Nov 30, 2004

Topping or Basing?

Several factors have changed over the last month that make me a better seller here than buyer. The first and foremost is prices. We have had a nice rally so it makes sense to be less aggressive. The second is psychology. Most people have turned into dip buyers and while it creates some nice charts buyers would have been better served by that strategy in Oct. when the dips were deeper. Also under psychology, the number of references to a "wall of worry" is through the roof which is creating an atmosphere of no worries.

The third is the news flow itself. The news for stocks has really knocked a lot of legs out from under my bullish arguments from a few weeks ago. There was news that Freddy Mac has been increasing activity to fill the gap left by Fannie's forced conservatism. Japan's GDP growth was revised down showing that not only can they not lead a recovery, they can not even keep up with the world. The congress that everyone thought would ram through tax reform, social security reform, and tax cuts is currently split and holding up a widely popular intelligence reform package. Wal-Mart's miss is the icing on the cake. It comes on the heels of a weak durable goods number overlooked during the holiday festivities. As everyone knows the consumer is the heart of the economy and such a poor showing while loan rates are still low just makes higher rates seem all the more dangerous. And of course Fed officials have continued talking up rates past market expectations. I see many hopes that have been proven false here but other than the charts themselves I have a hard time finding reasons to buy stocks.

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