Breakout!

The election is now behind us, so its time to get down to the business of making money. The October low occurred on schedule, as did a rally one week before the actual vote. So what should investors be looking at?

Over the past week, the Nasdaq, Dow and S&P500 have all broken their 2004 downtrend, a very bullish sign. We had mentioned Nasdaq 1981, SPX 1140, and Dow 10,250 as our launching pads, and those levels did not disappoint. With the Wall Street friendly incumbent winning the election, we see no reason not to expect the usual seasonality, lasting from November to sometime in the second quarter of 2005.

Short term, several factors point to an overbought market: The percentage of S&P 500 issues at 30-day highs looks quite toppy (see chart nearby), as do the SPX and NYSE A/D line (now at 52 week highs). Longstanding resistance on the SPX is at the post 9/11 top, just under 1175; The Nasdaq also looks extended here. The market needs to digest its gains further before starting the next leg up.

A question I like to ask myself at this cycle juncture is this:What are fund managers afraid of?” As the post-election euphoria fades, there certainly are enough issues to worry about: The weak dollar, Iraq, the yawning trade deficit, the inevitability of rising interest rates, the Federal deficit, to name but a few.

While all of the previously mentioned fundamental negatives are of some concern to the professional money manager, they are not the dominant fear. Quite to the contrary, the big worry is missing the rally and under-performing.

That is why the Bears have been unable to put together a serious sell-off since the rally began 10 days ago. Profit taking has been minimal. There is plenty of cash on the sidelines, and a somewhat under-invested hedge fund community. That, combined with short covering, is providing a firm bid under the market.

This leads us to the conclusion that any consolidation or backing and filling over the next week should be aggressively bought. We’d consider it a blessing in disguise if a major negative were to occur (Calling Eliot Spitzer!) to allow better entries on any of the major averages.

The levels we mentioned above are your stop losses. We offer the same caveat as we have previously – a tradable peak is likely in the first half of ‘05.

Category: Finance

Chart of the Week: % of S&P 500 Issues Reaching 30 day Highs

Category: Finance

Bloomberg UK Appearance

Category: Media

Top 500

Category: Weblogs

We’ve gone Map Crazy!

Category: Politics

Bloomberg TV & Radio (11/05/04)

Category: Media

Vornado takes a stake in Sears

Category: Uncategorized

Lets hear from the Dismal Scientists

Category: Economy

Nonfarm Payrolls Increase by 337,000

Category: Economy

Bush’s Win Draws Mixed Reviews

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The very excellent On-line WSJ has an interesting round up of editorial reactions around the world to the re-election of President George W. Bush. Papers like Pakistan’s Nation and the Lebanon Daily Star saw Mr. Bush’s win as strengthening his apparent go-it-alone approach. But some editorial writers urged Mr. Bush to try to make more effort to cooperate with the international community.

Liberation, France
Revolution

It is a revolution of which the consequences will endure longer than the “hangover” of criticism coming from the rest of the world, including France. … It was truly America that made its choice in the person of this Texan by adoption: a populist, mostly suburban or rural, fundamentally nationalist America. Preoccupied above all by its security and focused on the fundamental values of its Christian religion, the two core motivations of the Bush vote. … A new reactionary majority, rallied around Bush by a law-and-order reflex in a time of war has cemented its grip on democracy in America. The rest of the world can deplore it, but it must adapt itself to this reality.

* * *
Times of London, Britain
Bush Has an Exceptional Opportunity — He Must Seize It

The paradox of Mr Bush’s endorsement at the polls is that he is now free of the constraints imposed by voters. He should consider this a liberation and an extraordinary opportunity. He can serve one more four-year term in Washington and has the capacity to shape his legacy like few American politicians before him. He must seize that chance. He can advance an imaginative agenda for himself and his party. … Even if Mr Bush were to do all this and more, there would still be some who belittle him or doubt the sincerity of his motives. That is unfortunate. The President should not waste time trying to appease or win over those who have no time for him. There is the chance, perhaps, that with the passage of time the qualities which Americans see in this politician will become more obvious to others. Mr Bush must exploit the prominence that he has been given for four more years.

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Category: Politics