicator warned of a major top was in January 2004. The DJIA peaked within weeks and then lost 1000 points over the next eight months. Now, after dragging its feet for several months, this ratio is pressing up toward 1.40 very rapidly. In fact the average of the last five daily readings is well above 1.40. This indicator - while not yet giving off a sell signal - is heading there fast, indicating we may be nearing a major top.

Again we raise the issue of next week's election. Are technical indicators lining up, warning that chaos is around the bend?

The charts below (courtesy of show both a Bullish and Bearish scenario for the S&P 500. Clearly the Dow Industrials and several technical indicators are Bearish. And there is a Bearish scenario which we believe is most probable for the S&P. But before we cover that, it should be noted that there is a Bullish scenario for the S&P should prices jettison higher from here.

Should prices break above 1,140, that would complete and confirm a Bullish Head and Shoulders Bottom pattern. In that case the upside minimum target would be 1,220ish. This scenario would see the MACD rise sharply from here along with the RSI. Prices are not very far from 1,140 right now, so we must pay attention to this possibility. However, the result would be another major divergence with the Dow Industrials which again, says something is very wrong with this market.

On the other hand, should the S&P 500 want to keep in sync with the Industrials, the Bearish scenario is for a Broadening Top pattern - a Megaphone - to send prices sharply lower to below the lower trend-line, below 1,050. There is likely a Bearish Head & Shoulders Top forming. A break below the neckline - below 1,100 - would complete and confirm this pattern and portend a minimum downside target of 1,048, negating the Bullish H&S pattern. The Elliott Wave count favors the Bearish scenario. The MACD looks to be curling another Bearish Hook, a deceitful little pattern that could reverse lower quickly. The RSI failed to reach levels seen at prior lows, so we doubt a sustainable intermediate-term rally has begun.

The above chart (courtesy of shows the Dow Industrials since May 2004. Looking at the Elliott Wave count we believe to be most accurate at this time, an interesting development has occurred that is more ominous for markets than at first blush meets the eye. Because of the Elliott Wave rule that a wave 4 cannot retrace back into the territory of a same degree wave 1, that means the rally over the past week cannot be a minuette degree wave iv since it invaded wave i down's turf. This means it must be another wave two, in this case a micro degree wave 2 inside minuette degree wave iii. What this means is minuette degree wave iii down is not nearly finished, rather still needs micro degree waves 3-down, 4-up, and 5-down to complete. We mentioned last Friday the possibility that the current move down could be one degree smaller than we labeled - which would put us into a potential crash scenario - and by definition of Elliott's rule, we are now forced into this lower degree labeling - hence there is much more downside than we originally thought. Postelection chaos would likely do the trick, and this wave count may be predicting just that. Then again, the election could go smoothly and something else could trigger collapse.

Since Wednesday, it appears the DJIA has been tracing a small, very short-term Bullish Ascending Triangle as sub-micro degree wave {b} of an {a}-{b}-{c} micro degree move 2 up that should end right around election day or shortly thereafter. With our next Fibonacci phi turn date pretty far off - November 17th or 18th - it is possible the Nov 17/18 turn date may not be a top, but instead could be another bottom after this coming week's short-term top.

The primary downtrend remains intact, however the RSI is neutral, and the MACD is up for the moment.

The Dow Transportation Average continued its powerful rally, hitting a new five year high of 3,499 today. That is still 334 points - or 8.7 percent away from its all-time high of 3,833 back in May 1999. The Dow Theory non-confirmation continues with the Dow Industrials, and in the past five years divergences such as we see now have led to stock market crashes. Back in 1977 we had a similar divergence where the Trannies were rising and the Industrials were falling over an extended period of time. That also led to a crash.

Both the price patterns and the Elliott Wave count indicate this index is close to a significant top. If so, then the odds favor the Trannies joining the Industrials in further decline, harmony being achieved by confirmed lower lows. We believe the Trannies have - or are days away - from completing a significant top because not only have they traced out a terminating Rising Bearish Wedge 5th wave of C, but inside that 5th, a lower degree 5th (i.e. "v") wave has also traced out another terminating Rising Bearish Wedge pattern. Both patterns look complete, with a common "throw-over" in process of wrapping up as well. These patterns are also known as Ending Diagonal Triangles in Elliott Wave parlance. The MACD is overbought and at a level where we last saw a significant top. The RSI is also at an extreme overbought level, ripe for a decline.

Trannies are happy carting around imports, but eventually U.S. incomes will fall if domestic industrial production continues to deteriorate, and that will force consumer spending cutbacks, and ergo,ultimately negatively affect Trannies.

The Economy:

Durable Goods Orders rose 0.2 percent in September according to the Commerce Department. August's figure was revised to down 0.6 percent. Defense spending grew 26.5 percent. Excluding defense, new orders declined 0.9 percent.

We learned from Redbook Research that Retail Sales are down 0.7 percent in October versus September, according to as reported by Reuters on Tuesday. New Home Sales were reported up 3.5 percent in September over August, according to the Census Bureau. Existing Home Sales were also up in September, up 3.0 percent, according to the National Association of Realtors.

GDP grew 3.7 percent, annualized, in the third quarter according to the government. That was 0.4 percent higher than reported in the second quarter 2004.

Initial Jobless Claims rose to 350,000 for the week ended October 23rd, up 20,000 from the prior week according to the Labor Department. Too high.

The Conference Board's measure of Consumer Confidence dropped in October, confirming the University of Michigan's measure that came out earlier in the month. Interestingly, McDonald Financial Group's Affluent Consumer Confidence Index plunged to 48 in the third quarter from 61 in the prior quarter. Further, the percent of folks who thought the economy was headed in the wrong direction doubled in three months, from 21 to 42 percent according to the report on

In Thursday October 14th's Philadelphia Inquirer, page 1, came a report by Barnaby J. Feder and Tom Zeller Jr. that Dubya's FDA has approved a medical data chip that would be implanted under the skin in the hand. The chip, about the size of a grain of rice, would initially be justified to be placed in people so that medical personnel could gain easy access to each person's medical records. The article pointed out the possible extension of its use to include radio tracking capability. The article mentioned the chip does not actually contain the records, but instead contains a 16 digit number on the chip. The number would then act like a user ID in a computer. The article mentioned these chips could grow into much wider usage, for example replacing dog tags for soldiers. The article mentioned that this chip sounds like the "Mark of the Beast" mentioned in the Bible. That would be a reference to the book of Revelation, chapter 13, verses 16 and 17, which says, "And he (the Beast) causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand, or on their forehead, and he provides that no one should be able to buy or to sell except the one who has the mark, either the name of the beast or the number of his name." The Apostle John wrote this 1900 years ago.

On the heels of this Orwellian news, we learn that Check 21, a new law aimed at moving transactions to paperless, became effective Thursday. Check clearing will no longer require moving the checks, but rather just their images electronically. Basically it eliminates "float," the time it used to take for a check to clear.

And we learned yesterday that Halliburton is under investigation by the FBI. Oh boy.

Money Supply, the Dollar, & Gold:

M-3 came in this week at the exact same level it was on September 6th, six weeks ago. Since July 26th, 2004 it is up a mere 7.8 billion, for a 0.36% annualized rate of growth. M-3 is essentially flat. Our research shows that whenever M-3 plateaus or declines for two months or more, equities subsequently decline. The current plateau supports our forecast that equities are preparing to fall, perhaps hard.

The trade-weighted U.S. Dollar has followed its expected path, breaking south from a symmetrical triangle minor degree wave 2, and breaking decisively below the neckline of its Head & Shoulders Top pattern. The decline to the 85 area is a minuette degree wave iii. Next is a minuette degree wave iv sideways to up move. Prices should zig zag lower to at least its minimum downside target of 81, and possibly lower as it completes intermediate degree wave 5 down of primary degree wave (1) down. Big picture: After that should be a primary degree wave (2), A-B-C rally that could take six months to a year to complete, and send prices back toward 100. That rally may not start for several more months.

Gold remains solidly inside its long-term rising trend-channel. However, there are several conflicting patterns evident that make a short-term forecast difficult. Here are the scenarios. First the Bearish case. With prices hitting over 431 this week, Gold has now traced out a Triple Top. This pattern has intermediate-term implications and suggests a multi-month decline. Another pattern, a Rising Bearish Wedge (in orange) has both intermediate and short-term implications. It is complete, with a throw-over. These are usually seen at intermediate degree tops. A suggested decline from this pattern would be to take prices back to the beginning of the wedge, to around 385. Other Bearish price developments are that prices have reached the top boundary of their short-term rising trend-channel (magenta lines). Further, this boundary has reached the place where prices were repelled twice before, back in December 2003 and April 2004. So there is strong resistance here. The RSI indicator is overbought, however in Bull markets that doesn't necessarily mean a decline is imminent.

Now the Bullish Pattern: A larger, intermediate-term Ascending Bullish Triangle has formed (yellow lines) with a nearly year-long series of higher lows converging into a horizontal cap formed by the Triple Top. These patterns are known as continuation patterns, meaning they are catch-your-breath spots in a Bull run. A breakout above 433 will confirm that this pattern is dominant and would portend a strong rally at a minimum equal to the distance of the widest part of the triangle added to the spot of the breakout. That would tack on 58 points to 433, pushing Gold close to 500. On rare occasions, an Ascending Triangle can act as a top.

The key here is to watch for a breakout. If Gold jumps above 433, it would be an all clear sign for Bulls. Failure to do so could mean a short-term period of correction is needed before another run at 433. The overriding pattern in play in our opinion is the long-term rising trend-channel. It remains intact, and therefore the long-term trend remains up.

The HUI is in a long-term Bullish trend. The question is, where does it stand in the intermediate trend? The Elliott Wave count is ambiguous and can be interpreted three different ways. The top count we have labeled above requires prices to decline from here. This week we saw the Mining Stocks rally for a second test of the 239 level. At present, this has created a Bearish Double Top formation at the .786 retrace point of minor degree wave A down. Any decisive move above 239 would mean one of the two other counts are in play. If the above count is correct, wave C down of corrective wave 2 down would likely take prices to a .786 retrace of Intermediate degree wave 1 up - to 138ish.

Should prices move decisively higher, a second possibility is that where we have labeled Minor degree wave A would in reality be Minor degree wave 4 of the rally from October 2002. That would mean we are rallying inside Minor degree wave 5 up, completing Intermediate 1 up. That would likely complete over the next two months, to be followed by a huge decline - corrective Intermediate degree wave 2 down, lasting half of 2005.

A third possibility is that should prices rise decisively from here, corrective Intermediate degree wave 2 completed where we labeled wave A down, and we are off to the races for a wondrous Intermediate degree wave 3 up to the stratosphere. Given the overbought conditions, this is the least likely scenario in our view. The RSI has formed a Bearish Head & Shoulders top pattern, and the MACD appears to be doing the same as its Right Shoulder rolls over.

Bonds and Interest rates:

Not much change from last week. The 30 Year U.S. Treasury Bond has formed a Double Top that completes minor degree wave c of intermediate degree 2 up. That would be the top count for the most immediate Bearish case. However, wave c of 2 may want to extend - and can do so as long as it does not exceed 120. The ideal Bearish scenario is for prices to immediately decline from here as they have already retraced a Fibonacci .786 of intermediate degree wave 1 down. The RSI is moving back up again, re-approaching overbought levels, and looks toppy. The MACD is rolling over again after curling up briefly.

Should equities decline sharply, we would expect an initial flight to quality, pushing Bond prices higher. But the intermediate fate of Bonds could change, and prices fall, should the Master Planners flood markets with liquidity in an all-out effort to quell a crisis, refueling inflation fears. That might take a few months. But for the moment, it appears the Bond market senses deflation - perhaps recession.

The massive Head & Shoulders pattern above has not yet been confirmed. It would take a decline decisively below 101.5 to achieve that, in which case the probability of a decline to the low 80s would then become quite high.

Bottom Line:

Markets seek order from chaos. We have political uncertainties, terrorist threats, a slowing economy, weakening fundamentals, major equity market divergences, and technical warnings. Equity markets will make sense of all this, but we believe they will do so by retrenching - in a big way. We believe this will occur as a forerunner for a significant recession, one the Master planners will have trouble bailing out with monetary policy, that will require enormous fiscal stimulus - perhaps effectuated even by another war. Caution is warranted.

"Beware of the false prophets, who come to you in sheep's clothing,
but inwardly are ravenous wolves. You will know them by their fruits.

Grapes are not gathered from thorn bushes, nor figs from thistles,
are they? Even so, every good tree bears good fruit;
but the bad tree bears bad fruit.

A good tree cannot produce bad fruit, not can a bad tree produce
good fruit. Every tree that does not bear good fruit
is cut down and thrown into the fire.
So then, you will know them by their fruits.

Not everyone who says to me, "Lord, Lord," will enter the kingdom of
heaven. Many will say to Me on that day, "Lord, Lord,
did we not prophesy in Your name, and in Your name
cast out demons, and in Your name perform many miracles?"

And then I will declare to them, I never knew you;
Depart from me, you who practice lawlessness."
Matthew 7:15-23

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Key Economic Statistics
Date VIX Mar. U.S. $ Euro CRB Gold Silver Crude Oil 1 Week Avg.
5/07/04 18.13 91.30 118.83 270.40 379.1 5.58 39.93 9230.2 b
5/14/04 18.47 91.81 118.69 267.00 377.1 5.72 41.38 9232.3 b
5/21/04 18.44 90.53 120.05 268.75 384.9 5.87 39.93 9278.0 b
5/28/04 15.52 88.98 122.10 276.25 394.0 6.11 39.88 9251.6 b
6/04/04 16.57 88.50 122.93 274.75 391.7 5.81 38.49 9255.6 b
6/11/04 15.10 89.23 121.01 269.25 386.6 5.78 38.45 9265.9 b
6/18/04 14.95 89.41 121.17 267.75 395.7 5.98 39.00 9305.7 b
6/25/04 15.19 89.22 121.41 270.75 403.2 6.12 37.55 9296.2 b
7/02/04 15.15 88.18 123.09 265.50 398.7 6.01 38.39 9327.7 b
7/09/04 15.78 87.41 124.10 269.00 407.0 6.46 39.96 9273.9 b
7/16/04 14.43 87.12 124.36 271.50 406.8 6.72 41.25 9238.8 b
7/23/04 16.50 89.23 120.88 269.50 390.5 6.33 41.71 9273.9 b
7/30/04 15.27 90.12 120.10 267.00 391.7 6.56 43.80 9267.9 b
8/06/04 19.34 88.45 122.69 268.25 399.8 6.77 43.95 9250.2 b
8/13/04 17.98 87.97 123.68 269.19 401.2 6.62 46.58 9261.9 b
8/20/04 16.00 88.22 123.03 279.50 415.5 6.87 46.72 9298.6 b
8/27/04 14.74 89.80 120.20 275.00 405.4 6.58 43.18 9288.7 b
9/03/04 14.28 89.56 120.66 275.25 402.5 6.59 43.99 9281.1 b
9/10/04 13.75 88.60 122.61 272.50 403.8 6.16 42.81 9275.7 b
9/17/04 14.03 88.10 121.76 275.75 407.6 6.28 45.59 9320.5 b
9/24/04 14.28 88.59 122.57 278.50 409.7 6.42 48.08 9336.5 b
10/01/04 12.75 87.77 124.07 284.75 421.2 6.94 50.12 9331.6 b
10/08/04 15.08 87.55 124.13 287.60 424.5 7.29 53.31 9296.2 b
10/15/04 15.04 87.20 124.73 286.45 420.1 7.11 54.93 9260.8 b
10/22/04 15.28 85.97 126.46 287.00 425.6 7.33 55.17 9281.7 b
10/29/04 16.27 84.98 128.85 284.75 429.4 7.30 51.76 -

Note: VIX is up, Gold is up, the Dollar and Oil are down.


Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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