Harry Schultz International Letter, Full Market Update

Subscriber input welcome on FMU service, trading recom's, jokes, or any other ideas/info that may be of interest to FMU family members.

***The new HSL e-mail address for NON-subscription communication (cameleon1@compuserve.com) has lead to some confusion as it's hard to distinguish the 'L' from the '1' (figure one). Here's the address in uppercases for reference, BUT please use LOWERCASES when e-mailing (after cameleon is the number one):

CAMELEON1@COMPUSERVE.COM

The new e-mail address for subscriptions & address changes is:

HSLMENTOR@RACSA.CO.CR

The new fax number for NON-subscription communication is:

(377) 9770 3148 (that's Monaco)

The new fax number for subscriptions is:

(506) 234 0433 (that's Costa Rica)

Our MAIL address is still in Switzerland, unchanged.

***Abbreviations:
1dc = 1 day close. 2dc = 2 day close. SCO = Stop Close Only.
ST/MT/LT= short/medium/longterm.

***We are very grateful for the numerous warnings of new computer viruses subscribers send us. However, it seems nowadays there are far more hoaxes circulating the Internet than viruses! Therefore, we recommend that people check things out before forwarding hoax messages to everyone in their address book (which is a waste of your own time and everyone else's). We suggest checking one of the following Web pages to determine whether the message you want to forward hasn't yet been exposed as being a hoax:

http://www.symantec.com/avcenter/hoax.html

&/or

http://vil.mcafee.com/hoax.asp

We also suggest putting these URLs somewhere where they can be pulled up easily (eg in your "Favorites" folder). We fully understand intentions are good when we warn each other of these potential viruses, as real viruses can be devastating. However, one can quickly check for hoaxes BEFORE forwarding fake warnings. Please pass on the same advice to people sending hoaxes to you. It might stop some of the craziness out there on the Web!

***This from 'Taylor on Gold & Stocks'. We heartily applaud his comments about our dear friend Congressman Ron Paul, MD!

"Congressman Ron Paul, M.D. says U.S. Treasury confiscation of gold would be illegal.

"Several months ago, I received a part of an article that stated that the Secretary of the Treasury could confiscate private gold any time he so chooses. The article referred to U.S. Code (12 U.S.C. 248(n)). In November I finally got around to writing to Congressman Ron Paul to ask him this were true.

"Earlier today, I received Dr. Paul's answer to my question. He said "Congressional Research Service, statutory authority for the Treasury Secretary to confiscate gold was repealed in 1982." But then, Dr. Paul stated, "Of course, the Treasury probably intervenes in the gold and silver markets through the Exchange Stabilization Fund. I am working on legislation that would restrict the Exchange Stabilization Fund's ability to interfere in, and thus distort, the gold market."

"In my letter to Congressman Paul, I also gave him a brief eye witness account of the move to dismiss Reginald Howe's anti-gold price fixing case that took place on November 5, 2001. Dr. Paul responded by saying "Thanks also for updating me on Reginald Howe's lawsuit. While I wish Mr. Howe well in his efforts, I must confess that I am skeptical of whether the federal judiciary will limit federal power absent clear indications of public support for a return to constitutional government. This is why I believe defenders of liberty must continue to concentrate on educating our fellow citizens of the benefits of a free society."

"To that I would like to respond to Congressman Paul that at least part of what GATA and Reginald Howe are trying to do is educate people about the problems caused when constitutional freedoms are being abolished by the government. To be sure, many if not most people associated with GATA have a self interest at heart. But it is clear to those of us who have studied the gold rigging mess, how destructive our government is to the cause of freedom by this intervention.

"Of course, in my view, no elected official in Washington comes closer to educating Americans about the libertarian values instituted by our founding fathers and the need to retain those values than Dr. Paul. If ever there was a politician who has gone to Washington to serve his country rather than to be served, it is Dr. Paul. As a physician who has delivered 4,000 babies he doesn't need a job in Washington. He ran for office because of his passion for liberty and the need to help others understand why we MUST hold on to it if we are going to retain any semblance of freedom that our Founding Fathers envisioned when they framed our Constitution. Dr. Paul understands how printing money fiat undercuts our liberties and leads to the formation of a rich, powerful ruling elite who uses their power gained via the printing press to effectively rob hard working Americans who actually produce our nation's wealth. And, much to his credit, he has been very concerned that certain policies instituted post September 11th, may erode the very values we are supposedly fighting for.

"You can tell Dr. Paul is an honest statesman who loves his country because he takes on positions that are not politically correct, but those which he so passionately believes in. I thank God for Dr. Paul. If we had 434 more like him - in terms of a willingness to selflessly serve America - our democratic republic would not be facing the demise it is now facing. And with respect to the much smaller issue about a rigged gold market, GATA and Reginald Howe would not need to spend so much time fighting for something they should never, under our Constitution, need to contest.

"I would strongly suggest investors visit Dr. Paul's web site at 'http://www.house.gov/paul' to keep up with his latest speeches and bills he is sponsoring in the House of Representatives. And Oh yes! I believe I recently saw someone on the Internet suggesting that a "Ron Paul for President" move should begin. I'm not sure it would be fair to Dr. Paul to subject him to the indignities of running for that office. He's much too kind and decent of a man to put up with the pernicious sniping aimed at anyone who seeks that office. But if he were willing to run again (I believe he ran on the Libertarian ticket some years ago), whoever it was that suggested a draft "Ron Paul for President" you can count on my support, for what ever that is worth.

"When the Kondratieff blizzard really hits our nation with its full force, the thing I fear more than loss of material comfort is that the U.S. is likely to turn toward a dictatorship of some stripe or another. At a time like that, who knows. Ron Paul may be predestined to play a more prominent role in defending liberty than he now plays as a Congressman".

***'Big Brother' continues to erode our freedom by carefully nurturing the illusion it's for our own good!

Refugees meeting hears proposal to register every human in the world GENEVA, By Maria Hawthorne.

"Every person in the world would be fingerprinted and registered under a universal identification scheme to fight illegal immigration and people smuggling outlined at a United Nations meeting today.

"The plan was put forward by Pascal Smet, the head of Belgium's independent asylum review board, at a roundtable meeting with ministers including Australian Immigration Minister Philip Ruddock this afternoon.

"Mr Smet said the European Union was already considering a Europe-wide system, using either fingerprints or eye scanning technology, to identify citizens. But he said the plan could be extended worldwide.

"There are no technical problems. It is only a question of will and investment," he said.

"If you look to our societies, we are already registered from birth until death. Our governments know who we are and what we are. But one of the basic problems is the numbers of people in the world who are not registered, who do not have a set identity, and when these people move with real or fake passports, you cannot identify them.

"It's a basic rule of management that if you want to manage something, you measure it. It's the same with human beings and migration. But instead of measuring it, you have to register them."

"Mr Smet said the scheme would give people dignity by giving them an identity if their papers had been lost or destroyed.

"And he said it would allow countries to open their borders to genuine
travellers or asylum seekers, because they would be able to prove the
identity of any over-stayers and deport them without argument from their
home country.

"Mr Ruddock appeared unconvinced by the merits of the plan. In principle we would be supportive of a system which would crack down on multiple asylum claims, but a universal identification system would be taking it too far," he said through a spokeswoman".

***Biotech: Firm plans to sell implantable devices that can store a variety of data about you!

A Chip ID That's Only Skin-Deep. By DAVID STREITFELD, Times Staff Writer.

"A Florida company is poised to become the first to sell microchips designed to be implanted into human beings, an achievement that opens the door to new systems of medical monitoring and ID screening.

"Implantable chips have long been discussed by technologists and denounced by those who object on religious grounds or fear their use by a totalitarian state. But the company that did the test, Applied Digital Solutions of Palm Beach, said the specter of terrorism is shifting attitudes. The direct union of man and computer is no longer dismissed out of hand.

"The bottom line is, when people are trying to regain their peace of mind, they're more open to new approaches," said Keith Bolton, Applied Digital's chief technology officer.

"Applied Digital, which had revenue of $165 million last year, has made its mark by selling electronic chips that help farmers keep tabs on the health and safety of their cows and other livestock. The company also makes a monitoring bracelet for Alzheimer patients, so that families can use global positioning satellite systems to help find loved ones who might have wandered off.

"Now the company sees a market among those who have artificial organs and limbs. These folks will have up to 60 words of relevant medical information implanted on chips. If the patients are brought unconscious into an emergency room, technicians equipped with special scanners will easily decipher the body's internal topography.

"The chips would need approval from the Food and Drug Administration, which Applied Digital said it expects to receive by midyear. The company said it already has secured permission from the Federal Communications Commission-necessary because the chips use radio frequencies.

"Regulatory approval is not necessary overseas, however. Applied Digital expects to be selling chips in South America in about 90 days. One potential market is a kidnap target, who could use these chips in combination with global positioning devices.

"Other potential applications would put the chips in the role of an ultimate ID, capable of performing many of the roles that are performed by keys and ATM cards.

"I'd be shocked if within 10 years you couldn't get a chip implanted that would unlock your house, start your car and give you money," said Chris Hables Gray, an associate professor of computer science at the University of Great Falls in Montana and author of "The Cyborg Citizen."

"English cyberneticist Kevin Warwick won considerable notoriety three years ago by implanting an electronic transmitter above his left elbow. The implant opened doors and switched on lights at his British University of Reading offices. He now is working on experiments in which his nervous system is linked with a computer.

"If Warwick is the equivalent of the mad genius who injects himself with a new vaccine to see whether it works, the Applied Digital volunteer, 55-year-old New Jersey surgeon Richard Seelig, sees himself as simply a consultant thrust by events into an unexpected role.

"Seelig had been working with Applied Digital since early this year. He expected to do a traditional scientific study, calling for volunteers who wanted to test out the role of chip implants. Then came the terrorist attacks Sept. 11. Five days later, Seelig injected himself with the chips.

"I was so compelled by what had happened," he said in a phone interview. "One of the potential applications suddenly jumped out--the ability to have a secure form of identification--and I felt I had to take the next step."

"So he injected one chip into his left forearm; the other went in his right leg, next to his artificial hip. Each could hold several sentences of information, although at the moment they just contain serial numbers.

"There's no deformity of the skin," Seelig said. "I feel just the same as I did before."

"The chips that will be marketed next year are not true tracking devices. For one thing, they have no internal power source. Their data can't be read without a scanner.

"The next generation of body chips, which transmits signals from a distance, is still several years away. At the moment, this kind of tracking device would have to be about 1 inch by 1 inch, raising the likelihood of a rather unsightly bulge.

"No one interviewed Tuesday questioned that Applied Digital had done what it said it did, but not everyone thought there would be a huge market.

"It's a glorified bar code, and there are not a lot of people who are going to want it," said Michael Nova, the founder of Graviton, a La Jolla company developing wireless machine-to-machine communication systems. Using such a chip as a built-in credit card, Nova said, would require a great deal of work.

"Stores would have to get the right software; credit card companies would have to want to do it," Nova said. "At the moment, this is an intriguing idea that doesn't have a market."

"Which isn't necessarily going to keep it from being popular, said futurist Paul Saffo.

"As some people wring their hands about the invasion of privacy and civil liberty, a whole other generation is going to go, 'Cool! I've always wanted to embed technology in my body.' It's going to be fashion," Saffo said. "One sure sign that teenagers will love it is if it terrifies their parents."

***In 10 years Joe Public will openly accept the benefits of such technology, happy to have car doors open automatically & lights switch on & off! And, who could question the legitimate advantages for helping the seriously ill, genuine asylum seekers, possible kidnap victims & the like. The problem is that 20 years from now it'll be obligatory - & doors will close & lights will go out if we try & avoid. A truly grim scenario in perspective :-(

***WHAT REALLY KILLED ARGENTINA?
By Hugo Salinas Price (prominent Mexican businessman & longtime hslm).

"So, the Argentinian economy has collapsed and social and financial chaos reigns.
"We shall read a great deal about it, but you can be sure very few analysts, if any, will mention the actual and fundamental cause of this disaster. To do so, is too horrifying, for what has destroyed Argentina, is the same cause at work all over the world today. Argentina's fate is the world's fate - and that is too drastic a conclusion for any analyst who wants to be paid for his work.

"Argentina's fate was determined by the deliberations of John Maynard Keynes and Harry Dexter White, when they drew up the Bretton Woods Agreement as World War II was coming to an end. There, they created what France's General De Gaulle later called "an exorbitant privilege": the right, pertaining to the victorious U.S.A., to have its dollars considered as equivalent to gold in the reserves of Central Banks the world over.
"As most readers well know, the Agreement was violated by President Nixon on August 15, 1971, when he "closed the gold window", and refused to continue redeeming dollars in the hands of foreign Central Banks, for gold, at any price.

"With a dollar that did not have to be redeemed, as of 1971 the U.S. was free to expand credit out of nothing, and this expansion of credit resulted in conditions which led the American people to believe themselves superior in many ways, to the rest of the world.

"As the years went on, credit - debt that is - kept expanding and this expansion of credit, led to more money in the hands of the public. The U.S. public proceeded to buy anything and everything the world had to offer, and send dollars in payment, to such an extent that today, dollars in the amount of some $400 billion a year, leave the U.S. to purchase goods and services, and even for the purchase of all sorts of assets all over the world.

"The other side of this "exorbitant privilege" for the U.S., is a corresponding "exorbitant impoverishment" for the rest of the world.

"It is essential to recognize that the U.S. trade deficit of $400 billion a year, is really a tax on the whole world, for the benefit of the U.S.

"Imports are not really paid with dollars sent abroad. Imports are only actually paid with exports of goods and services. Since the U.S. has no intention of ever actually paying for present and past imports, with goods and services, and bringing back to the U.S. the immense amount of dollars sent abroad through its accumulated trade deficits, that yearly trade deficit amounts to a yearly tax on the rest of the world. The accumulated taxation extorted by the U.S., is huge. The measure of the taxation is the amount of Central Bank reserves - in dollars - which have built up enormously since 1971.

"That is what really killed Argentina: U.S. taxation through the monetary system which prevails, and which allows the U.S. to buy things without paying for them.
"The process of enriching the U.S. through this exaction of tribute - the correct word - is matched by a corresponding impoverishment of the rest of the world.

"Some countries, due to various factors, are able to pay the tribute. Japan has been a great payer of tribute: it holds some $400 billion in Central Bank reserves, which is the measure of the tribute they have been able to pay.

"Other countries are just not able to pay the tribute. They fall on hard times, and go bankrupt. Such is the case of Argentina. Yes, there has been corruption, mismanagement, political instability, what have you. But that is not the basic reason for their bankruptcy. Basically, they are the momentary losers in an unjust situation, the obligation to deliver tribute to the U.S. and thus maintain their dollar reserves. A kind of "musical chairs" situation, where they have been the losers. Why is the "chair" missing? It went to the U.S.!

"This system of dollar reserves, is a massive system of world-tribute payable to the U.S. It is unjust and implies the impoverishment of the world for the benefit of the U.S. The impoverishment does not produce its results evenly. Some countries go belly-up before others. Argentina is the nation presently going under.

The Euro

"What we are saying is proved by the fact that the Europeans have created the Euro as money for a block of twelve European countries. These countries well realized what we are saying, and came to the conclusion that though they did not like each other very much, they disliked paying tribute to the Americans even more.

"So now, Europe proposes to muscle in on the racket that has been the "exorbitant privilege" of the U.S., by floating its own currency, which it hopes will also be accepted all over the world, just like the dollar.

"This is not a particularly humanitarian move. What Europe wants, is to be able to tax the world itself, and share the business with the U.S. dollar. Europe too, wants to be able to buy things without paying for them, simply by giving the sellers Euros. At least so far, that appears to be the European objective.

More Argentinas

"So, expect more Argentinas. This taxation of the world may go on for a long time. Perhaps it won't end until the whole world is bled white and every country, outside the U.S. and Europe, gives up and retreats into protectionism and dictatorship, to keep the people from going at each other's throats.

"An equitable and stable world will not emerge, until gold reassumes its role as the world's money. Perhaps we should say, "a world approaching equitable dealing", for humans being what they are, there will always be some people to take advantage of others. And even gold is not a perfect money - some countries have gold mines, others don't. Who was it that said, "Life is not fair"?

"Indeed, gold is not perfect money; but it's the nearest thing we have, to perfect money.
"What killed Argentina? In the last analysis, a world monetary system that turned its back on gold. Under the previous system, the Gold Standard, there was a minimum of exploitation. Gold only moved from one country to another in minimal amounts, to settle transitory differences in value of goods and services traded. There was no system of worldwide payment of tribute in favor of one country, as today. Not surprisingly, financial crises were the exception, not the rule.

The Grim Truth

"Economists" are forever barking up the wrong tree. Argentina's problems will be blamed on corruption, on ineptitude, on gross mismanagement, on political instability, on the declining world economy - on anything but the truth.

"The tribute paid to the U.S. through the world's monetary system destroyed Argentina. That's the grim truth. The whole world, with the exception of Europe, which hopes to escape the trap, is facing the fate of Argentina. As the rest of the world becomes poorer by the day, there is another Argentina in the making. Who will go under next?

"A change in the world's monetary system will involve enormous suffering. But not changing it, will mean more Argentinas.

"Change will mean the kind of suffering that Russia went through, when it abandoned Soviet central planning. Enormous human deprivation came down on innocent people. Now imagine the whole world involved in the throes of such a catastrophe.

"It is next to impossible to visualize. And yet, there is only one way out of this mess, and it will involve deep suffering: a return to gold and only gold, as Central Bank reserves.
"And that is what no analyst is willing to face up to. No analyst really wants to know: "What Killed Argentina?" The answer is just too ghastly".

***Argentina formally entered into default on its $1555bn in federal & provincial debt last week, when it failed to pay $28m in interest payments due on Italian lira-denominated bonds due in 2007. The pebble has been thrown in the lake.

***From lemetropolecafe.com: JPM Derivatives Monster Grows.

Amazingly, the total derivatives positions held in terms of notional amounts by US banks literally exploded in the six months between the Q1 and Q3 reports. The US banks ramped up their derivatives positions by an absolute 16.8% in a mere six months, or $7,362b (yes, that is seven thousand BILLION, or over seven TRILLION dollars).

For comparison the US GDP was only up an anemic 0.8% over the same six months. The exploding broad US M3 money supply that Greenspan is frantically pumping like there is no tomorrow in his daring Greenspan Gambit is "only" up 5.1% over the same period. Any way you slice it, the piling-on of over $7t of additional derivatives exposure in six months is quite extraordinary."

***A new book from Pat Buchanan has just hit the bookstores.

Pat Buchanan's new book, "The Death of the West," says politically correct policies are dooming America.

According to the Drudge Report, the "ultra-controversial book, which will be banned, blocked and burned in many quarters," says:

"By 2050, only 10% of the world's people will be of European descent. One third of Europe's people will be over 60, and one in ten over 80.
Involuntary euthanasia has already come to Europe."

"Mexico is exporting its poor and unemployed for U.S. taxpayers to employ and educate. Radical and militant Hispanics and Mexican leaders alike believe this will lead to the cultural and demographic recapture of the Southwest from America, reversing the results of "The Mexican War."

"By supporting open borders, the GOP is committing suicide. First-time
Hispanic voters chose Clinton 15-1 over Dole. Of the seven major
immigration states - Massachusetts, New York, New Jersey, Illinois,
California, Texas and Florida - Mr. Bush lost five, and perhaps six. Of the
10 states with the smallest share of immigrants, Bush won all 10."

"MeCHA, the student organization that claims chapters on hundreds of
campuses, has a program that reads like a Mexican version of the agenda of the white supremacist Aryan Nation."

"The history books of American public schools are being rewritten with the old heroes ignored or trashed and Western civilization disparaged and
demeaned."

"Even the great museums on America's Mall, to introduce school children to the greatness and glory of America's past, are being used to indoctrinate children in how wicked and evil our forefathers were."

"Anti-Catholic films and filthy and blasphemous anti-Christian art are the
deliberate insults of a triumphant pagan and secularist faith."

***Although Pat's views are often considered extreme right wing, his demographic data is correct. If you wish to buy a copy of Pat's book, "The Death of the West: How Dying Populations and Immigrant Invasions Imperil our Country and Civilization" go to:

http://www.newsmaxstore.com/nms/showdetl.cfm?&User_ID=2613971&St=5974&St2=-60136346&St3=-50523471&DS_ID=3&Product_ID=458&DID=6

***From top S&P trader Christopher Cadbury:

A panel of 11 Wall Street analysts interviewed by Barrons, like the 54 analysts polled for Business Week, have forecast a strong year for the stock mkt in 2002. All but 1 of the 11 analysts are bullish. The 11 analysts have a median projection of 1350 for the S&P at year's end. Similarly, rosy forecasts the past 2 years have led to lower mkts. By contrast, neutral expectations the prior 2 years were followed by robust mkts.

***From Peter Bernstein: Economics & Portfolio Strategy (NYC).

"The yield on the S&P is currently 1.3% while the long bond yield is at 5.6%. The growth of stock dividends over the last ten years is roughly 2.6%. How does compounding stock dividends compare with compounding bond interest (over the long term, 25-years)?

"The equity investor will receive a total of $562 in dividends on 1 S&P share over 25-years, or 49% of his original investment of $1,158 (the cost of 1 S&P share).

"The bond investor, however, will receive a total of $1,618 in coupon receipts on an investment of the same size & over the same time span. If you figure in reinvestment of income, the gaping spread becomes even more awesome than it is already".

The effects of compounding are astonishing - but not everybody lives long enough to enjoy the full benefit of the strategy! That's why diversification into other asset classes (in strict adherence to percentages outlined in the HSL Investment Box) is essential to boost a portfolio. The buy & hold strategy in equities at these high valuations is no longer a viable strategy, but trading can provide excellent results in either bull or bear conditions.

***Last Fridays US employment report confirmed the labor mkt situation continued to deteriorate in December (even though losses were smaller than expected) with the jobless rate rising to 5.8% & employment shrinking by 124,000. One year earlier the unemployment rate was only 4.0%. The number of unemployed increased by 2.6 million since last December, & 41% of job losers don't expect to be called back. While manufacturing continues to suffer, services & construction payrolls increased at year-end.

Other data indicates the average length of unemployment is increasing as laid off workers struggle to find new jobs. Initial jobless claims rose more than expected in 4-day holiday week ending 12/28, to 447,000. The increase is greater than apparent when added to the prior weeks claims that were revised upward by 19,000. Continuing claims increased by 42,000 to top 3.7 million.

US Jobless woes further amplified by the huge surge in November monthly mass layoffs, totaling 2,699 mass actions concerning 50 workers or more (this compares with 1,816 in October). A total of 293,074 workers were affected by the November actions. The total number of mass layoffs & initial claimants in November marks a new record high since the Labor Dept started tracking mass layoffs in April 1995, & is approx 45% higher than the same period in 2000. The Manufacturing sector continues to bear the brunt of mass layoffs, accounting for 42% of all layoff events & 52% of all initial claims.

The labor force situation will continue to deteriorate well into an economic rebound, before growth eventually becomes sufficient to lower unemployment & absorb new workers.

***US mortgage applications took a sharp plunge week ending 12/28, with both refinancing & purchase applications down by 50%. The rebound in mortgage rates (fueled by investor confidence in economic recovery), has dealt a deathblow to the mortgage application boom. The decrease in purchase applications, which acts as a lead indicator, signifies a sharp slow down in house sales will follow. With mortgage financing now at an end (a key source of new cash for households end 2001) retrenchment in consumer spending to intensify.

***US Supply Management Index (formerly National Association of Purchasing managers, NAPM) climbed to 48.2% in December, but marks the 17th consecutive month where the index is below 50%, indicating a decline in the manufacturing industry. A positive indication coming from the new orders component, which generally acts as a lead indicator on the overall index, via a firm move above 50% - but a full recovery would need many more month's confirmation. New export orders fell sharply by 48%, as ramifications of the synchronized slowdown provide few opportunities for increasing demand overseas.

***The aggregate unemployment rate for the euro-zone remained unchanged at 8.5% in November (same level as in November 2000). However, this is the 1st time during the downturn that the number of countries experiencing a rise in their jobless rate relative to year ago levels, outnumber those experiencing a decline - which implies economic conditions are deteriorating across the region.

The lowest jobless rates were recorded in the Netherlands (2.2% in October), Luxembourg (2.5%), Austria (4.0%), Ireland (4.1%), and Portugal (4.2%).

The highest jobless rates were registered in Spain (13.0%), Italy (9.3% in October), Finland (9.2%), France (9.2%), Germany (8.0%), and Belgium (7.0%). No data available for Greece.

In the last 12 months, falls in unemployment rates were registered in the Netherlands (from 2.9% in October 2000 to 2.2% in October 2001), Denmark (from 4.8% in October 2000 to 4.4% in October 2001), Italy (10.0% in October 2000 to 9.3% in October 2001), & Finland (from 9.4% to 9.2%).

In the last 12 months, rises in unemployment rates were registered in Austria (from 3.6% to 4.0%), Ireland (3.9% to 4.1%), Portugal (from 4.0% to 4.2%), Belgium (from 6.8% to 7.0%), Germany (from 7.7% to 8.0%), France (from 9.1% to 9.2%), and Luxembourg (from 2.4% to 2.5%).

S&P500 Index

The S&P 500 Index closed Friday Jan. 4 at 1175.30 ie, 9.46 points above its 200-day moving average.

The Commitment of Traders report shows S&P500 commercial hedgers added 20,586 longs, bringing total longs to 412,581, whilst shorts added 14,271 contracts, bringing total shorts to 471,239.

S&P 500 Index weekly chart - line on close:

Rally above the top boundary of the MT downtrend channel, followed by a pullback to same & subsequent strength now validating ST breakout. Next technical confirmation of continuing strength would come from sustained action above the 40-week MA. Stochastics climbing firmly towards the top boundary of the over bought zone, implying we are nearing the end of this up-leg. However, Stochastics can stay for many weeks/months before price finally confirms (view Stochastics: end 1988/early 1999 & corresponding price action).

S&P 500 Index daily chart:

Upside resistance: 1170-1185, 1220, 1250.
Downside support: 1140, 1120, 1110.

Trader's Guidelines:

Global mkts continue to fight with their respective 200-day moving averages, but have yet to make a decisive break in either direction.

Trading remains difficult, as the year-end effect combined with ongoing uncertainty has caused quick reversals/whipsaw action in many mkts. Very unlikely we've put in permanent bottom, but we can't ignore strength of upside momentum. Tilt & technical indications remain to upside with no serious warning for moment, so best to go with longs rather than shorts (even if gut says otherwise!).

Until MT direction becomes clearer, best/only strategy is to establish light foot trades & go with the flow. Add to positions if/when trends start to develop in your favor, or exit quickly via tight stops to avoid unnecessary losses in whipsaw action. This will give you funds & confidence to jump back in when new chart signals develop. Eventually you will find yourself in a trade that will largely recoup prior stop-out losses!

Traders are flat, as required conditions for both long & short trade recommendations in prior FullMU were not seen.

S&P now facing key ST resistance between 1170-1185.

Gamblers can enter LIGHT (S&P mini) trades on continuing strength, increasing positions on a solid close above 1180. Hold positions for a run at 1220 & take full profits at same. Stops basis dollar pain level, but no lower than 1140. Multiple trailing stop strategy recommended to lock in ST profits.

Or, gamblers can enter LIGHT trades on renewed strength AFTER a pullback to 1150-1145, for a run at 1220. Stops based on dollar pain level, but no lower than 1dc below 1120. Multiple trailing stop strategy recommended to lock in ST profits.

For bears, the 1st sign of weakness will come on sustained action below ST support at 1140 & the lower boundary of the ST uptrend channel. To avoid whipsaw action, gamblers can enter LIGHT trades on solid action below 1120, increasing aggressively on a close below 1100. Hold trades for a re-test of 1060 & lower. Take ½ profits at 1060 & re-short on continuing weakness. Use multiple trailing stops to protect profits, exiting only if/when stopped out.

Exit positions at mkt if run-away conditions develop, ie, don't wait for 1-2dc).

We repeat, the best strategy is to make several attempts to enter this (or any) mkt using 60/15/5 minute tick charts for better timing & e-mini's to trade incrementally, in/out in stages. 1 e-mini = $50/pt, compared with $250/full pt.

Another strategy is to trade in Calls/Puts, or buy options to off-set/hedge WHATEVER position you take. But options should be well studied before using. They are not harmless toys.

NYSE advance/decline line

NYSE advance/decline line - weekly line on close:

A new high in the NYSE AD line eliminates the possible bearish, up wedge pattern discussed in prior Updates. Lines have been modified accordingly. ST uptrend now over extended, so pullback/consolidation action looks probable. If the AD line is to continue its healthy ST uptrend, price should logically hold above the 5610-5000 support zone.

But, remember NYSE AD line has limited value due to distortion from large number of Preferred & interest sensitive stks, which rise in recessions.

Nasdaq

The Nasdaq Composite Index closed Friday Jan. 4 at 2059.38 ie, 132.33 points above its 200-day moving average.

Nasdaq Composite weekly breadth figures show advances almost doubled declines (2,721-1383), new highs crushed new lows (322-47), & advancing volume outpaced declining volume by a health ratio of 1.84 to 1.

Nasdaq Composite weekly - line on close:

Nasdaq Comp in tentative breakout above its 40-week MA. Further confirmation will come on continuing strength above key 2000 resistance & a sustained breakout above the top boundary of the MT downtrend channel. Until we see this, charts are showing nothing more than a ST rally in a major downtrend. Weekly Stochastics showing renewed strength in the over bought zone, raising probabilities for ST consolidation or decline.

Nasdaq Composite daily chart:

Upside resistance: 2095, 2200, 2320.
Downside support: 2000, 1920, 1830.

Traders Guidelines:

ST uptrend channel redefined by recent weakness (lines have been modified accordingly). Chart showing solid action above 1920 resistance (12/04), followed by healthy pullback/consolidation action to same level, & rally towards prior high. Early strength faded quickly in last Friday's session, indicating price may dip slightly in next few days.

Gamblers went long (lightly) on solid strength above 2000. Increase positions on continuing strength above 2054 (prior high) & again over 2100. Stops basis dollar pain level, but no lower than 1dc below 1900. Take ½ profits at (or just below) 2220 resistance & re-buy on continuing strength above same. Use multiple trailing stops to protect profits, exiting only if/when stopped out.

Bears can sell closing weakness that pushes price below the lower boundary of the ST uptrend channel & key 1920 support. Increase positions on continuing weakness below 1830. Stops basis dollar pain level, but no higher than 1dc over 2020. Use multiple trailing stops to protect profits, exiting only if/when stopped out.

Exit positions at mkt if run-away conditions turn against you due to news events (ie, don't wait for confirmation via 1, or 2dc). As with ALL positions, use trailing stops to lock in some ST profits, & take full profits if/when target levels are reached.

Traders are advised to use e-mini Nasdaq contacts for incremental trading, in/out in stages. 1 e-mini contract = $20/pt, compared with $100/pt for the full contract.

Market Sentiment

Investors Intelligence shows number of bulls at 49.0%, edging up from 48.4% of 2 weeks ago, & 46.0% of 3 weeks ago. Bears at 27.5%.

Market Vane Bullish Consensus at 54%, up a notch from 53% of 3 weeks ago.

The American Association of Investors Intelligence (AAII) bulls at 51.1%, down from 57.7% of 2 weeks ago, but still above 52.5% of 3 weeks ago.

Bearishly investor surveys have been at extremes for many weeks, even though the S&P has failed to make a new high since Dec 5th. AAII now at least 51% bulls for the 6th consecutive week, & Consensus at least 50% bulls for the 8th consecutive week. Investor's intelligence now at less than 30% bears for the 7th consecutive week.

5 Best performing industries & percentage change for last 3-months:

Semiconductors (52.07%)
Consumer Electronics (39.70%)
Computers (37.17%)
Technology (37.03%)
Home Construction (36.22%)

Best 3 month Performer: Semiconductors (SEM)
Last: 1,706.29
Percent Change: 0.37%

5 Worst performing industries & percentage change for last 3-months:

Gas Utilities (-59.94%)
Precious Metals (-11.65%)
Utilities (-8.78%)
Pipelines (-8.39%)
Retailers, Drug-Based (-8.18%)

10-Year T-Note

10-Year T-Note March futures Cx - line on close:

10-Year T-Notes remain in MT downtrend, but negative ST momentum has slowed. Key levels to watch for indication of ST direction are break above 105^14, or below 103^20.

Bond trading marked by several key factors in 2001: US surplus regressed into deficit, US treasury dept decision to halt sales in the 30-year bond, & yield curve increased to levels last seen in 1990's.

"During 2002 investors could pay increasing attention to investments in Treasuries. Last year & the year before, people thought benchmarks were going away, but with the return of the deficit - & obviously war - the Treasury is looking at increasing issuance & reducing buybacks. Meanwhile, stocks have become less attractive & memories of double-digit growth are fading" said Jim Caron, fixed income strategist at Merrill Lynch.

Trader's also report the US Treasury mkt is still being affected by a steady supply of corporate bonds, which now includes a 1bn deal from Lehman Brothers.

Economically sensitive commodities.

CRB Commodity Index daily - line on close:

Economically sensitive commodities continue their base building action, despite recent weakness. The CRB commodities index remains firmly within its ST up trend channel, after finding ST support at 190. A tentative breakout above the top boundary of its MT down trend channel is now under way. If sustained action above this level is seen, a run towards overhead resistance at 200 is probable. However, for the moment we are looking at ST strength in a MT downtrend, & a lot more upside action is needed to confirm an eventual commodity & economic rebound.

Copper March futures Cx- line on close:

Copper was looking promising with the formation of a possible bullish, inverted head & shoulders pattern - but recent weakness is now testing technical limits. In textbook inverted head & shoulders patterns, underlying strength normally leads to the formation of a smaller right shoulder, & price will rarely fall below the low of the left shoulder.

As the chart shows, both these rules have been violated so we are either dealing with a false breakdown (due to mass profit taking after the sharp run-up in November), or we are heading for a re-test of prior lows. The chart will soon reveal its secret, but price needs to quickly rally & hold above key 68.00 if upside strength is to resume. Copper is a key economic indicator.

Stock Markets -- the bottom line

On basis of 200-day moving average, US stock market are neutral to bullish.

The Nasdaq Composite, Russell 2000, & Value Line have now moved firmly above their respective 200-day moving averages (MA's), whilst the DJIA, Nasdaq 100, NYSE, S&P 500, & Wilshire 5000 Index have closed just on (just above/below) their respective 200-day MA's. General action still within technical limits of classic "secondary reaction" rallies seen in major bear mkts.

Globally, as of Dec. 14 the following indexes are neutral to bullish, having closed above their respective 200-day moving averages:

Australia's All Ords
Brazil Bovespa
Canada's Toronto 300
Finland's Helsinki General
Malaysia's KLSE Composite
New Zealand's Cap 40
Singapore's Straits Times
Sweden's Stockholm General
Thailand's SET

And, the following indexes are neutral/bearish (as in MT downtrends), having closed just above/below their respective 200-day moving averages:

Belgium's BEL 20
Germany's DAX
Greece's General Share
London's FTSE 100
Norway's Total Share
Spain's Madrid General

And, the following indexes are bearish, having closed below their respective 200-day moving averages:

France's CAC 40
Hong Kong's Hang Seng
Italy's MIBtel
Japan's Nikkei 225
Netherlands's AEX
Switzerland's SMI

Of the 22 stock markets above, 9 are neutral to bullish (but remain against major bear trend), 7 are neutral to bearish, & 6 are bearish, using their 200-day moving averages as key criteria.

As mentioned previously, a purely mechanical approach has reduced value in today's mkts, as nearly all indexes are at key testing points in a narrow range above/below their respective 200-day MA's. Clearer indications will come if/when 200-day MA's are clearly breached to the upside, or if/when sustained downside action renews.

Gold

The February gold contract closed Friday Jan. 4 at 279.20 ie, up 2.40 on the week.

The Commitment of Traders Report shows gold commercial hedgers added 5,698 longs, bringing total longs to 46,856, whilst shorts added 2,47 contracts, bringing total shorts to 58,832.

N.Y. gold weekly chart - line on close:

ST uptrend remains intact, as does the near 2-year rounding base pattern.
Timid upturn in weekly Stochastics after skimming the oversold zone level, increasing likelihood of continuing/increasing upside momentum.

N.Y gold daily February futures Cx - line on close:

The gold price received unexpected support during the holiday period from the purchase of up to 30 tonnes coming out of Japan. This following govt plans to end Japan's current unlimited bank deposit protection (smell a rat?) in April, which will be replaced with state backed insurance on only the first 10m yen (approx $80,000).

Dealers said Japanese individuals seemed to be buying gold & dollars to shield their wealth from a weak yen & the countries troubled banking sector. Japan is letting the yen devaluate to stimulate the economy, which is back in deep recession, & stave off prolonged deflation.

Reuters reports the takeover of Australia's Normandy Mining by Newmont Mining after a vicious, 4-month price war, now looks inevitable as the last sweetened offer by Normandy seems to have knocked So. Africa's Anglogold Ltd out of the running. However there may be no quick unwinding of Normandy's 8 million ounce hedge book after Newmont closes the deal, which also involves a bid for Canadian royalty company Franco-Nevada, to create the world's largest gold producer.

Chad Williams, mining equity analysts at TD Securities in Toronto says, "Normandy's hedge book is very large & for that reason, given the poor overall liquidity of the gold mkt relative to other mkts globally, it's going to take time. We think investors should be patient with Franco-Newmont's actions regarding the Normandy hedge book".

N.Y gold daily February futures Cx:

Upside resistance 282-283, 290, 295.
Downside support: 278, 274, 268.50.

Trader's Guidelines:

Extended pullback to neckline of the 3-month head & shoulders top pattern continues to indicate underlying strength (rather than weakness normally associated with this pattern). Possibility of counter move increasing. As discussed in last FullMU, when charts break in opposite direction to original patterns, substantial moves normally follow. Next technical indication of continuing strength will come on solid upside breakout from mini symmetrical triangle pattern (see bar chart).

Traders are long at 278 & higher. Increase positions lightly on upside breakout from symmetrical triangle, & then more aggressively over 282-283 mini resistance zone, & again over 286. Use mkt orders as run-away conditions may develop. Take partial profits between 290-295 & use trailing stops on remainder (exiting only if/when stopped out). Stops basis dollar pain level, but no lower than 2dc under 274. Lighten up on solid breakdown from mini symmetrical triangle pattern.

Temporary sidelines recommended for bears.

Buy gold mining shares for extra leverage. Non-traders continue to hold/increase exposure to gold stocks. No stops.

Note: If you want to HELP the gold price you should buy actual bullion, not only paper.

Silver

March silver contract closed Friday Jan. 4 at 4.65 ie, up 0.152 on the week.

***NY silver continued to strengthen last week, due to thin year end trading (most euro banks were closed to business last Monday & futures business on Tokyo's TOCOM was closed through last Thursday), & confusion after the London Bullion Market Association (LMBA) retracted a measure that many hoped would ease logistical problems in the acutely tight physical mkts. The original LMBA press release extended the period of physical delivery of silver between clearing members to 15 days from 5. However, the LMBA later confirmed it had mistakenly sent an attachment to Reuters, saying "it was a draft press release issued concerning the silver mkt in 1998". Someone obviously pressed the wrong button!

1-month silver lease rates remain at extreme highs by historical standards, shown at 17-18 % Friday, up from 13% on Wednesday. The recent inversion of forwards from contango to backwardation (where spot prices are higher than forwards) has encouraged silver holders in New York to ship metal to London to capture premiums available. The silver mkt hasn't witnessed a squeeze like this since 1997-1998, when Warren Buffet purchased 130 million ounces.

***Silver as money is proposed for Mexico's economic liberation!

The Mexican industrialist and patriot Hugo Salinas Price, got onto national television in Mexico a couple of weeks ago for an interview advocating the remonetarization of silver in that country.

With silver, Price has found a method of economic liberation uniquely suited to Latin America. He makes a compelling case amid the catastrophe under way in Argentina.

You can read a transcript of his interview here:
http://www.plata.com.mx/plata/comNOT21a.htm

March silver futures Cx:

Trader's Guidelines:

All traders are holding healthy ST profits after going long at 4.33 &
higher :-)) Partial profits were taken at 4.56 as recommended & trailing stops are protecting remaining positions.

As per comments in last FullMU moves like this continue to soar, or fail almost immediately, so aggressive trading is required (with close stops). Luckily, our stop at 4.28 wasn't nicked on weakness seen 12/19-20, which saw price fall as low as 4.30.

Abnormal pressures continue to drive this mkt, but price is now facing key overhead resistance at 4.70. Depending on exposure, traders are advised to take partial profits on run to 4.70 (or higher), &/or raise trailing stops on remaining positions to just below last Thursday/Fridays low of 4.52.

Temporary sidelines recommended for bears.

Silver Standard daily - line on close

Traders unfamiliar with futures mkts are also holding healthy profits in Silver Standard after going long at 3.60 & higher. Again, depending on individual exposure we advise taking profits on continuing strength, as the probabilities for consolidation action are increasing. Hold stops on remaining positions at 2.80 for positioning in longer-term trades. Stops will be raised if/when we see a new support level develop within the ST uptrend channel.

Euro vs. US$

Euro weekly cash chart

Double bottom scenario still valid, although upside momentum slowed by recent weakness. MACDMA action (vertical lines on indicator) also implying upside action will continue, but confirmation will come via an upside cross of the exponential lines.

The March euro futures contract closed Friday Jan. 4 at .8930 ie, up .0120 for the week.

Daily March euro futures contract - line on close.

Upside resistance: between .9010, 9140, .9260.
Downside support: between .8920-.8860, .8800, .8750.

Trader's Guidelines:

Traders were stopped out via trailing stops after going long on continuing strength above .9000. Apologies. Although we were trading the sharp reversal of the prior head & shoulders top as a special case move (ie, aggressively with close stops) it seems we may have underestimated the year-end effect & worries linked to the introduction of the new euro currency. Thankfully we have been luckier with trades in gold & silver!

The directionless mess now playing out on the euro chart resembles the yen chart before it finally broke down into a major move. Few traders (including ourselves) were correctly positioned/looking in the right direction when the yen finally made its move, having been whipsawed many times due to choppy trading. So, although we don't want to make the same mistake with the euro, we prefer moving to sidelines until we get better technical confirmation of ST direction.

Having formed a possible head & shoulders top followed by the same pattern in inverted fashion, price has now developed a clear trading range between .9010 & .8750 (see chart).

The above range has been tested 3 times to the upside & twice on the downside. The sharp pullback after recent weakness is again tilting odds towards further upside action. If .9010 resistance is clearly breached on a 4th attempt, we expect it to lead to an aggressive upside move. However, if price fails to breach this level, volatile, drawn-out downside action may follow due to heavy intermediate support found within the .9010-.8750 range.

Traders can buy aggressively on sustained/closing action over .9010, increasing positions on continuing strength over 9140, & again over .9260. Stops basis dollar pain levels, but no lower than 1dc under .8880. Use multiple trailing stops to protect positions, exiting only if/when stopped out.

Sidelines temporary recommended for bears. But a break to .8700 wuold justify shorts.

New Recommendations

Clark/Bardes Hldgs (Nsadaq: CLKB); buy between 25.00 & 22.00; stop: 20.50.

For those still looking for a good gold mining stk to buy:
Harmony (Nasdaq: HGMCY); buy between 6.60 & 6.00; stop: 5.50.
Gamblers like Uncle Harry buy between 6.90 & 6.60.

Numerical Technologie (Nasdaq: NMTC); buy between 35.00 & 32.50; stop: 29.00.

Regis Corp Minn (Nasdaq: RGIS); buy between 24.00 & 22.00; stop: 20.25. Uncle Harry gamblers buy on breakout between 26.50 & 27.00.

Tractor Supply (Nasdaq: TSCO); buy between 33.00 & 31.00; stop: 28.00.

Stop Recommendations

Alberto Culver: raise stop to 40.50.
Arrow Corp: raise stops to sell ½ at 26.50; ½ at 25.00.
Central Euro Dist: take partial profits.
Newport News: raise stop to 65.00.

*** You may have a fresh start any moment you choose, for this thing we call 'failure' is not the falling down, but the staying down.

-Mary Pickford

***Those proud of keeping an orderly desk never know the thrill of finding something they though they had irretrievably lost!

Printer Friendly Format