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Sep 04, 2006 - Issue #022
There was more price action this week, compared to last, but the direction was up, not
down, although volume declined as prices rose which is normal for a market heading into
an extended holiday weekend.
Dow score card for the week ending 9/01/06.
DJ-30 11464.15 +180.10 +1.60%.
UP: 26 (+13), Down: 4 (-13).
Trends (weekly): This is the subjective part.
Rising 14 (n/c):
DIS, GM, HON, HPQ, INTC, JNJ, KO, +*MCD, MO, PFE, PG, T, VZ, XOM.
Consolidating 7 (+1):
AIG, C, CAT, GE, -*JPM, MRK, +*UTX.
Declining 9 (-1):
AA, AXP, BA, DD, HD, IBM, MMM, MSFT, fWMT.
* denotes change of category.
+/- denotes change of direction.
INTC was the highest percentage winner this week, gaining 5.19%. So far, so good.
Now that summer vacation is over, expect the market to get back down to business. It has
a lot on its' plate to deal with.
An interesting interview on CNBC this week involved a discussion of what's in store for
residential real estate and the anticipated effect on the economy and the stock market.
Mostly the speakers outlook was decidedly negative saying that, in their opinion, home
builders stock prices, although down 50%, could decline another 75% from here.
So, is he right or not? How do we play this?
First, I would refer you to my page on Contrary Opinion, under Market Psychology.
In applying the theory of contrary opinion to the market, we must first determine what
is the "prevailing" opinion.
The "public" forms its' opinion from the media. When writers write alike, readers think
alike. When "viewers" receive the same message they tend to come to the same conclusion.
When the prevailing opinion is determined, two contrary opinions can then be formed. There
are always three possible opinions, as far as the market is concerned: Up, down, and
sideways. Act when one of the "contraries" takes hold.
The public outlook tends to always be "more of the same".
If the market has been trending up, their outlook (greed): "more of the same", buy on dips,
sell on rallies (they seem to like that a lot). That works; until it doesn't!
If the market has been trending down, their outlook (fear): "more of the same", hold on
and pray (until they can't stand it any longer, in which case, they dump!).
If the market has been moving sideways long enough to lull them to sleep, their outlook
(ho hum, boring!):"more of the same", don't bother. Stay on the sidelines.
Since the public is wrong when it's most important to be right, we want to cross them
at the most opportune time.
The Dow component, Home Depot (HD) may be moving out of the cellar. If it takes out the
8/17 high (35.10) I would consider that strength. On the other hand, if it takes out the
8/24 low (33.08), weakness.
Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!