Freedom - Means Little Without Financial Independence
Rai Chowdhary, MS, CQE, CQM, Six Sigma Black Belt, Business Coach

I will be posting my thoughts and observations here often, starting 3/25/04.  Any decisions you make will be at your own risk - no warranties or guarantees of any kind are offered in any way, shape, or form.  You are fully responsible for any any gains or losses (financial, or any other) you may incur. 

3/25/04

• Market shows a dramatic turn around after weeks of lousy performance.  Perhaps a small correction was due after the run up over the last 6 to 9 mos. of "good" behavior. While the volume was not super high, the advance decline ratio (7:2) said a lot.  Key will be to see if this is sustainable.  Good sign is that the punch thru on the down side below the 200 day ma did not happen.  To some of you I had expressed my view of the MOM being     and I still believe it is    

4/9/04

• The recovery seems to be taking hold, all major indices are moving up, and have cleared their 50 DMAs.  War worries loom, and that may temper some of the advances we will see.  The drops have come on somewhat insignificant volume, and the leading stocks have not broken down.  The indicators have started turning green however, therefore MOM seems       to    

4/18/04

• While the market is taking a wait and see approach, the underlying current for an upswing remains in tact...as evidenced by recent news
  from Dell, and other tech companies.  In addition to war worries, the price of oil is becoming somewhat of a factor; however corporate America should report another good quarter of earnings.  MOM is unchanged       to    

5/3/04

• The weeks gone by brought some profound changes to my life as a person.  My mother passed away on 4/21, and I have been in the process of dealing with this immense loss.  However, move on we must - no one has yet come to his world with a one way ticket to stay here forever.  
  
  Anyway, what a see saw the market has been on.  Just goes to show that it is not for the weak of heart.  Earnings season has brought good news, and the same is beginning to show on the jobs front also.  However, the emotional roller coaster the market is on seems to play a bigger part in the moves than the fundamentals.  Some of you have written to me suggesting that I break apart the consolidated indicator MOM into some component parts so you can have better visibility on the causes for markets moves, and also improve your chances of being on the right side of the moves.  While there is no such thing as perfect timing,, you do want to be right more often than wrong.  As such, I will be posting MOM in four dimensions.  1st. will be the fundamentals - this comprises of the earnings companies are reporting and likely to report, 2nd. comprises the Fed's position and likely actions, the 3rd. will be the sentimental part, which will include influences of current events, and lastly the Technical - based on chart patterns  The Sentiment is somewhat sour due to the continuing barrage of negative news from Iraq compounded by the penchant for the media to under report anything positive.  Technical Indicator has deteriorated significantly owing to the punch thru on the down side of the 200  50 DMA, and to make matters worse, volume has been high as well.   
  MOM Status          Fundamentals              FED              Sentiment              Technical    

5/17/04

• Boy what a difference the sentiment makes...since 5/3, the barrage of negativity has continued un abated.  China tapping its brakes on the run away growth, Iraq in quagmire, Oil at searing prices, Fed's rumblings about interest rates, and now India - the rout of the ruling government.  Seems like there is nothing positive going on in this world - the positive news on jobs and the economy is drowned out completely, and too bad, the goodwill built in Iraq from the constructive work being done is being lost completely.  So, what should ordinary folks like you and me do during these times? Hard as it may be, stay on the sidelines (those willing to be bold, read the last paragraph)!!!  It pays to be in cash every now and then.  
  
  Is there a silver lining?  Well right now the cloud cover is large therefore the silver lining is somewhat out of reach.  But I do believe the time is coming when we would need to back up the truck and load up all you can.  Meanwhile, if you learned how to make money with the market going downhill you are indeed having fun.  I for one sold a lot of covered calls since my last update, and most of them will expire this Friday, worthless leaving me with the stocks in tact, and the cash they generated. 
  
  For those of you who are willing to venture out in the near term, here is some good news.  Historically when the Dow has corrected ~5% from its high for the month, it tends to reverse and gain 300 to 400 points with in 4 weeks.  The accuracy of such behavior is about 90% - which means that such a run up could occur soon.   
  MOM Status          Fundamentals              FED              Sentiment              Technical    

5/29/04

• Relief from the below $40 / barrel Oil prices, some positives from the economy, and a little less negativity in Iraq seem to have given enough fuel to the market to reverse.  As is stands today, it has moved up 300 points already. Good news is that S&P, and the Nasdaq crossed above their 50 DMAs; the DJIA is still flirting just below the 50 DMA, if it crosses over and they all can sustain those levels, it will be a very strong positive sign.  
  When they started declining (see earlier notes from May 3rd.) if they had crossed the 200 DMAs during their descent, things would have become a lot worse.  
  
  The technical indicators therefore are adjusted to reflect the above changes, and we should see some improvement going forward.  Another major influencing factor shaping up towards the end of June is how the handover of Iraq will proceed.  More importantly how it will be perceived; while the attempts to derail such transitions continue on a daily basis.  The administration is trying to create certainty and sticking to its plans - that is definitely a positive sign as well since markets in general have little appetite  for ambiguity. 
  MOM Status          Fundamentals              FED              Sentiment              Technical    

6/4/04

• The indices are behaving well with regard to their performance near the 200 and 50 DMAs; the price volume action while not bubbling with optimism, is not negative either.  Greenspan hopefully has paid his dues in terms of learning the consequences of his words (remember "Irrational Exuberance") and actions, and going forward will tighten rates very very carefully.  The Oil prices should be coming down nicely over the next few months - however the wild card is how much the terrorist threat can disrupt the flow of this precious commodity. As far as the Fed actions are concerned, the market could easily digest 25 basis points, may burp at 50, but no more than that this week.  The opportunity for upward move is very much present at this time. 
  MOM Status          Fundamentals              FED ?          Sentiment              Technical    

7/28/04

• I was away for quite some time in India taking care of family related matters, and was not able to keep up with the market on a regular basis.  On my return, and after getting caught up, I am seeing this bad boy is throwing temper tantrums (or should I call it the slumber of warm summer afternoons).  General conditions are not too favorable either with the election year in the US, ongoing threats from terrorists, and other global events that cast a pall of gloom and doom, leading to very sentimental buy / sell decisions.   Having said that, the fundamentals of the market are quite good nevertheless.   Employment situation is improving, earnings are coming in quite nicely from most companies that have reported so far, interest rates are low, and Greenspan seems to have realized that he should take small measured steps in adjusting interest rates.  In aggregate, we may be setting the stage quite well for the next run up.  The fact that the averages / indices have slipped below the 200 DMA is disturbing however.  Close watch is needed to see if this really is an artifact of low summer-time trading activity, or there is more to it. Only market behavior over the next few months will tell, and that is where the accumulation / distribution becomes an important parameter to watch, together with Price Volume Action.  Meanwhile, covered calls are a good way to dip in and generate some cash - that is provided you want to hold on to those stocks. The skill lies in identifying a strike price that has a low probability of the stock being called away. 
  
  This is also a good time to start identifying healthy stocks where you want to position your future investments, and start aggressively investing as conditions improve.  This improvement will manifest itself in the form of repeated higher prices on higher volume, and a punch through on the upside through the 50 and 200 DMA levels.  Down days should show lower volume as an added indicator. 
  
  MOM Status          Fundamentals              FED            Sentiment              Technical    

8/31/04

• As evidenced today there was a punch thru to the upside (although small); the 50DMA was breached, volume was good but not as good as we would like to see it.  It seems the market is meandering its way back, and is set to test its 200 DMA pretty soon.  How this critical line gets crossed will tell a lot about what to expect in the next few months.  Unfortunately, the Fed seems poised to raise interest rates rather than leave things alone for the market to take care of itself.  Is this an empty threat or something real - only time will tell.  Election, terrorism, and oil have taken its toll in the past one-month or so.  Strangely enough the shock and awe from the cowardly acts of terrorists have begun to wane - despite the gruesome acts against 12 Nepalese as reported today.  The world is getting used to hearing such news (that does not mean this is acceptable by any stretch of imagination) and the reaction accordingly is beginning to become muted. 

MOM Status          Fundamentals              FED            Sentiment              Technical    

10/01/04

• Since the last posting, there was a downward draft after the broaching of the 50, and 200 DMAs.  This was somewhat unnerving, however, despite the recent spate of news and events (not all favorable to the market - The Presidential Debate, continuing hostage taking, increased violence in Iraq, the crash of Merck because of Vioxx pullout, raising of interest rates by our Dear Greenspan, strong showing of activity levels across the country, oil prices punching upwards of $50, etc.)  the market provided ample proof that it is waking up from the sultry days of summer, and that September was behind it as well.  For those of you who have attended our workshops before, there are important turning points you should be noticing now.  Using the Relative Performance methods to identify likely winners is an easy way to come out far ahead of the ho hum performance of the indices.  However, the indices provide a great clue to when to get active.  Good luck... on the road ahead.  

MOM Status          Fundamentals              FED            Sentiment              Technical    

1/30/05

• The good luck turned out to be a 100 point dash by the S and P Index between 10/1 and 12/31.  The market seemed to take everything in its stride, but some distress signals started showing up towards early Jan. in the form of drops in higher volume.  Whenever this happens your guard should be up.  The grind took the S and P 500 below it's 10 DMA on high volume, then the flirtation with 50 DMA set in on significant volume as well.  As we stand today - the 200 DMA has not been broached but the index is close to it, just ~3% above at the close on 1/28.  What is the reason for the decline?  Well this time "they" are waiting to see what will happen in Iraq.  Contrary to popular belief, elections seem to have gone rather well - so now the market should feel free to run again.  There has been a mix of positive news and not so positive news with the economy - but world events are beginning to look up. 
  
  One fly in the ointment is our uncle Greenspan - he is set to speak next week.  His consistent rate increases have put on the brakes to some extent already - hope he realizes it is better to leave things un touched, rather than keep tinkering.  I am tempted to leave the technicals green, however until a punch thru on the upside above the 50 DMA occurs, that would not be a good idea.  If the S and P crosses above 1189 fairly soon on high volume I would be more inclined to do so.  That has to be confirmed with similar behavior by the other indices as well - DJIA, and NDQ. 

MOM Status          Fundamentals              FED            Sentiment              Technical    

12/26/05

• Well how fast does time fly...almost a year passed since my last update.  Let us take stock - DJIA closed at ~10716 on 1/31, and it stands at 10883 as of now; S&P did better 1203 vs 1268, and Nasdaq even better, 2086 to 2249.  More importantly - what will 2006 bring?  To get some idea we will need to look at how the economy has withstood the events of 2005.  Through hurricanes, consistent rate hikes, and high oil prices - it has shown remarkable resilience, and chugged along.  Can it continue like this?  Well that depends on how aggressively the Fed makes it's moves, the impact of India and China on the global economy, to some extent on what happens in Iraq, and oil for sure.  Barring any serious events, there should be a steady upward move. The indices are sitting above the 50 and 200 DMAs, however are not too far extended.  

There are some good opportunities to tap in India and China - those of you who have stayed in touch with me, I mentioned some of these to you.  Since that time, Tata Motors (TTM) has moved upward by 20%, and SIFY by ~50% (just 2 of the more than 8 I had pointed out).  There is more good to come because when economies start picking up steam, they continue to boom for multiple years, and India started only recently. On the home front (US), we can expect good news to continue for Boeing (BA), and it's key suppliers, besides other arms manufacturers due to accelerating arms sales overseas by US companies. 

MOM Status          Fundamentals              FED            Sentiment              Technical    

5/6/06

• It feels soo good!!  The market has gone up significantly - DJIA stands at 11577!  This is about 850 points higher from the previous writing.  The market has trudged along despite the prolonging of the Iraq war situation, and the high oil prices.  The fed also tightened in the meanwhile.  Regardless of the reasons - the market is sitting at a precariously high point above the moving averages.  Some correction is inevitable - as such it may not be a bad idea to go for covered calls or even taking some profits. Clouds on the horizon include - high price of oil, instability in the Middle East, and other internal squabbles the US tends to get into. 

The opportunities to tap in India and China - are still there; I am studying RDY closely for buy points in addition to all the stocks mentioned previously.  RDY is a generic drug manufacturer from India and is doing quite well. 

MOM Status          Fundamentals              FED            Sentiment              Technical    

5/13/06

• Thanks to the Fed; their wisdom is working to derail the market.  The reason to raise rates is unfounded at this juncture; hopefully they will see the folly in their decisions early enough.  
  The market has scaled new heights - and was stretched far above the typical MAs, all my indicators were flashing a sell sign so I made some defensive moves in the interim via covered calls, and some puts.  How low can it go?  Well, I have not seen the future, but the analysis methods I taught you (if you attended my charting classes) indicates a reversal in DIA should occur around 112.50.   If it pushes thru that point on the low side on high volume, the next point to watch will be the 200 DMA, which stands at 107 as of today.  Only time will tell... 
  
  Fundamentals are not that bad; meanwhile - drops in prices of stocks from India / China are buying opptys. ro pick up some on the next reversal. 

MOM Status          Fundamentals              FED           Sentiment             Technical    

7/14/06

• Recent events have served to take the market down to levels I had suggested during mid May; thanks to the Fed; oil prices, and the Middle East conflict, we got there somewhat quicker.  The Fundamentals are likely to head south under such circumstances. Meanwhile - due to the sharp correction, there is some room for a short bounce back.  I say short because consumer buying is beginning to slow; if this trend continues - it is likely to produce a more severe correction down the road unless the Fed eases the pressure, and oil stages a pull back from the high prices we are seeing at the pump.  The middle east conflict is most likely a passing phase. 
  
  Since my technically are flashing a buy - and I don't see this conflict spreading all across Asia, I will be buying some of the indices and strong companies for short term trading. 

MOM Status          Fundamentals              FED           Sentiment             Technical    

10/14/06

• While the market did test it's lows - DIA - around 107 - that was awfully close to my prediction.  This is exhilarating and unnerving at the same time. Exhilarating because I was right, and unnerving as well for the same reason - it was so accurate. Just few days after my previous posting the market dropped to ~107 and my technical indicators started flashing a moderate buy.  I did not increase my positions in any way at that time however due to concerns lingering about Feds position and the price of oil.  
  
  That was 3 mos. ago.  Let us see what is going on now, and where we are headed.  The Fed has wizened up, oil has dropped nicely, the weather forecasters have indicated a mild winter, and the politicians are busy fighting among themselves.  So, from those angles we are clear.  Danger still lurks - Iran's actions, North Korea's disregard for the world community's concerns about them going nuclear, and the continuing war in Iraq.  Anyone of them can ignite a powder keg - however, the market has ignored these; it continues to march up scaling new heights.  It feels like a rubber band - that is giving back some of its wound up energy.  Recently I have moved back into the market; and I did not catch the exact bottom to get back in (I don't aim to do that either - since it is only in hindsight that one can be clear about tops and bottoms).  The market is not done running up yet; although it has covered significant ground from it's bottom with DIA moving from 107 to above 119 today. The technical indicators are flashing a "Sell" for now since it is stretched too far above the 10, 50, and 200 DMA.  I have turned the technical indicator to red - but think this will be quite temporary - since the market does want to run higher.  Also - it is end of the year; portfolio readjustments will take place, and many of the sleeping giants are beginning to wake up - Oracle, Microsoft, CSCO, to name a few. The Indian companies have done well, so has Boeing. This widening of the rally is the reason that the market will not slow down easily. Meanwhile watch out for a short correction in the near term. 

MOM Status          Fundamentals              FED           Sentiment             Technical