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Overview of Market Conditions
by David Kwesell
www.beaconmarketreports.com

The past year has been marked with corporate scandals, a
depressed economy, corporate earnings that fell short of
expectations, corporate downsizing, high unemployment
rates, and the threat of war with Iraq. It has been a very
difficult year for most investors and fund managers, with
most mutual funds coming in with double-digit losses. This
year has added to the markets' down cycle and is the third
down year in a row. The Dow Jones Index lost almost 17%
this year, adding to its losses of 27.5% for the last three
years. The Nasdaq lost 31.5% this year, and for the last
three years collectively, it posted a loss of 29.7%. The
only time in stock market history that the markets did not
advance significantly after three consecutive years of
losses was in 1929, when the markets experienced four years
of losses in a row. The numbers are so soft now that most
economists are predicting that a bull market will not have
a great deal of resistance preventing its momentum. Double-
digit returns are now a likely possibility!

Consumer confidence fell from 84.9 in November to 80.3 in
December, mostly due to lower than expected holiday retail
spending; Besides increased unemployment, retailers had to
deal with a shortened season as a result of a late
Thanksgiving. Reports from Freddie Mac declared that heavy
discounting (which failed to bring consumers into the
stores) and the uncertainty regarding job security provided
a black cloud of support for the unemployment rate, which
hovered around 6%. New home sales are still strong,
brought on by low interest rates. Rates on a 30-year
mortgage fell to 5.93%, down from 6.03%. The big
uncertainty contributing to this unstable market is the
expected war with Iraq. Historically, wars have been
bullish for stocks, but the anticipation of military action
is a destabilizing influence. Although history does not
always repeat itself, on the eve of the Persian Gulf War in
1991, the stock market dropped over 20%, then recovered
that loss quickly and reached new heights once military
action began.

We have found that regular monitoring of 270 various
components within the markets gives us a reliable snapshot
of the current functioning of market conditions. The
subtle, and sometimes not so subtle, changes from one
newsletter to the next give us a measure of the present
underlying conditions of the market. The statistical
aspects of any and all of these fluctuations give us a high
probability of what we can expect in the near future, and
this newsletter we see a direction toward weakness in the
short term.

22% are showing strength - Down 10% from last month
11% are neutral - Down 25% from last month
67% are showing weakness - Up 35% from last month

The erratic quality of the market reflects the instability
in the economy and impending world conflict, so it is
especially important to keep your stops current and ride
the profit waves when we identify them.

This article courtesy of http://www.investment-index.com.
You may freely reprint this article on your website or in
your newsletter provided this courtesy notice and the author
name and URL remain intact.

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