Archive.gif (227 bytes) News Letter Archives   
The archives include samples of previous weekly newsletters and past trade expiration cycles that we used to provide.  Since the last one listed here we have gone to providing a daily commentary because of time constraints in trading. We are putting our yearly outlooks at the bottom here here so you can take a look at what we may see in the coming year. 



12/31/04 4:20 p.m est.
And there the year goes with a whimper. Every year I always love to hear all the media analysts attempt to blow up the fact that the market is going to explode going into year end and every year it closes quietly. All of the year end positioning was done a couple of weeks ago my friends not on the last days of the year!

                                            2004             2005          Change       Percent   
Dow                                10453.92        10783.01    +329.09        +3.1%
S&P 100                             550.78            575.29      +24.51        +4.5%
S&P 500                           1111.92          1211.92    +100.00        +9.0%
S&P 500 Jan. Futures     1110.60          1211.20    +100.60         +9.0%
Nasdaq Composite          2003.37          2175.44    +172.07         +9.0%
Russell 2000                      556.91            651.56       +94.65         +17%
5 Year Bond                           3.22%            3.22%
10 Year Bond                         4.25%            4.25%
Volatility                    18.31, 17.51    13.54, 13.02

Since its the end of the year it looks like its time to start talking about what may happen next year and so far to me it appears that there will be little difference from last year, slow steady growth economically and for the market. In the end the market will likely see gains of about +10% but we could see some interesting volatility on its way there on the downside. There are lots of factors that are going to come into play for the market next year that could possibly affect it if they get worse, such as, oil prices, terrorism, the deficit, the economy, company earnings, technicals, sentiment etc. You could almost name it at this point because the market has had a very good run the past few months so anything negative could cause a quick retreat.

When the market peaked out back in 2000 I knew we were going to see a huge correction as the Nasdaq Composite barreled over the 5000 level in its blow off rally and at the bottom I declared a snapback rally but then at least 5 years of mostly sideways to higher action. So far that has come to pass but because there is still really “no new thing to move the market,” I remain with the declaration of slow steady growth ahead. I always think back to the time of 1965 to 1982 as the market barely moved and the period were in now is exactly the same. Sure we may see new highs on the Dow but it has been five years and that index is price weighted so it moves different than other big cap indexes such as the S&P 500, which is far away from its all time high.

On the positive side though, many analysts are saying that 2005 has to be an up year because all years ending in 5 have all seen strong gains since 1885, without exception. First off, to me this indicates more of a possibility of this being the first down year just because everyone is talking about it now and secondly if you look closely you can see that not all years were really strong. The two times we saw small gains were in 1895 and 1965, while every other year ending in five has seen a gain of more than 20% with six of those years coming in at 30% and over. Of course the 1895 +1.7% gain may have been small just because of the fact that it was the first year the Dow index was established but I think the 1965 number is the key one to look at coming in with only a +10.9% gain. Don’t forget the 1965 to 1982 period I mentioned above...

1885 1.7%
1995 36%
1985 28.2%
1975 43%
1965 10.9% ****
1955 44%
1945 29%
1935 42.7%
1925 32.3%
1915 80.5%
1905 38.7%
1805 1.7%

Average gain

This is a pretty good track record, I must say.  Maybe it’s just a coincidence that they are all up or perhaps a self-fulfilling prophecy, as everyone bought stocks in anticipation of another great “5” year.  The one thing I know for sure is that although every year ending in five was a good year it tells us absolutely nothing about what may happen in 2005! I mean really, although it sounds like a sure thing, there was also an over 95% probability of President Bush losing the election race according to a bunch of supposed historical indicators so I like to think there is more to the market than just a bunch of probabilities!
Another thing that people have looked at is that almost all of these "5" years has registered its low for the year in the month of January.

January 30th was the low, yearly high +36%

January 4th was the low, yearly high +28.2%

January 2nd was the low, yearly high +43%

January 4th was the low, yearly high +10.9%
There were five days in June seeing slightly lower closes and it indicates how the year overall was mostly flat.

January 18th was the low, yearly high +44%

January 24th was the low, yearly high +29%

January 15th was the low, yearly high +42.7%
Nine days in March closed lower also but then the market went straight up.

March 30th was the low, yearly high +32.3%
This was the only exception of it not being in January.

January 2nd was the low, yearly high +80.5%
February 24th closed less than -1.0% lower.


January 25th was the low, yearly high +38.7%

On average, the low for the year was around January 22nd, but you can see by a few of those years that it always didn’t go straight up from there. There's no denying that history looks pretty good for the “5” year of each decade for the past century but there lies part of the problem for the year 2005. Stock market Cycles began publicizing the mystique of the “5” year 20 years ago when very few people were aware of what happened. In 1994, awareness was quite apparent and as we approach 2005, I believe the publicity concerning the phenomenon will increase dramatically.
An interesting factor was that at the end of 1974, 1984, and 1994, adviser sentiment had been bearish for a significant percentage of the calendar year.

Unfortunately, we are facing an almost exact opposite sentiment picture as we are seeing bullishness that hasn’t been seen for years which will likely see even bigger bullishness by the promises of another great “5” year. Overall there has been a mindset of steadfast bullishness for well over two years. The average level of weekly bulls over bears since March 2003 has been a huge 31.4%. To put this data in perspective, there has been only seven full calendar years in the history of Investors Intelligence data (since March 1964) where bullishness has been so strong they have escaped without seeing even one week with bears over bulls and only one other consecutive two-year grouping such as we are seeing in 2003-2004. The other consecutive years occurred in 1999-2000. The other years were 1972, 1976, and 1983. So far, each and every year that has failed to see even one weekly reading with bears leading has been followed by a down year!

So there we have it, two historical indicators that have so far been 100% correct however that can’t happen this year so one of them has to break, the question is which one! This also means that even a 100% correct statistic won’t be correct forever so it looks more like the odds for this year really are 50/50 it’s going to be an up year and 50/50 its going to be a down year! Which brings me to my final point and that is to remind you that no one really knows what the direction will be no matter how good the statistics are and is one of the biggest reasons why we trade the way we do, we don’t want to try to time the market! One factor I believe that seems to portray little upside though is that volatility continues to move lower such as last weeks light trading bringing in readings below 12 and it hitting its lowest reading since December 1995 so it has little room to go on the downside. One thing for sure though is it should be another great year of trading!

We hope you have a great end to this year and a blessed and profitable next year! We’ll see you back at our regular time on Monday!



1/5/04 1:30 p.m est.
Well it feels good to be back and all rested from a great Christmas vacation. Christmas was loads of fun and a surprise decision to do a quick road trip on New years Eve to see one of our family members who couldn’t make it down for Christmas capped it all off. The markets continued to celebrate also with a gap up open on Friday morning on extremely thin volume. This however was met with selling and the market today did the same thing with a gap up open causing the Dow to see early highs of +90.00 points, S&P 500 +10.00 points and the Nasdaq Composite +30.00 points. After this however the market pulled back and flattened out until midday when the Dow made slightly higher highs of +105.00 points, and the Nasdaq Composite +35.00 points and the S&P 500 back to old highs of +10.00 points. The final hour saw more sideways action until a program buy came in the last fifteen minutes taking the market up to close at its highs with the Dow up +134.22 points to 10,544.07, S&P 500 +13.74 points to 1122.22, S&P 100 +7.32 points to 557.31 and the Nasdaq Composite +40.68 points to 2047.36.

This morning it was reported that Construction Spending was up +1.2% to a seasonally adjusted annual rate of $934.5 billion following a revised gain of +1.1% in October. Economists had only expected a +0.5% increase. November was the fifth straight month that the annual rate set a record, reflecting a building boom that has been generated by the lowest interest rates in more than four decades. Economists are looking for construction activity to remain strong in the coming year because they believe the Federal Reserve will keep its target for the fed funds rate at a 45-year low at least until midyear to keep the current recovery going.

Residential construction advanced +1.9% in November to a seasonally adjusted annual rate of $501.6 billion, after a +2.1% gain in the prior month. Outlays on offices advanced +1.3%, while construction spending on highways and streets climbed +4.1%. Health care construction fell -1.7% however. Private spending on homes was up +2.0% from October, but a huge +14.1% from a year earlier. Spending on office buildings was up +2.5% from October, but was down -6.6% from a year earlier. Spending on factories was down -1.6% from October but down even further -5.8% from last year.
For the rest of the week, tomorrow has the Challenger Layoff Survey and the December ISM Non-Manufacturing Business Index and finally Factory Orders. Thursday has Jobless Claims and Wholesale Trade while Friday has the monthly employment report. This is the most important report of the week and month for that matter and so far economists are expecting an increase of about +125,000 jobs created. Expectations are high so if traders are disappointed the market won’t react well. Another thing to keep note of is that on Thursday, Dow component Alcoa will kick off this earnings season with its fourth-quarter earnings report.

This year turned out to be a great year for trading with credit spreads seeing regular trades have a +152% gain, conservative +118%. S&P 500 futures options E-mini outright sells saw regular trades see gains of +133% and 103% for conservative trades. The coming year should be as exciting as this years trading and we here at Agora Outlook are all looking forward to it!

I must say I’m disappointed with the end of the year trading though as the market tacked on about an extra +4.0% this past month which I believe could have been better used by traders this month. Nonetheless that’s not really my concern but if they’re trying to look good it is going to take a lot more work now to match this years performance. Last year at this time I figured the market would be up about +10% by year end even though it ended the year on strong selling but if there were no terrorist attacks the market may have even be higher. The S&P 500 finished the year up about +25% which I believe beat everyone's forecasts and lets me say once again that making yearly forecasts is actually quite stupid because so many things can change over an entire year! I think its great to see the strong gains but with the market now as overvalued on a fundamental basis as it was in 1999 once again and overbought on a longer term basis, I can’t see the heady gains coming in that many people are expecting.

Then again if we continue higher like we did today the market will be up over +400% by year end! I was going to call for another +10% to +15% gain for the year but with the strong year end finish I’m going to reduce it to +5.0% and maybe +10% if we see a deep enough correction midyear. The upside for the market should also be limited because the economy can’t sustain +8.0% growth so it will likely fall into a normal range once again which means that earnings for companies are also going to flatten out. If there are any major terrorist attacks I would then have to join the bears though and expect a down year as it would hurt consumer sentiment immensely as there has been no attacks in North America since 9/11. Although I believe that the terrorism threat is actually getting less and less, when a cat is backed into a corner it will do anything to save itself so you never know what will happen!

For me, yearly estimates mean nothing anyhow as every expiration cycle is new. The only pressure we saw all year was one cycle this past summer so we finished the year with great gains and considering how high the market moved this year that’s great. Volatility overall has been lower and I think that next year will remain about the same, maybe even lower as long as there are no surprises and the dollar doesn’t crash. A lower dollar is fine but it is getting a bit low considering the need for foreign money to support the deficit.

For the start of the year there is a strong possibility of some profit taking as traders held onto the gains they have made since August and so it is better to take profits in 2004 so taxes won’t need to be paid for a year and a half. Last year the market sold strongly into year end and then rallied at the start of 2003 and since this year ended with a bang I think we’ll likely see some selling start anytime now as the market is extremely overbought and sentiment is also unbelievably bullish. For example the past two weeks has seen equity option activity indicating strong bullishness. The 21-day moving average has dropped to its lowest level of 2003 at .54 which is flashing a warning sign for a possible reversal. The prior low was achieved in mid-June and after it was hit the S&P 500 fell over -5.0% over the next 10 trading days. Last weeks close also saw the S&P 500 up for a sixth straight week, the longest streak since 1998.


The market ended the year on the downside with the Dow down 5 of the last six days of the year and the overall market ending 2002 lower for the third consecutive year.  This was the first time this has happened since 1941 and has only happened three times in 107 years!  It was also the worst month of trading for a December since 1931!  There surely was no "Santa Claus rally" this year as many had expected but it wasn't that surprising to see the selling as it was looking like it was going to be a down year anyhow a month ago.  Why not do some tax loss selling right at the end of the year to make it easier to see an up year next year.

Of course everyone is already talking about how we’ll see an up year  now as you never see a fourth down year but that’s what everyone was saying last year!  Well guess what, there has been one other fourth down year and it was from 1929 to 1932.  Only one in the past does improve the odds that it won’t happen again this time around but its always best to keep it in the back of your mind.  It is kind of deceiving as the slide started with the October 1929 crash making it the first down year and the bull market didn’t get going until July 1932 so if you actually calculate out the entire down period you only get a total of 35 months.  If we stay above last years July lows we’ll still be okay which placed the bottom at 30 months and if we were to fall below that level and then start a rally it would make it a 35 month bear at this stage.  The longest bear ever was 42 months so maybe we could see a new bottom in July which is another thing to keep in the back of your mind.  One thing it does say though is that the more something is expected to happen, the less likely it will so it may be better to stick with the possibility of a July low and then a rally starting.

Here’s another reason for a possible up year though as it is a pre-presidential election year and in the last 25 since 1903, stocks have risen 20 times and fallen only five.  This is much better than its total track record during this period of 64 up years and 36 declines.  Even more interesting is the fact that the Dow has risen in every year before a presidential election since 1943. What’s more, 11 of these 15 years saw the Dow post a double-digit gain.  History certainly tells us that thing should be good for the market this year so if we follow the seasonal November to April tendencies, coupled with the third year of the Presidential election cycle, which has never produced a down year in the last 50 years we should see an up year overall!

Other factors that should help are low interest rates, economic stimulus, rising earnings and an accommodating Fed.  This means the only fundamental problem that may be out there is that if a new bull market were to develop, it would be the first time in history that it occurred before price/earnings ratios fell to or below current long term averages.  Right now, they are roughly twice as high as usual.  “Current” P/E ratios in general are higher than historical averages but from another viewpoint, P/E ratios are really only meaningful within the context of interest rates because interest rates influence both corporate earnings and price-earnings ratios.  Right now the five-year bond is at its lowest yield since 1962, and so P/E ratios should be even higher, at extremes actually but they're not. To be at the 40-year average the price of the S&P 500 should be at least 20% higher than it is currently.  If you look at the 10-year bond the market is over 30% undervalued.

Assuming no new terrorist attacks or corporate problems pop up, the economy should grow in 2003 at about a 3.0% rate with just a bit more inflation.  The ISM reports are a confirmation of that, and I expect that to only get better as we go along.  All of the stimulus coming in should help at least a little bit.  So far the consumer, with improving real wages and low interest rates, have kept the economy going. That is not about to stop as they have been increasing their savings rate and now have $2.8 trillion in savings accounts alone.  Businesses are also getting in on the act as they are showing some increases in capital expenditures and it is time for some inventory replenishment so it should enhance the next phase of the economic recovery.

There are a lot of positive correlation's pointing to when we came out of the 1990-1991 recession with economic strength leading the way.  This is all great news however the biggest problem  is still out there and that is negative psychology as many investors and institutions have been burned badly the past three years.  People are also still worried about another major terrorist attack even though the odds of it happening become less and less by the day.  To me psychology is the biggest mover in the market and that is what I think will keep the market in check every time it attempts to scream higher as profit taking sets in.  This means there will be volatility but it will probably get lower and lower as time goes by along with gains and losses.  In the end the market may be up 10% unless of course terrorism is stopped completely but I think that will take a few more years to complete.  Of course I don’t really care if the market is up or down for the year but just how much it moves within every expiration cycle.  This is why I think it will be most important to continue to watch weekly moves this year as we’ll probably see them mostly flat with decent swings in-between.

                                             Yearly Change
Index                                   12/31/01         12/31/02       Change      Percent
Dow Jones Average          10021.57           8341.63     -1679.94        -16.7                   
S&P 500                              1148.08             879.82       -268.26         -23.3
S&P 500 Futures Dec.        1149.20             878.90       -270.30         -23.5     
S&P 100                                584.28             444.75       -139.53         -23.8
Nasdaq Composite              1950.42           1335.50       -614.92         -31.5
Russell 2000                          488.50             383.10       -105.40         -21.5
5-year bond                              4.34%               2.72%
10-year bond                            5.03%                3.82%

Copyright c 1996,1997,1998,1999, 2000,2001,2002, 2003, 2004, 2005. All rights reserved. The information contained in the AGORA OUTLOOK NEWSLETTER is based upon data that is believed to be accurate, but is not guaranteed, and subject to change without notice. All projections, forecasts, opinions, and track records cannot be guaranteed to equal our past performance. Persons reading this newsletter are responsible for their actions. Officers and employees of this publication may at times have a position in the securities mentioned, or related services

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