Tuesday, May 17, 2005

Market Letter

On the surface, today looked like a strong day, but digging deeperthe market continued its pattern of sell offs on high volume andrallies on low volume. Today was no different. The major averageshad huge gains but volume was no where to be found. At this point Iwould be reducing your exposure to the long side especially ifyou're on margin. It looks like the market may need another downleg before moving higher, particularly the DOW and S&P. If youremember I got extremely bullish when the NASDAQ undercut 1900 andrallied strongly, but I was cautious about the fact that I would'veliked to see the DOW undercut 10,000. It now looks like it mayhappen. If not, then I will resume increasing my exposure on thelong side. For now though, no need to take any chances with thecurrent price volume action of the major indexes. Tomorrow is thePPI report; let's see how the market acts.

I've heard a lot about buying homebuilders for the long term orinvesting in real estate in hot markets. If you're one those peopleI would strongly reconsider. The homebuilders are looking extremelyweak on their charts and look like they are topping. Talk to anyreal estate professional who's willing to give you a true assessmentof the market, and they will tell you that things aren't looking asgreat as things seem. Prices are getting away from most people'scomfort and affordability range. Most of the buying is being doneby investors and by homeowners who already own 2+ properties. Takeinto account that on every market news channel you have oneanalyst/real estate professional after another telling you this timeit's different and we are in a paradigm shift, and shivers shouldstart to creep down your neck. Think back to the stock market in1999 and 2000, they were saying the same thing about stocks. Therest eventually was history as we all know.

Learn from history, it repeats itself, more then you think.
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