Observations

Page 5 of this service [The Peter Dag Portfolio] is the most exciting for me. It is the most obvious. Yet, it has an enormous information content. Probably because it is so simple, readers do not accept its strategic advice.

After I finished writing Profiting in Bull or Bear Markets, Susan suggested I add to each issue of this service what she called the live version of the book. Page 5 is the reproduction of the graphs on page 247.

On 11-24-03 the S&P 500 was standing at 1052. I moved the “You are here” arrow close to the configuration H, signaling a high risk area for the stock market. On 12-08-03 I decided to move the arrow even closer to configuration H signaling risk for the market was rising even further. The S&P 500 stood at 1069.

The rest is history. The subscriber area shows the previous issues. You will see that I kept the arrow in the high risk zone and recommended a defensive and selective investment strategy. When risk is high, it is difficult to make money. You have to invest in a few sectors that have a chance to withstand a period of uncertainty. Or stay in cash.

The 3 lines on page 5 can be used to forecast many variables. As far as the stock market is concerned, risk is high when the economy begins to rise rapidly, commodities are rising, yields are moving higher, and inflation bottoms. These trends were in effect on November 2003, and they prompted me to tell you that the market was at a difficult juncture.

After 12-08-03 these bearish trends became even more pronounced. I moved the arrow closer to configuration H. Risk was high and rising. The trend of the lines on page 5 is the reason for my defensive strategy: invest in stocks with high yields. The reason is that the dividends provide protection in times of unexpected volatility.

Risk will be low again, and the market will start a major up move, when we are in configuration E: a weaker economy, declining interest rates, and lower inflation and bond yields. Follow closely Page 5. (This Observations appeared in the 8/9/04 issue of The Peter Dag Portfolio).