Most Important Chart
by Charles Meek
December 08/05
Dow Jones Industrial Average 10,912
Value Line Arithmetic Index 1,937
30-Year Treasury Index 4.73%
Gold 1/10 Ounce $50.17
The Big Picture for Stocks
The 4-year cycle is negative into 2006.
Technical Trendicator (1-4 month trend):
Stock Prices Down
Bond Prices Up
Gold Price Up
The Markets
Our model is proving accurate on bonds and gold, both being in positive
uptrends including the fairly new buy signal on bonds. Having missed this
rally in the stock market over the last few weeks, it is too late to chase
it now—except for various special situations. This bull market is
long in the tooth. As I listen to commentators tell why they like stocks,
what I think I am hearing is that the market should keep going up because
it has been going up. Not a good enough reason for me.
Some people are pointing out that p/e ratios are lower now. But my study of market cycles suggests that it is normal for p/e ratios to drop just before a bear market. The reason is that near the top of a business cycle, earnings take a big jump relative to share prices. But the astute investor anticipates the downward cycle in earnings that will likely follow.
Below is perhaps the most important chart one could consider about the current state of the stock market (from Ned Davis Research via Merrill Lynch). It shows where we are in the long term (“secular”) cycle. Note the previous three periods highlighted in bold. The chart indicates periods of some 15 or more years where the broad stock market makes no net progress. If history is a judge, we are in one of these periods again.
The chart shows a trendline in the Dow at 9.7% gain per annum. Note that
in each of the three past similar periods, the market eventually gets
below its trendline. So far, it has remained above it. It is highly likely
that history will repeat and there will be a much better buying opportunity
down the road.
I am personally about two-thirds in cash equivalents, waiting better buying opportunities down the road. Long positions include metals/mining shares and deeply undervalued special situations such as the one below. Right now we are looking for tax-bounce candidates as well. The average return of all closed positions from this Special Situations list remains in excess of 100% per annum.
Special Situations Update
CVF Technologies (CNVT, $.25) reported the sale of one of its portfolio
companies, Gemprint. They will get $3.5 million cash plus royalties from
the sale. The estimated net asset value of CNVT now looks to be around
$.90 per share. I think a small unknown closed-end investment company
ought to sell at least at 60 to 70% of NAV, which would put the stock
at $.54 to $.63. Accordingly, I am raising the target on the stock to
$.54. The company will now have cash to buy back some of its shares if
it chooses to do so, which should help give the company a boost.
Note: We are long CNVT in accounts we manage.
Charles Meek
MeekMarketModels.com
Mr. Meek is a Registered Investment Advisor. He is the editor of MeekMarketModels.com and manages Persimmon Capital Partners, L.P. a Texas hedge fund.
Meek Market Models, Inc. does not guarantee the accuracy
or completeness of this report, nor do we assume any liability for any
loss that may result from reliance by any person upon any such information
or opinions. Such information and opinions are subject to change without
notice and are for general information only. In making any investment
decision, you will rely on your own review and examination of the facts
and the records relating to such investments. Trading the market is extremely
risky. Our suggestions are often very speculative and not suitable for
many investors. Past results are not indicative of future returns. Meek
Market Models, Inc.
