March 08, 2002  

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McClellan Oscillator for Week Ending March 08 , 2002 

Monday        Mar 04     +155.66  UP      43.34     

Tuesday       Mar 05    +128.00   Down 27.66    

Wednesday Mar 06    +173.00   UP      45.00     

Thursday      Mar 07    +142.21   Down 30.79    

Friday           Mar 08   + 121.36   Down 20.85

The McClellan Oscillator  is working its way back to the neutral line. Interestingly the comment I made last week is still appropriate. The advance taking place in the Dow Jones industrials is not reflected in the broader NYSE and that is why the oscillator is declining.

The market is currently overbought but that does not mean that it cannot remain overbought for some time.  

The Dow Jones Industrials  With 71% of the Dow stocks above their 200 day moving average a top is close at hand. The sentiment indicators show an excessive amount of bullishness and lot of complacency. Again that indicates that we should take some profits on long positions and hold cash in order to take advantage of any pullback that takes place.

Very Important - The bull market lasted from 1982 to 2000 - a period of 18 years. From a peak in 2000 the markets took 72 weeks to arrive at the benchmark low set on September 21. A correction of 18 years of bull market is likely to span at a minimum 25% of the time the bull lasted, but more likely 38% of the time. That's a minimum of 4.5 years and we have only gone 2 years. That is the big picture. 

Similarly 38% of the time from March 2000 to September 21 would be 27+ weeks. That would take us to the end of March. It could however last as long as 50% of the time taken from peak to trough or a maximum of 68%. If we are currently in a counter trend correction - and I think we are then there will have to be a return to trend in the near future. Of course this is not what we are likely to hear from Wall Street gurus who have a vested interest in re-inflating the bull market.

Common Sense as a guide. Our common sense tells us that there are serious questions about stock market valuations that have to be addressed, even if it is a fact that the economy is coming out of recession. 

It will take an explosive recovery to justify current stock prices. That does not mean that there are no opportunities in owning stocks. There are, but timing, value and a lot more need to be considered.

There are, and will continue to be opportunities on the short side of the market. This however is a specialized field and although we short stocks we do not recommend that you do so without having the specialized knowledge involved.  

Trading examples - On the long side our most profitable positions are as follows:- Dynergy DYN 44.76%  Calpine CPN 40.32%, Household International HI 31.36%, Citrix Systems CTXS 27.91%  Tyco TYC 24.82%, WorldCom WCOM 23.14% Allstate ALL 17.81%,  Aflac AFL 16.16% Ford F 15.30% - On the short side only 23% of our positions are profitable. This should change dramatically - very important is that as our long positions improve so also have our short positions. 

Earnings next week - Reporting next week will be Albertson's, Abobe Systems, Cintas Corp,  Kroger & Co, HJ Heinz, Oracle and Toys R Us. In all 300 companies report but most will be small cap stocks.

Our Outlook - Corporate and  consumer debt are currently at levels that create concern. If the consumer is to lead the recovery then my concern deepens. Corporate executives do not seem to share Mr. Greenspan's view that the recession is over. Most recessions are a result of a drop in consumption. That has not happened this time around. It has been a drought of corporate capital spending and overcapacity. The creation of the capacity was financed with borrowed money. 

It seems that there is too much riding on the consumer and the current strong markets in housing. 

With Fannie Mae having a debt to equity ratio of 80/1 that is also cause for concern.

We do however still see opportunities on both sides of the market but the key has to be in the management of risk.

Anyone can use our trading signals and our software to manage risk and be aggressive to the point of making extraordinary gains. That is not what we recommend but it is possible, and easier to do with our software than with any other stock market management tool that I have come across. 

Currently we track the trading ranges of over 300 companies online. Signals are given dynamically whenever a stock touches either extreme. Thirty three of those stocks are currently below September 21 lows. 

Before making any commitment to a trade, the feedback from trading volumes and other technical and fundamental data are checked, and adjustments made where necessary. The adjustments will either be to the commitment price or the volatility, if a commitment is already in place.

I have placed a links button on the Home page that will refer you to some of the very best software programs that I have been using in many cases for years. You may find some of them of interest to you.

For the period January 1, to March 8, the stocktracker portfolio is up 10.43% 

Exposure to the stock market represents 78.96% of equity. Cash represents 13.08% of equity. 

Short positions represent 59.19% of total exposure and long positions represent 46.52% This represents a 5.71% increase in exposure on the short side.

88.50% of long positions are profitable and 23% of short positions are profitable. This is a 5% increase in the last week.

Regards,

Colin