Sterling Weekly for November 21st, 2005

The overall market continued its advance last week with the S&P 500 setting a new 4 1/2 year high yesterday (the 21st). The market rally that began in mid to late October has been impressive and I think indicates a strong economy through the 1st half of 2006. Two weeks ago in the November 7th edition of the Sterling Weekly I wrote about the Amex Broker/Dealer Index 'XBD' setting a new yearly high. Since then, it has continued to do so on an almost daily basis. The significance of this index is that it is a very good forecaster of where the overall market will be six months out. Well, that would seam to indicate that the overall market will be very strong going into the summer of 2006. My review of the various other sector indices seams to confirm this. Last night six (6) other sector indices set new yearly highs with more poised to do the same. While I think the market is a little over extended and we might see a little weakness after Thanksgiving, I am expecting the overall market to continue to advance back towards its all time highs set in early 2000. Remember there was not a huge number of days that the Dow Jones Industrial Average spent over 11,000 and the majority of them were spent below 11,300; and while the all-time high on the Dow was over 11,700 that was a one day occurrence not a prolonged visit. (see the chart below) The Bottom Line: I think the Dow is within striking distance of some very nice levels where everyone will start to feel a lot better about things.

I thought I would like to take the opportunity this week to discuss the importance of economic news impacting individual stocks. Last week on Monday & Tuesday respectively I recommended shares of Costco 'COST' and Nordstrom 'JWN'; failing to pay attention to the fact that retail sales data was to be released Tuesday morning. Something I should have known since it was published in that weeks Sterling Weekly. Well, when the retail sales data was data was released and disappointed the market, both of those promising looking chart patterns promptly weakened and turned bearish. By the end of the day I had been stopped out of both positions. I'm not happy and it turned out to be an expensive lesson. I have learned my lesson, and do not plan on repeating that mistake again. A weak later, the charts of both those companies continue to look weak and probably will remain so until new sales data is released to change their outlook. The point of all of this is that it is definitely smart to pay attention to the upcoming news releases that will effect your trading and investments; probably even more so than past news releases.