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A bit of advice: Timing Is Everything - Money Matters for 12/7/05
As we wend our way through the remainder of 2005, the evidence that the major indices have already topped out appears to be more and more compelling every day as prospects for the materialization of a Christmas rally are beginning to more resemble a wish list rather than anything springing forth from dutiful analysis.
The blockage of any more upward movement in stocks is being supplied by three diverse - yet marginally related - forces: 1. High gas and home heating fuel prices; 2. The ongoing threat of inflation and interest rate hikes by the Fed; and 3. Retail sales through the holiday season.
Even though today at least one of these factors was partially ameliorated as crude prices fell on supply data (though natural gas was up again), the stock markets couldn't find a bid until late-day speculators averted an all-out selling spree.
If one is to look at potential good news out there, it's just about all priced in and the only item still left unattended on the 2005 agenda is the last Fed meeting of the year, scheduled for Tuesday of next week. The resolution seems to be a foregone conclusion that the Fed is going to continue their ratcheting up of interest rates with another 25 basis point hike.
That's certainly not going to sit well with investors who are increasingly seeing the Fed as public enemy #1 on the economic front. Their stipulated rate-hiking is feared to be a cause behind which only the Fed governors can get. Most economists are on the side of doing nothing at the moment as the economy is in a fairly fragile state, but the Fed continues its wanton tightening in the face of data that is neither inspiring or ostensibly inflationary.
As far as the retailers are concerned, there seems to be a consensus among the major players to not cut prices until near the end of the holiday shopping season, though that strategy may prove disastrous to those who wait too long, reducing margins while fighting a losing war for foot traffic.
Consumers are also in a waiting mode right now, which may force retailers to jump the gun on deep discounts in order to get a jump on competition. The only clues to retailers' strategy would likely come in the form of heavy TV advertising. If Sears, Target or another major retailer comes across with heavy discounting within the next three to seven days, the rush could be on, though the heaviest weekend of shopping is likely to come the week before Christmas on the weekend of December 17-18.
Adding to the confusion over retail sales is the fact that Christmas falls on a Sunday this year, wiping out a shopping weekend. One less weekend between Thanksgiving and Christmas could prove to hamper retail sales, though that effect won't be known until it's really too late, on Saturday, December 24, otherwise known as Christmas Eve.
In general terms, the big retailers are playing this holiday season pretty close to the vest, hoping they have analyzed buying demand and traffic trends correctly and banking on a big bang near the end of the cycle.
At this point in time, however, the holiday rush simply hasn't materialized into massive increases over last year at any of the majors.
There are only 17 shopping days left before Christmas, and retailers - as well as investors - are more than a little nervous.
On the bourses over the past few, the noticeable trends have been in the spread between new highs and new lows, which reached a low point today, and the advance decline line, which hasn't been trending this badly in since October, with declining issues holding a 5-3 edge over advancers today.
In the larger scheme of things, holiday shopping isn't going to boost stock prices, and interest rates and fuel prices act only as depressants. The market has topped out and it's time to cut your losses at the very least and take profits if you're looking further out.
Timing truly is everything.
Dow Jones: -45.95; 10,810.91 close
NYSE Advancers: 1237
Nasdaq Advancers: 1151
NYSE New Highs: 115
Nasdaq New Highs: 106
Gold: +4.00; 517.80 close
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