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----- Original Message -----
Sent: Monday, October 25, 2004 7:19 PM
Subject: Gordon Harms report
10/22/04 MARKET CLOSE
TIMING IS EVERYTHING
MARKET CLIMATE/OUTLOOK-
Liquidity is favorable.
Market valuation is unfavorable on balance.
Market psychology is slightly favorable.
Market trend is down from Jan 2004.
Bonds are unfavorable.
ECONOMIC OUTLOOK is favorable.
Personal income is up.
Unemployment rate is low at 5.4%.
Gross Domestic Product is favorable.
Cost of oil is unfavorable.
INFLATION: 3 month moving average; 3 down, Favorable
CPI, Sept 2.79% (Inflation), down from 2.97% in Aug.
PPI, Sept 3.58% (Inflation), down from 3.85% in Aug.
ECRI, Oct is 0.99%, down from 1.03% in Sept.
MARKET TREND: Favorable
Long Term Index Cycles
-Bullish, 5 of 8 moving Up, 4 of 8 are OS.
MARKET TREND: Unfavorable
May through Oct is seasonally unfavorable on average.
MACD’s are currently negative.
Trailing S&P earnings -Bearish $56.15 up
from $52.00.
NYSE Volume Sum Index –Bearish, turned down
10/08/04.
NASDAQ Volume Sum Index
–Bearish, turned down 10/12/04.
Short Term Index Cycles
-Bearish, 6 of 8 are moving down.
All six trading systems are holding mutual funds from 6/23/04.
SP-CP is 2.14% BELOW 1120 the 200sma which is falling. Was
-1.05%.
SP-CP is 1.35% BELOW 1108 the 50sma which is rising. Was
+0.05%.
MARKET VALUATION: Unfavorable
S&P500 is 38.03% undervalued below an estimated 1788 fair
value,
based on
historical S&P 500 earnings, P/E and US30 bond yield.
S&P500 annual earnings growth is 62.52%/year. Low -51.41% on
4/19/02.
Long term
S&P earnings growth rate average is near 6%.
Estimated S&P500 P/E for the coming year is 15.78;
long term P/E
average is near 14.
The S&P500 P/E ratio is 19.51(4 to 20 is range: 1870 to
1997)
based on
trailing earnings. Trailing P/E was 45 in April 2002.
S&P500 Inflation adjusted real dividend yield is -1.12%.
Prior week was
-1.14%. BUY at greater than approx.-1.50%.
S&P 500 market value is 3.38 times book value. Was 3.42 last
week.
Dollar index is down 6.46% from 5/13/04. Was down 4.80%.
MONETARY LIQUIDITY: Favorable
Three month ROC of M3 money is -0.07%, last week was +0.19%.
Money Market yield is 1.05%. Was 1.00%.
Money Market funds are 1.918 trillion, was 1.918 trillion.
5 Yr Note yield is 3.31% down from 3.46%.
10 Yr Note yield is 4.08% down from 4.20%
20 Yr Note yield is 4.85% down from 4.95%.
10 Yr Note divided by 13 wk T-Bill is 2.40(4sma).
PSYCHOLOGY: 3 Neutral, 1 Bull: Slightly Favorable
CBOE Equity Total Vol. Put/Call Ratio: .77, last week was .79.
Market: Bullish
> 0.60 and Bearish < 0.30
Market Vane(Commodity/Futures): 60% Bullish, last week was 63%
Bullish.
Market: Bullish
< 25% and Bearish > 65%
AAII 42.5 bull and 28.8% bear. 3 wk SMA Ratio = 0.55.
3 wk SMA Ratio > 1.10 = Bullish, >> Bullish = > 1.50, <
0.35 = Bearish
USB Index of Consumer Optimism 74 Sept. was 77 Aug. Estimated
neutral.
Estimated bullish < 41, bearish > 142.
RELATIVE VALUATION(Stocks to Bonds): Mixed
Stock Value Index is 2.47, was 2.58. Buy greater than 1.03.
S&P 500 dividend yield is 1.03 times 13 week T-Bill yield.
Five year note yield is 1.82 times S&P 500 yield.
BONDS: Unfavorable
The 30 year U.S. Govt. bond real yield is 1.79%, last wk was 1.88%.
The historical
average, real yield is near 3.00%.
The average 30 year U. S. Govt. historical bond yield expected
is 5.97%,
current yield is 4.76%. Was 4.85%.
STBI Bonds are up 11.88% from 5/13/04. Was up 10.72%.
Bd-Junk bonds up 8.87% from 5/17/04. Was up 9.36%.
Zero bonds are up 10.26% from 5/13/04. Was up 8.65%.
20 Yr Note yield minus 5 Yr Note Yield is 1.54%.
DOMINANT MARKET INDICATOR(Beasley): Favorable
OTC-C DOMINANT Pos Env, Score 13/15(IN > 4/15), IN
8/20/04.
NYC-I Pos
Env, Score 9/13(IN > 3/13), IN 6/9/04.
Total score is 22 of 28,
last weeks score was 22.
CYCLES 5 WEEK
10 WEEK
20 WEEK 9
Month
WIL-5 OS-Dn,10/11/04 OS-Dn,10/12/04 OB-Dn,10/20/04 OS-Up,09/02/04
DJ-30 OS-Dn,10/11/04 OS-Dn,09/20/04 N-Dn,10/14/04 OS-Dn,09/29/04
RUT-I OS-Dn,10/22/04 N-Dn,10/11/04 OB-Up,08/25/04 OS-Up,09/10/04
NDX-X N-Up,10/21/04 OB-Up,10/21/04 OB-Up,08/31/04 OS-Up,09/10/04
N = Stoch >20 <80, OS = Stoch <20 OUT/Buy, OB = Stoch >80 Hold/Sell
SECTOR Averages ranked by percent gain from 8/12/04:(Last intermed.
low)
Precious 20.4 Japan 2.0
Energy
15.1 USBD 1.9
HiTech
13.4 Health
1.2
DJ-20 12.6 VMFXX
0.2
Latin 11.8 DJ-30 -0.6
SYSTEM(NCALPHA)...TRADE....C/MDY..HOLD.....G/L.......ANN/MDD....ONE
YEAR
SHARP(Microc2x)...10/25/04...57...VMFXX....0.00......47.8/12.1......16.1
LOSDF(Microc2x)...10/25/04...57...VMFXX....0.00......40.0/10.4......20.6
MDSDF(Microc2x)...10/25/04...57...VMFXX....0.00......42.6/10.4......17.9
NCALP(Microc2x)...10/25/04...57...VMFXX....0.00......54.2/12.1......17.9
S&P500(Microc2x.).10/25/04...40...VMFXX....0.00......15.1/9.3........6.9
OTC-C(Microc2x)...10/25/04...40...OTC-C....0.00......32.2/16.7.......5.5
S&P500
Buy/Hold...10/22/03..252...SP500..............10.0/49.2.......6.3
OTC-C
Buy/Hold....10/22/03..252...OTC-C..............11.5/77.9.......0.9
REF: Data from Barron’s weekly magazine.
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