Friday, May 9, 2008

Stock Market -- Position Overview

Our previous newsletter, dated April 11th, forecasted that the DOW, along with the other major stock indices had completed a three-month period of consolidation and were resuming the primary downtrend, with a projected DOW trading range for the month between 11,525 and 12,750. The actual result saw the DOW continue to remain within a consolidation mood, with an elevated trading range for the month between 12,270 and 13,010. The better-than-expected earnings reports, showing less losses than anticipated, supported the major stock indices during the month.

The US dollar, due to declining interest rates and less demand for the currency, was anticipated to resume its decline in value, with a trading range for the month between euro fx equivalent of $1.54 and $1.60. This projection proved to be very accurate, as the US dollar declined during the course of the month, producing an actual trading range between euro fx equivalent of $1.5478 and $1.5964.

We stated that the Federal Reserve's response of cutting rates -- the fed funds rate from 2.25% to 2.00% on April 30th -- will simply help create the next asset bubble in commodities and precious metals. We further stated that "there appears to be the case, as the Federal Reserve may eventually be successful in re-igniting growth within the US economy, but at what price to overall long-term growth, the rate of inflation, and global economic stability." The US treasuries reflected these concerns of inflations during the month, being pressured to decline in price and inversely causing yields to rise, producing an actual US 10-year Note yield range between 3.47% and 3.87%.