09/05/05 From the Desk of Eric Fry
Dear Rude Awakening Reader,
I hope you had a relaxing and enjoyable Labor Day. Mine was
so relaxing and enjoyable that I neglected to write a
column for today. But who could blame me? Labor Day is for
leisure, is it not?
Even so, I’ve still got something interesting to tell you
about…My publisher has created a pretty amazing new
offer: A lifetime subscription to selected investment
letters and conferences…Sometimes more really is more!
So if you are already a subscriber to one of Agora
Financial’s products, you could actually save yourself a
lot of money, just by converting your existing subscription
into the lifetime one. But I’m not the marketing guy around
here. So if you want to learn more about this offer, take a
peak below.
Tomorrow, we will return with our usual diet of wit,
insight and happy thoughts.
Regards,
Eric Fry
Editorial Director for the Rude Awakening
Did You Notice…
by Carl Swenlin
Three weeks ago I wrote an article describing how sentiment
indicators (specifically the Rydex Cash Flow Ratio) were
showing that people had gotten too bearish too fast. Since
then, other sentiment indicators (Investors Intelligence
and AAII) have begun to show the same picture, and now our
primary internal indicators are also showing that the
decline from the August price top may have just about run
its course.
The two bottom panels on the chart above give us a picture
of the condition breadth (the ITBM) and volume (the ITVM).
As you can see, both indicators have nearly reached the
lower limit of their bull market trading range. Those
limits are not sacred, but they do give us an idea of where
we should begin to look for a trading low.
At the top of the chart is the S&P 500 Index, and I have
drawn lines across tops and bottoms that result in a
pattern known as an ascending wedge. This is a bearish
pattern and we should expect it to resolve downward;
however, it is not a particularly severe wedge, and there
is plenty of room for one or two more bounces off the top
and bottom before the pattern finally resolves.
There is still room for prices (and internals) to decline a
bit more before the bottom is in place, but that would make
the likelihood of a rally even stronger. Also, there has
already been a short-term upside breakout on Wednesday (not
distinguishable on this chart) that may be the signal that
the rally has already begun.
It is worth noting that a relatively minor price decline
has used up a considerable amount of negative internal
energy, and, even if the decline lasts a bit longer,
internal conditions will favor a rally just as support is
reached.
That said, I do not have a wildly bullish outlook, because
the ascending wedge says that the good times are just about
over. I would not expect the rally to last more than a week
or two, just enough to get internals back to the neutral
zone. At that point the market may have a problem.
Eric Fry
Eric J. Fry, Agora Financial’s Editorial Director, has been a specialist in international equities for nearly two decades. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short-selling. Following his successes in professional money management, Mr. Fry joined the Wall Street-based publishing operations of James Grant, editor of the prestigious Grant's Interest Rate Observer. Working alongside Grant, Mr. Fry produced Grant's International and Apogee Research — institutional research products dedicated to international investment opportunities and short selling.
Mr. Fry subsequently joined Agora Inc., as Editorial Director. In this role, Mr. Fry supervises the editorial and research processes of numerous investment letters and services. Mr. Fry also publishes investment insights and commentary under his own byline as Editor of The Daily Reckoning. Mr. Fry authored the first comprehensive guide to investing internationally with American Depository Receipts. His views and investment insights have appeared in numerous publications including Time, Barron's, Wall Street Journal, International Herald Tribune, Business Week, USA Today, Los Angeles Times and Money.
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