Monday, October 10, 2005


On Friday, I headed out to Blowing Rock North Carolina for a long weekend with family. I leave after viewing a number of indicators that suggest the market is on the edge of a major best-buy trough. Ironically, it is technical sell signals that are setting up even more powerful technical buy signals.

For example, many technicians are seeing a break below support on their systems. One simple and widely followed system of this sort is the 200 day moving average support of the S&P 500. This indicator is leading to the sell of stocks.

At the same time, valuations stongly suggest stocks as the asset class of choice. Even the move of the ten year bond to a rate of over 4.4% does not bring it close to the stock level. 4.4% is certainly much better than the recent rate of 4.1. It does not look like much but one must remember that the value of bonds flutuates inversly to the yield. The earnings yield on stocks is approaching 7%!

My family is fully invested but we will become even more aggressive if the market psychology continues to push prices below all reason. We are even willing to buy call options if certain indicators go 2 or more standard deviations from the norm. There are a number of buy signals that are now positive by more than one standard deviation. Harry Dent for one has issued a buy recommendation. He does not want to try to hit the exact bottom; no one should expect to catch the exact bottom. Again, my family is fully invested because stocks are attractively priced. This does not prevent us from raising our beta, buying calls or using leverage if the probablility of a high return grows to unusually high levels.

Hold onto your hat, this Bronco is bucking for all its worth. Ken Fisher and many other very smart, experienced investors would tell you to hang on for the wild and crazy ride!