Forum Archive Index - January 2003

["Gordon Hossack" <hossack@xtra.co.nz>]

Hello there, just wondered if Dr Elder's overview[from an American perspective]  would be of interest to readers.   Chartists will know him as a technical analyst and author of books on the subject.   Gordon

----- Original Message -----

From: Financial Trading Seminars, Inc.

To: Elder Books and Trades

Sent: Wednesday, January 01, 2003 6:45 AM

Subject: Elder.com Books & Trades #85 - Happy New Year

Books & Trades #85

December 31, 2002

From Dr. Alexander Elder
www.elder.com

We gladly add names or remove them from this list - just email us

Current Markets - The US Dollar - Happy New Year


Dear Trader,

In reviewing the markets this past weekend, scanning indices and stock groups, I was struck by how hard it was to analyze the current state of the market.  It had the appearance of an epochal struggle of bulls and bears, whose outcome was far from certain.

On the bearish side, we have the positions of the major indices, especially the Dow, on the monthly charts.  Their trends are down, with little or no signs of accumulation that would indicate a bottom.  Also on the bearish side is the continuing breakdown of the international indices and the resumption of the downtrends on the weekly charts of most stock industry groups in the US.

On the bullish side, we have very nice accumulation patterns, many with bullish MACD divergences, during the October bottom.  Two months is too short for a rally following such divergences - we can expect more strength.  Also, the current decline appears to be tracing an inverted head-and-shoulder pattern (a bullish sign mentioned in one of the letters below).

And then we have a wild card  the war on Iraq.  Leaks from Washington point to February as the timeframe, after the Jan 27 UN deadline runs out.  The US military is second to none, but all sorts of bad complications can arise in an operation against a brutal ruler who is fighting for his physical survival.  This wild card is the reason why the markets are acting so undecided.

The bearish scenario is a break below 2002 lows, followed by a waterfall decline and a panic liquidation.  The bullish scenario is an upside explosion from the current reverse H&S pattern and the double bottom of 2002.

One can almost toss a coin to predict the outcome, but all I can say with utter conviction is that never has money management been more important than today.  You must put stops on open positions and be prepared to go heavily short if and when the 2002 lows are challenged.

GOLD  the group continues strong, and with the Fed pumping liquidity into the system to counter deflation some very savvy money is expecting inflation and seeking a safe heaven in gold.  In reviewing gold stocks, I like these best - ASL, AU, CBJ, GG, MDG, MNG, RANGY, and RGLD.  Take a look at them and make your own decisions.

And then there is another key question  how to protect our liquid assets from the continuing severe bear market in the US dollar.  Please read these letters from several readers and feel free to send your thoughts and opinions to me  we will continue this discussion in the next letter.


THE US DOLLAR DILEMMA

Daniel W. writes from Arizona:

     “Dr. Elder,
I have noticed the dollar's weakness for several months now. One strategy I've been using with my clients (I'm a financial advisor) is to diversify their bond holdings to foreign government bond funds.  Additionally, I've been toying with this idea: If the dollar continues to fall (along with bonds starting a bear market) that's a double hit to foreign investors of our government debt (who own around 46%). If foreign investors start to dump our government debt, then shorting the US government bonds will become a great play.  There is a Profunds fund that follows the 150% inverse of the 30yr bond.”

     * * * * *

Charlie H. writes from New Jersey:

     “A nice proxy for leveraged shorting of the S&P 500 (even within an IRA) is the Rydex Tempest Fund (RYTPX). The Rydex funds provide several leveraged funds (using futures and options) that perform proportionally or inversely proportionally to the market.
     The dollar's increasing decline supports the idea that more bearishness lies ahead.  It is approaching the levels of July's sell-off. Also, when everyone, including the Worden Brothers, becomes bullish, it's time to get suspicious. People seem to have gotten used to the eight-week rally.  Everyone wants a Christmas rally.
     Look at the head-and-shoulders formation in the weekly SPX or OEX.  Pretty hard to miss.  The only concern I have is that the MACD and Stochastic support for the October rally was much stronger than the July rally.  So, I'm not sure how weak this rally is.  Signals are mixed.  Best to switch to short-term strategies for now.  I just don't know if the market is going to resume it's bearish behavior based on lots of conflicting indicators.”

     * * * * *
John A. writes from Texas:

     “As for a place to park money outside of dollar-denominated instruments, one option is to move money to a broker like Interactive Broker (www.interactivebrokers.com) where you can switch your dollars for another currency and back (for those liking short-term trades).  With them you can also trade in multiple countries' equity markets.  Another option is a bank like EverBank (www.everbank.com), which offers CDs in alternate currencies. Both of these options offer quick trading possibilities (e.g., via the Internet). Of course, you already mentioned gold as an alternative to the dollar.  I would love to hear what your other readers have to say about the matter.”

     * * * * *

David from upstate New York writes 

     “I have been researching ways to hedge the currency risk of the US dollar for the past few months and would offer the following suggestions.  The Prudent Safe Harbor Fund (PSAFX) seeks current income and capital appreciation. The fund invests in liquid securities issued by major industrialized nations and other countries with sound economic and financial systems. The fund attempts to capitalize on currency fluctuations by investing in securities issued by governments whose currency is believed to appreciate in relative value. It also invests in equity securities of companies that mine gold and gold bullion.  This fund can be held in IRA accounts.

The next option is to open or transfer some or all of your funds to www.evertrade.com. This online and phone access brokerage house will purchase and allow you to hold any number of foreign currencies inside a traditional or IRA account.  Lastly, for non-IRA accounts you can open a Swiss bank account with www.swissnetbank.com for $30. Once established, you can wire funds in and out and convert your holdings online into Swiss Francs, Euros or US Dollars. Pretty neat...  I am also of the belief that a percentage of one's holdings should, at this time in American history, be in physical gold and gold stocks. A devaluation of the US dollar should be quite favorable for gold.”

     * * * * *

Finally, Suzanne from New York City sent the following link to a very informative Forbes article - www.forbes.com/forbes/2002/0812/110.html - check it out and form your opinion.

I appreciate all of the above letters very much and look forward to continuing this discussion about protecting our liquid assets from the slide in the US Dollar - AE.


HOLIDAY SPIRIT

In the previous letter I apologized for not sending Christmas cards and explained that instead of sending cards I sent money to a trusted old friend in Moscow who is like a one-woman social work agency.  Now I will have to send her more money, as you can see from the messages below:
 
This came from Colin in Sydney, Australia - “It is Christmas Eve here and I am sending out what cards I now send in the form of emails.  Australia is a fortunate country, but we still have many people who do not seem to make it one way or the other.  So, I send a charity that helps those less fortunate than us - the only Christmas card I mail.  Inside it is a cheque that is what I used to spend on cards and a bit more depending on how well my year has gone.  I notice from your email bulletin that arrived today that you do the same.  The numbers that need help in Russia must be mind-boggling.  Would you please charge US$50 to my credit card and add it to the next amount you send to Russia?

And this email from Judith in Seattle, WA - “I would like to contribute $50 to feed a family for the month of January.  And I trust you to get it to the right people. Each day of January would feel so good knowing that a family was eating and I was helping.  Make it $60. Maybe they can have chocolate too.”

This was totally unexpected, and I thank you very much.  I will match your contributions and send twice what you gave to Veronika in Moscow to take care of the needy.  Incidentally, all proceeds from sales of used trading books on our website go to charity.  If you ever bought a used book from us and saw the name Veronika at the bottom of the invoice, it is there so that we can pull those invoices and figure out how much to send.  Have a happy New Year!


GIFTS FOR TRADER FRIENDS

If you missed giving someone a present during the holidays, now you can catch up by sending any book or books by Dr Elder as a gift with free shipping.  If you order a book or books to be shipped to a person with a different name at a different address, your shipping is free until January 15.  Use our shopping cart and attach a note referring to this offer or just send us an email.

Best wishes for the New Year!

Dr. Alexander Elder and staff
www.elder.com