Friday, December 23, 2005


This market is a volcano ready to explode. There is unbelievable underlying bullish pressure. The number of top notch, both fundamentally and technically solid, setups is not only numerous but the broadest I've seen in quite sometime. This is going to be the broadest rally we've seen in sometime. Every sector, yes, including airlines will participate. Oil is just high enough to keep the oil business humming, and just low enough not to effect the consumer or business. Economic growth is right around the Feds comfort zone, and high enough to keep earnings growing. Interest rates are still near historic lows and should hover in this area, without taking too much of a bite out the consumer and business. Other reasons for the bullishness:

1. Online sales will account for alot more of this seasons sales then expected providing a surprise to earnings.
2. CNBC has been discounting the value of DOW 11K. Not there is any, but psychologically there is.
3. CNBC has put the fear of January into the public. Every chance they get to remind us about how disastrous the first 3 days of January of 2005 were, they gladly do. Remember the January effect, CNBC doesn't even mention it. No importance in it, but last year it was the talk of the town. Also, the difference between last December and this December, last December the market wedged (rising market on decreasing volume) higher and this year we've drifted lower on decreasing volume. This is much healthier action for a bull market.
4. The public hates stocks. Here anyone outside the business talking about it? Of course not, between the choppy action and mostly sideways movement it was extremely difficult, some would say almost impossible, to make any money in the last two years. But they do love Japan.
5. THE WORLD's MAJOR ECONOMIES OUTSIDE THE US, NEW and OLD(i.e. JAPAN, INDIA, CHINA,etc...), are firing on all cylinders and recovering from long slumps. This will provide the additional boost to earnings estimates.
6. It's an election year. Congressmen aren't stupid enough not to encourage a rally through legislation? They do want to get re-elected?
7. Inflation? Forget about it, competition and potential for further productivity gains is too great.
8. 2006 will be a more peaceful year in the world, even in Iraq, hopefully.

About the only negative is Washington. The partisan bickering threatens the passage of key legislature to keep the country and economy safe from threat. The constant filibustering and lack of ideas is very worrisome. With an election year around the corner, I fear some congressman will prevent bills from passing or force other bills through with the intent of making the other party look bad. I know this is contrary to point six, but I did phrase it as a question.

Don't sit around and wait to see if the market can break and hold 11,000, by then you'll be late to the party. Take the trades as they come. If the market continues to act well and the breakouts hold their ground and advance, use that as the confirmation of the rally. This is the most bullish I've been since the April 29th bottom, but you have to listen to the market's signals. But of course, in case this is just one big setup, my risk management rules will save me from too much carnage. Do your research and trust the rules. Have a happy holiday and a happy new year.