June 26, 2009 -- Moving Day!

A little reminder that our offices are in the midst of transitioning from our downtown Milwaukee location to our new home in Delafield, WI (a suburb 20 miles west ).  After 31 long years in the First Financial Centre (renamed Associated Bank building), it is a bitter-sweet departure, but we are very excited about our next chapter.

Due to the move/disruption, phone service may be "out" on Friday, June 26, but you can reach us on our cell @ 262.617.3306.  Our new office phone number is 262.303.4850 and will be operable starting on Monday.  Our toll-free number remains unchanged @ 800.443.6544.

New Address: (see top right corner)

Thanks for your patience during our move!

June 24, 2009 -- Testing The Golden Cross

The stock market (as measured by the S&P 500 Index) is at a critical juncture in the intermediate-term.  [As a side note, the short-term direction of the stock market is for folly and the long-term direction is up.]  The 50-day moving average (899.36) has moved up through the still down sloping 200-day moving average (899.03) ... a developing positive.  But as of yesterday's close of 895.10, the price has dropped down below both moving averages.  It is important for the S&P 500 to bounce off of this 3-way intersection near 900 ... and thus far this morning, it is rallying back up to the 910 level.

Quote for Today

"As part of my research process, I connect with the management teams of 3 or 4 companies every week to try to gauge how business is tracking.  I have yet to find one that will tell me that the trends are getting better.  President Obama is correct to say that 'the American people have a right to feel like this is a tough time right now', because it is [a tough time].  The 32% move from the March 9th low has allowed consumers to be more optimistic than the facts alone would justify.  I feel much better now that the President has given me permission to feel like crap!" 

--- Howard Penney, Managing Director of ResearchEdge LLC

[It seems Big Brother is in charge of many things these days, to include emotions.  No doubt, we can look forward to a forthcoming tax on those as well.]

June 15, 2009 -- The Golden Cross

In recent issues of The Primary Trend, we have outlined the bullish signs that the market has been flashing (we would use the term "green shoots" if it wasn't so overused and nauseating).  These, of course, are technical positives which typically lead anything positive on the fundamental or news front:

1. "Break-Away Momentum", a rare buy signal, was triggered on March 23rd.
2. The positive divergence of the Advance/Decline Line -vs- the price action of the S&P 500 is another plus.  The A/D Line has powered well-ahead of earlier peaks and is actually trading at its 9/16/08 level.  The S&P 500 was at the 1200 zone in mid-September.  If it were to play "catch-up" to the A/D, it would jump +26% from current prices.
3. The Coppock Curve turned bullish as of 5/29/09.  In the past, we have referred to this long-term indicator as the "Trendex", and the Leuthold Group (Minneapolis, MN)refers to it as VLT (very long-term) Momentum, an integral input to their market analysis.  We will go into greater detail regarding this indicator in our July issue of TPT, but suffice to say, the Coppock Curve (named after the originator, Sedge Coppock) is a long-term momentum indicator utilizing 14- and 11-month stochastics, and its signals take time to develop (on the order of every 4 years or so).
4.  On 4/29/09, The Chartist's 90% Rule flashed a buy signal.  The Chartist (Dan Sullivan, editor, Seal Beach, CA) states that whenever 90% or more of the stocks on the NYSE trade above their respective 50-day moving average, a powerful buying thrust is in force that rarely takes a breather.  The last 90% thrust occurred on 6/4/03 --- exactly 6 years ago.
5. Lastly, pictured below is the S&P 500 along with its 50- and 200-day moving averages (dma).  Recently, a bullish technical formation known as The Golden Cross has surfaced.  This occurs when the price has busted up through both its 50-dma and its 200-dma.  The next bullish move will be for the price to stay above both, but then also for the 50-dma to break above the 200-dma AND then for the 200-dma to also turn up.  This will confirm a new cyclical bull market, with all 3 moving in tandem upward --- STAY TUNED!

As you can see, there are many indicators screaming BUY ... indicators that are long-term in nature and not commonplace.

The Primary Trend investor letter just turned 30 years old.  We thank our loyal subscribers, clients and shareholders in the Primary Trend Fund for making it a successful and long-lasting publication!

In honor, we have provided an excerpt from the headline page of the very first issue of The Primary Trend letter.  At the time, bearishness prevailed and the DJIA closed at 856.64 that week ... one-tenth the level of where it trades today.

We will be publishing TPT issue#494 next week ... again, thank you!

April 27, 1979 -- It's A Bull Market!

For investors the most important (and hence potentially most profitable) information they can possess is the direction of the primary trend of the market.  We have so named this publication to emphasize the importance we attach to the proper determination of the primary, major, or long-term market trend.

We believe:

1. The 1974 lows terminated a major bearish cycle dating from February 1966 on the DJIA.

2. The 1974 lows will not be approached, much less exceeded, in the foreseeable future.

3. The primary trend of the market is bullish, and has been since early 1978.

4. The overall market is cheap when measured by historical benchmarks of value.

5. That because of the foregoing, the popular averages will sell at substantially higher levels over the next several years. 

Potpourri excerpt from Issue #1 (called 'Nuggets & Nonsense' back then...funny how some things never change):

Jimmy Carter, please note:

"It is a socialist idea that making profits is a vice; I consider the real vice is making losses."

--- Winston Churchill 

April 16, 2009 -- Horton Hears a ... What?

D.R. Horton actually heard some bullish news yesterday when the National Association of Home Builders announced that sentiment in April rose to its highest level since last October.  This is nothing more than what Larry Kudlow of CNBC likes to refer to as a "mustard seed" --- something that can sow the seeds for future improvement.  DHI rose by +8.2% in Wednesday's market action ... even in the face of a Stifel Nicolaus brokerage initiation of the stock with a SELL rating.  Finally, stocks are ignoring bad news.  We are buyers of DHI common on dips below 10.  Technically, the stock is carving out a strong base from which to launch its next bullish move.  Both the 50- and 200-day moving averages are converging at the $9 level where we would add significantly to positions.  The $9 area also has floor support from an upward trendline connecting the lows of November, January and March.  Also, please see "Featured Chart" section for a Breadth Thrust update.
 

 April 15, 2009 -- The Tax Man Cometh

On a day like today, when root canal feels more pleasurable than the IRS shakedown, we would like to share with our shareholders and investors 2 timely and positive developments:

1)  Dan Sullivan of The Chartist has turned somewhat bullish as of yesterday's market close.  He is advising to get 50% invested.  While his investment m.o. differs from our value-oriented philosophy (he typically invests in momentum/high relative strength stocks), we hold him in high regard as an experienced investor.

2)  Investors Intelligence reported in today's issue:

"The bulls advanced to 43.2% ... the bears fell to 34.1% ... The bulls now outnumber the bears for the first time in 12 weeks.  Over the past year the bulls have outnumbered the bears for only 3 periods.  There were more bulls for 8 weeks in a row from 4/18/08 to 6/6/08, for one week at 8/15/08 and for 3 weeks from 1/2/09 to 1/16/09.  Each of those periods occurred near the peak of a bear market rally and they proved to be great times to sell.  WE SUSPECT WE MAY BE AT, OR NEAR, THE END OF THE BEAR MARKET so the markets and sentiment may react differently."  [all-caps emphasis by us]

April 14, 2009 -- BULLS 1, BEARS 0

One of the biggest allies to the current rally in the stock market has occurred without alot of fanfare:  the relaxation of mark-to-market accounting rules.  This is a boon for banks.

We've been hoping for some sanity to enter the realm of finance and it looks like FASB has finally succumbed to the pressures of reason.

As Matthew Philips of Newsweek recently reported:

"To most people, it's an arcane accounting rule.  But to bankers, it's the whole ballgame:  "mark-to-market" pricing is the practice of requiring banks to value their assets based on their current market value.  Not what banks paid for those assets yesterday.  Not for what they could get for them in, say, a year or two when the financial industry has settled down.  What they could get right now.  Which is basically bubkes.  Banks have been pleading for this requirement to be lifted since the credit crisis began, and last week they got their wish ... the FASB caved and voted to loosen the rule ... Banks can now use "significant judgment" to value assets."

This change in the financial landscape will do more to grease the skids of the national lending mechanism than cutting interest rates had tried to do (and failed) or TARP funds have yet to do.

This is not a panacea.  However, it lays the groundwork for 'normalcy' ... and more importantly, it eliminates the spectre of uncertainty that has shrouded the U.S. banking system and stock market since last September.

This has culminated in the best rally yet since the market peaked in October 2007 ... a rally of nearly 30% in the S&P 500 Index since the March 6 intraday lows.  As outlined in the most recent issue of The Primary Trend letter (published 4/9/09), we have taken some chips off of the table due to the "too far, too fast" bull move.  We sold Allstate (ALL), KB Home (KBH), and most recently, Citigroup (C) on its blistering short-covering surge. 

Feb. 13, 2009 -- Looking for Strength

In the current equity environment, it is extremely difficult to find leadership of any kind.  Stock market leadership, when it surfaces (healthcare is trying to take the baton), will also be a harbinger of a cyclical bull rally.

What is of great interest, however, is the chart below of Energy stocks and their relative performance vs. the price of crude oil.  The fact that energy stocks (top portion) are basing in the face of declining oil prices is good news.

According to Walter Deemer of Deemer Technical Research: "...the SPDRs stubborn failure to go down in the face of the relentless decline in the crude price since October could well be trying to tell us something."  What it's trying to tell us is that either energy stocks will go up on their own accord, or oil is about to climb which will propel those stocks higher as well.  Our favorites in this group are BP plc (BP), Schlumberger (SLB) and Valero Energy (VLO).

Feb. 10, 2009 -- FUD ~ Part 2 

New Treasury Secretary Tim Geithner came to the podium today and did absolutely nothing to squelch the uncertainty that exists in the financial markets.  Details of the new "Banking Fix" were non-existent and the stock market is in the midst of selling off on this lack of clarity from the new Administration.  The DJIA is down 400 points, erasing all of its early-February gains.

It's tough to swallow the growing pains of President Obama and his colleagues, but their "baptism by fire" was not by choice.  We believe this is all still part of the bottoming process in the stock market.  The climactic lows of November 20 have still not been surpassed in price or severity:  1) new lows have contracted considerably; 2) volume has shrunk; and 3) the breadth of the market has improved, especially in light of the recent profit-taking in the first 6 weeks of the year.

Not Half Bad ... The Primary Trend Fund did not escape the carnage that occurred in the last six months of 2008.  The S&P 500 Index dropped nearly -29%, and your Fund was down about half that.  But we've been entrusted by you to make money ... not lose less than the market.

We believe 2009 will be challenging, but bullish.  The headline news will get worse, but we feel that stock prices, the ultimate leading indicator, will signal a recovery well ahead of the headlines.  And we believe that signal is part of this bottoming process that started during the early-October swoon.

Dec. 10, 2008 -- The Valley of FUD

As Vinny Catalano of Blue Marble Research recently mentioned, the stock market may have finally turned the psychology corner.  Looking passed the valley of FUD (fear, uncertainty and doubt) to the other side is all part of the healing process that we wrote about on Monday (see below).  But there will be more FUD where that came from ... extreme FUD that will resurface as the market tests the 11/21/08 lows of 7500 on the DJIA and 740 on the S&P 500 (but we believe a SUCCESSFUL test).

NEW BUY (see "Featured Chart" section)

Dec. 8, 2008 -- Pink Slips = Green Light

Apparently job losses totaling 533,000 for the month of November is just what the doctor ordered to get the stock market out of bed.

We say that somewhat facetiously, of course, but the truth of the matter is that those horrendous jobs figures released by the Labor Dept. on Friday pushed the stock market lower by nearly 260 points (as measured by the DJIA) in the first hour of trading, only to see stocks rebound the rest of the day.  These were the worst monthly job losses since December 1974 -- AND -- the DJIA closed more than 500 points above its intra-day lows.

Typically, these economic releases have little emphasis in our analysis of the equity markets.  For one, they are short-term in nature.  And secondly, government statistics are backward-looking and fraught with revisions.  However, when the stock market's tendency in 2008 has been to go down on good news and go down even more on bad news, it is quite illuminating when it rallies on bleak news headlines that haven't been seen since the severe recession of 1973-74.

The economic numbers will get worse ... we can almost guarantee it.  But they always do ... even as stocks move higher.  Friday's reaction is a positive sign in a market groping for a bottom.  Recession is officially here (we've been saying that for 8 months).  A cyclical bull market is being born.  More upside action to bad news will be good news for the bullish case.  Volatility will be commonplace as a legitimate bottoming process takes hold.

Nov. 26, 2008 -- A Turkey of a Market

Despite the bear market that has ravaged portfolios and tasered the American spirit, we do have much to be thankful for as we enter the 2008 holiday season.  Travel safely and enjoy the company of family and friends.  Happy Thanksgiving from The Primary Trend Fund and Arnold Investment Counsel.

As for the stock market, we are getting a little bit of a reprieve after the sell-off last week.  We did say in our 11/13/08 entry below that new price lows can be expected ... we just didn't expect it to hit so quickly.  There is a silver lining, however ... the internals did hold strong as the chart shows:  stocks hitting new 52-week lows only totaled 1894 on 11/20/08.  This compares to a whopping 2901 new lows registered on 10/10/08 despite the market being down an additional 100 points on the S&P 500, or -11.8%, since then.

We have just entered the seasonally strong 6-month period (Nov. thru Apr.) and Wall Street has enjoyed Santa Claus Rallies in the past.

We all are aware of the negatives that are on the table -- recession, bailouts, autos, banks, housing and unemployment.  But we remind our shareholders that the market is 50% off of its highs of last year for those very reasons.  More importantly, less obvious positives are developing under the surface:  insider buying has mushroomed to levels not seen in 30 years (according to InsiderScore.com); investor sentiment is still overwhelmingly negative (a contrarian positive); technicals are trying to carve out a bottom; valuations are historically CHEAP; and the Fed is pumping the system with liquidity.  We are searching for the new stock market leadership that will propel the market higher in 2009 ... and so too, your investment in the Fund.

Nov. 13, 2008 -- WOW! ... +11.3%

Nothing surprises us anymore these days on Wall Street.  When the populist choice for President, Barack Obama, paraded his team of economic advisers onto the stage last week, the stock market continued its downward spiral.  When President Bush, with an approval rating lower than his hat size, addresses the sad state of the economy today, the market reverses course and rallies nearly 900 points on the Dow.

As the chart below of the S&P 500 Index shows, today's intraday rally was huge.  Technical support, and investor spirits, were completely broken this morning.  As we mentioned in this month's Primary Trend investment letter (mailed earlier this week), we may breach the October 10th intraday lows in terms of price, but the all-important internals (technical underpinnings) are NOT likely to confirm those price lows --- a would-be BULLISH development.  To us, this latest re-test of the October lows and subsequent +11.3% upside surge is just another building block to a stronger, longer term foundation from which to launch a cyclical bull market.

Oct. 30, 2008 -- Mortgage Crisis 101

M. Jay Wells does a fantastic job in today's headline story in Investor's Business Daily to uncover the petrie dish that is the U.S. housing crisis.  His timeline format is simple to absorb, yet complete in its unveiling of the cast of characters over the decades.  It is a long read, but in our estimation, worthy of the investment of time.  Click on the link below... 

 Why The Mortgage Crisis Happened

Oct. 29, 2008 -- Sweet November

We are fast-approaching a period that has been rewarding for investors ... the 6 months from November thru April.  The brutal October 2008 (see chart below) is at least being put to bed, and that, in and of itself, is a victory for investors.  More on the "Seasonal Upswing" in the November issue of :

The Primary Trend

[to be published next week].

Oct. 24, 2008 -- Enough Already!

[please see our "featured chart" section]

Oct. 17, 2008 -- New York Times (editorial)

"...bad news is an investor's best friend.  It lets you buy a slice of America's future at a marked-down price."

--- Warren Buffett

Oct. 16, 2008 -- Quote of the Day

"Men go mad in herds while they only recover their senses slowly, and one by one."

[from Charles Mackay's book, Extraordinary Popular Delusions and the Madness of Crowds, 1841]

Oct. 15, 2008 -- TESTING PROCESS

Never pretty, but often profitable.  We have reached extremely, extremely oversold levels.  The S&P 500 Index reached 840 and the DJIA hit 7900 last Friday (10/10/08), before reversing.  We are now testing those lows as we "speak."  Historically, climactic sell-off lows that "kill the bear" test those lows within 3-4 days of the initial low and again within 3-4 weeks and then 3-4 months.  Unfortunately, those tests can be even more emotionally traumatic for investors --- a deja vu/"here we go again" feeling that keeps investors on the sidelines...or worse, compels them to pull more money OUT.  That appears to be the case these days as mutual fund redemptions are surging, joining the hedge fund bandwagon.

These are difficult and trying times, to be sure ... and even moreso if you are an investor trying to put some of that dry powder to work in the equity markets as we are trying to do these days.  But we believe it is prudent to be "shopping" now.  As the old saying goes:  "Wall Street is the only place where, when they put merchandise on sale, the customers flee the store."    

The S&P 500 is cheaper by 40% in terms of price since the highs reached last year.  It is a little bit more difficult to discern valuations based on P/E multiples since the "E" is no doubt a moving target downward.  HOWEVER, historically, we are at levels that are in the bottom 20% of the bargain bin.

Indiscriminate selling ("throwing the baby out with the bathwater") is typically the hallmark of final bear stages, not the beginning.  Many great companies have now become good investments.  At the end of September, we stated:  "Amidst chaos lies opportunity.  We will no doubt get both in October."  Well, here we are ...

Welcome ... 

Below are some of the salient points of        The Primary Trend Fund (ticker: PTFDX):

• The Fund is 100% NO-load with NO sales commission, NO redemption charges and NO 12b-1 distribution fees.
• The Fund is managed by Arnold Investment Counsel, Inc., a Milwaukee-based investment adviser known for its conservative, low-risk, value-oriented  investment philosophy.
• The Fund pledges to provide a high level of shareholder communication.  Shareholders in the Fund receive a monthly investment letter, The Primary Trend, at no charge.

All of us at Arnold Investment Counsel and The Primary Trend Fund look forward to serving your investment needs and exceeding your expectations.

Call Us Today!

The Primary Trend Fund is now available to broker/dealers and advisers on the NSCC platform.

We are also registered in all 50 states, plus Guam and Puerto Rico.

Please contact us at (800) 443-6544 if you are interested in listing us on your platform!