Commentary for February 4, 2005

| February 4, 2005

Stocks rallied today, further extending the uptrend that began in late January. It will be important to note where the current, short-term uptrend ends, as it should tell us a great deal about the health of the current intermediate-term uptrend from early 2003. If stocks are able to move to new highs, that will reconfirm the rally and suggest further gains are likely. However, if stocks turn lower before testing those previous highs, that will reconfirm the downtrend begun in early January, and the likelihood of a meaningful trend change will increase substantially.

As we often note, the financial media is always busy trying to find reasons for the daily moves in stocks. Today we thought it interesting that the strength in stocks was attributed to a “weaker-than-expected jobs report that eased concerns about faster interest-rate hikes.” So, disappointing job growth is good for stocks and, by extension, the economy? Let’s take a quick look at the weekly view of the long bond:

As you can see, prices have now made their first intermediate-term higher high on a weekly basis in two years. This is a strongly bullish signal for bonds, and indicates that yields are heading lower. What is the long bond telling us when it breaks out to new intermediate-term highs, extending a rally from last June? It’s telling us there is trouble ahead for both the economy and the stock market. It’s also saying that it expects stocks will be incapable of making meaningful new highs during the current rally. Let’s see what develops…

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Category: Commentary, Market Update


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