The new year is finally upon us, and from the looks of things
none too soon! While I was at the New Year's Eve party Tuesday
night, it seemed that everyone there was expressing the same
opinion: very glad to have 2002 over with, and very optimistic
about 2003. But it didn't seem as if anyone had any specific
reason why the new year be so much better.
I am glad 2002 is over and very much looking forward to 2003.
Now comes the difficult question, where is the excitement in
the market coming to come from or in other words what is going
to make 2002 better than 2003? That is the "BIG QUESTION" for
the start of the new year.
The Dow Jones Industrial Average closed Friday at 8,601.69
down 5.83 points. With Thursday's strong move to the upside,
the Dow defiantly broke it's downward trend line. To be honest
the 265.89 points the Dow moved to the upside on Thursday came
as quite a surprise. With Friday's lackluster activity, and
combined with the fact that most of investment professionals
I deal with still were not back from the New Years' Holiday,
I am not sure to what to make of Thursday's move. Was it short
covering done in 2003 to avoid having to pay taxes until April
of 2004 vs. April of this year? Was it a sudden change in the
view of the US economy? Politics? Or something else? To be
perfectly honest, I'm not sure, but the real question is will
the market continue to move higher or reverse the new trend &
move back lower? I feel that the answer to this question will
be found within the 1st few days of trading this week. As a
result I am enter the week with a cautious stance.
The NASDAQ 100 (NDX) closed Friday at 1,031.63 up 3.77 points.
The NDX generated a Buy Signal with Thursday's strong move
upwards. As a result I am expecting the NDX to continue to
move higher and test 1,049.03 and then 1,065.86
However the mid to long term outlook for this index remains
unclear, and any attempt to pry that information from the current
chart could easily cause brain damage. So without causing
any more damage to my brain than I need to, I took a look
at the NDX chart and tried to determine a mid range outlook.
It appears at this point in time the NDX is in the process
of building a base in the 900-1,000 point range. I would normally
expect the NDX to track the movement of the Dow, but I feel
the structural problems of the NDX could cause it to be left
behind when the other major indices do finally start to move
Influencing the Market?
I very strongly believe that the 2 biggest influences on the
market are new technologies and regulatory changes. The overall
stock market is contains many different sectors that represent
different industries. Moves in the broad market indices are
generally the result of a major move in one sector or another.
When I was working as a stock broker in Denver our bond manager
said there was always a bull market occurring in one sector
or another. Almost every sector rally has been the result of
a new technology being introduced to change an industry or
changes in the regulation of a specific industry.
During the last 14 years I can easily remember Bull Markets
in the Biotech, Gaming, Interactive Media, Telecommunications,
Energy, Internet, and Financial Services industries. Each and
everyone of these sector bull markets was either the result
of technological or regulatory changes, sometimes both technology
and regulation changed at the same time. Let's also not forget
that tax and interest rate changes are also ultimately political
in nature. I have always maintained that politics is the single
biggest influence on the overall market. The reason I bring
this is up is because other than "nanotechnology" I do not
see any new technology on the horizon that will spark a new
bull market. As a result I see the markets recovery being dependent
on political forces this year, and the nature of regulatory,
tax and other reform issues. After all these items all affect
the net income of companies, and isn't that what we base the
value of companies on?????????.
The last time the Republican's gained control of Congress it
sparked one of the greatest bull markets in the history of
the country. Will it happen again? Only time will tell. I
believe that the distractions of a few high profile scandals
and the war on terrorism have delayed needed reforms that will
allow the market to move to higher levels.
In the next several editions of my newsletter I will begin
to cover my "Wish List" of needed reforms and changes, and
what I believe there impact will be on the market.
PS. The 1st few days of this week should be interesting and
provide a good indication of the near to mid term trend of
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