Morning Briefing, 12/05/2002

[21st Century Alert]

Title: Morning Briefing, 12/05/2002

Click Here! THURSDAY a.m. December 5, 2002   Exit Rydex Long Positions! By David Nichols The run off the October bottom has finally hit the wall, and we're going to exit both our long positions in the Rydex funds at the close today. If you have an account at Rydex directly, you can use the morning NAV to take your profits and get out. Since October 15th, we've been in the Rydex Velocity Fund (RYVYX), which gives 2 to 1 leverage on the Nasdaq 100; and also the Rydex Titan Fund (RYTNX), which is geared 2 to 1 on the S&P 500. There is a good chance that today we'll see a bounce, and a good chance it will last through to the close. This should give better exit prices. But it now looks increasingly clear that the market is headed into a down period, and we want to use this lift to exit bullish positions. Yesterday I showed what looks to me like a blow-off top triggering a downside parabolic pattern on the the S&P 100 (OEX). As I pointed out, once triggered this pattern has a predictable output. I believe we are now seeing this retracement leg 2 back up, starting on yesterday's late-day push higher, which should be followed by a stronger down leg 3 coming up within the next few days. So even in the context of my longer-term bullish stance, this next period is definitely one to be playing defense. It would take a strong move to higher highs -- over 486 on the OEX -- to negate this set-up. Following the coming correction, it should be time to get aggressively long, for a larger thrust higher into 2003. The weekly charts are projecting a much bigger move that should carry the markets considerably higher by next spring. I know. You don't believe me. But as we've been outlining for the past few months, we're at last coming up on the time when you'll want to heed that hoary Wall Street aphorism: "Don't fight the Fed". The Fed is scrambling to reflate the economy, which means bad things for the bond market, and good things for stocks. There is an enormous pile of cash available to pour into the stock market. We've only seen a taste of this since the October bottom. As far as this next downtrend is concerned, there is reason to be cautious about going crazy on the short side. First off, the VIX has been in a smoking uptrend lately, but price hasn't really broken down dramatically. This is a swap from its behavior during the bear market. Back then we'd see the VIX moving up leisurely, while prices were getting annihilated. And when the VIX moved up sharply, there was real panic selling. So this looks like another indication that the worst days of the bear market are behind us. Fear is rising substantially as measured by the VIX, but prices aren't getting hammered. That's ultimately bullish, as when the momentum swings back to a declining VIX, there will be plenty of fuel to push the markets higher. Also, December is just a tough month to be short. While you never want to act solely on seasonal tendencies -- as anything can happen -- the historical precedent clearly shows that December is a favored month for equities. There are very real behavioral reasons why money tends to flow into stocks at this time of year. Retirement plans are being funded and invested, and portfolio managers are looking to lock in performance gains for the year. Last year was a good example. After a sharp run off the September lows, the market just didn't collapse into the end of the year, despite a perfect set-up for it. We're seeing a perfect set-up for declines right now, so exit all Rydex long positions today! Our dashboard shows a market in a mid-term downtrend, with confidence now starting to build in this new reading. The confidence reading clicked up from 1 to 2 with yesterday's action. The long-term is still in an uptrend, with this confidence reading unchanged. The sentiment tank has filled up another 2% to 58%, as bearish sentiment is on the rise.   Definitions   This Morning Briefing is brought to you by 21st Century Alert. Your 21st Century Alert subscription offers so much more. Click here to go to 21st Century Alert's Web site. You can find this article on the Web at: http://www.21stcenturyalert.com/page/tcx/morningbriefing/2002-12-05/ To remove yourself from our mailing list, or to get your username and password so that you can access the Morning Briefing archives on our Web site, click here.