Tactical Investor Newsletter

Our comments that we were keeping a low profile in the last email update were misunderstood by many. What we simply meant to say was that after we stated we were bullish on the energy sector we simply kept quiet, because there was really noting big happening anywhere else. Our indicators issued very high volatility readings which suggested that things would be tricky for the next few months in he equity markets and so we felt it best to take it easy and enjoy the other aspects of life. Along the way we told our subscribers to take some key positions in certain stocks in specific sectors because we felt that once the equity markets had stabilized, many of these stock had the potential to explode upwards.

We have basically been bullish through out this year, we took the view that the markets were correcting and building up power for the next rally phase. Yes fundamentally we agree with everyone that the market is rotten and should do nothing but crash. But if the majority were correct then everyone would be a millionaire and no one would lose in the markets. The markets have a funny way dealing with reality, what they tend to do is look into the future and so what is reality today usually ends being fiction by tomorrow. We have long decided that having a bias, or relying on your gut instinct is a recipe for disaster and so have come up with our own indicators and set of rules which we never break. The only way to win in the markets is to use a system that adapts to the changes in the markets and to always trade in a disciplined way. 80% of the time people lose because they simply have no discipline.

Most of our proprietary indicators started giving out buy signals towards the middle of October, but rather then go over those indicators which are rather complex and not available to the average Joe, we are going to show you How simple TA could have at least kept you from shorting this market at the wrong time.

One Anomaly that started to point out that something was wrong was the huge positive divergence between Oil and the transports, (you can see the charts by clicking on our previous essay The Markets). Another anomaly was indicated by the positive price divergence between the Dow Jones utilities and oil. As oil prices rose the utilities went up in price instead of dropping just as the transports did. A positive divergence simply means that a stock or an index does the opposite of what it is supposed to do, indicating that an imminent change is in the works

If you look at the chart of the Dow above (DIA which is a proxy for the Dow) you will notice the following:

The new low in the Dow was not confirmed by the Macds or the RSI and the Stochastics actually flashed a huge positive divergence. This evidence was strong enough in that at the very least one should have been sitting on the sidelines and waiting to see what unfolded. It clearly illustrates that all the pundits out there that were screaming the market was going to end were completely wrong.

This is the same chart except we have removed the other indicators put in the money flow index and the volume. If you look at the charts closely you will notice just when it looked like the world was dropping and the Dow was in the process of setting new lows, the volume started to drop; very bullish this was. The money flow index also did not confirm the new lows set in by the Dow another huge positive divergence signal.

Finally we stated our bullish views before the Dow had even passed the 10k on the 19th of November 2003. We have provided the link below so that you can read this whole document on the internet.

"If we can hold in the 8,800 to 9,000 range, then the outcome looks rather interesting. Esoteric cycle analysis (our proprietary indicator at the Tactical Investor) is basically suggesting the following targets if we can hold the above ranges”

1st target will be a break of the Dow over the 10,000 range
2nd target 10,500
3rd target 11,400
Extreme target 11,7000

The masses have jumped onto the bullish bandwagon a bit to fast and so we think that some sort of pull back is in the works, probably in the order of 300-500 points. This pull back will drive the fear of God into the new eager bulls and provide those who are willing to take a risk one last time to get on board before we kiss the 10k range good bye for several months.

	11/14	11/7	10/31	10/24	10/17	10/10	10/3
Bullish	53%	39%	43%	35%	11%	31%	26%
Bearish	22%	36%	31%	48%	58%	43%	40%
Neutral	24%	24%	26%	17%	32%	26%	34%
DJIA Median Guess	10315	10062	9942	9906	9950	10100	10000

As you can see from the above table the jump from the low of 11% to the high of 53% in bullish sentiment in under a month represents an extreme move and so a pull back is in the works. What might happen is that the bulls might take the Dow past the February 11th, 2004 high just to flush out all the remaining bears. Every index has broken past its 52 week high, the only one left to accomplish this feat is the Dow.

Early this year we mentioned some oil stocks that looked like good plays, those that listened to us did very well indeed. we do not normally make recommendations here as we reserve those for our paying subscribers. Every now and then we will list some plays that we feel have the potential to appreciate significantly over a 6-12 month period.

We have almost ignored the Gold sector this whole year, instead we took key positions in some nanotech, biotech, financial services companies, oil companies and base material companies. We list a few of those past plays here, BOOM ( base material) in at 3.10 out at 11.20 its still roaring and is currently trading at 15 dollars, TGA ( oil company) in at 2.50 out at 4.20, SUNW options in at 60 cents, currently trading at 1.05, we will be selling these soon, GOAM in at 2.56 sold 1/2 at 7.20 and the other half at 12.00 in under a month, MBAY in at 28 cents out at 85-90 cents, IBN in at 13.80 currently trading at 18 dollars and change, we will be selling this chap soon etc etc.

We are going to put a small table below it should basically explain the strange feeling we have had all this time as far as Gold is concerned

We would like to state up front now so that there is no mistake, we are not bearish on Gold. In fact we were strongly pounding the table on Gold from November 2002 to April 2003 and on Silver we pounded the Table until July 2003. However we do not think its a good time to be taking new positions right now. If you look at the above table you will notice something strange, that most gold stocks are actually very far away from their highs despite the fact that Gold bullion has been hitting new highs on a daily basis for the last few weeks.

We advised our subscribers to sell 1/2 their positions last year around Nov 2003 and hold the remaining 1/2 until the very long term trend is broken; we are nowhere close to that point currently. We will only take another new position in Gold after Gold bullion experiences a nice correction. We feel that currently Gold bullion is in the last hyper stages (short and intermediate term out look) and that a correction is not to far off. However this correction should be viewed as buying opportunity because the next up move will be even stronger. After the correction is over Gold could consolidate for quite sometime simply to frustrate the weak hands.

we are not bearish on gold but feel that a decent correction is close at hand. This correction/consolidation could last several months but will actually provide an ideal opportunity to take new positions.

We did an extensive analysis on the Dollar, palladium and gold several months ago. One of the scenarios we envisioned was that after initially taking off, the dollar could spike to new lows and it could test the 80 ranges before taking off. If you would like to read this analysis again, you can do so here. http://www.financialsense.com/fsu/editorials/ti/2004/1111.html . The Dollar is still locked in a down trend, we played it well the first time going long in the 84 range and selling out close to 90; it then proceeded to correct very hard. The current action in the dollar is signaling that most of this selling is forced selling, people are selling out of pure fear and we are very close to seeing a pure fear based selling frenzy which will mark the a 6-12 month bottom for the dollar. Don't mistake our views we are not very long term bullish on the dollar and just see this rally as a very strong bear rally. After this rally is over with the dollar will carry on plunging but this rally will be strong enough to make those who are on sitting on the wrong side of this trade feel some serious pain.

If you look at the above chart, you will notice that on the monthly chart Gold bullion has put in a double top. It would need to close above 436 on monthly basis to break through this layer of resistance. It also has 3 up trend lines which shows that some sort of correction is close at hand.

Palladium represents a unique long term buying opportunity. The only problem with Palladium is that one has to know when to jump in and when to jump out as the moves are very fast and furious. Take a look at the above chart; the real explosive move up took place between 1999 and 2000, then palladium plunged and corrected for almost 4 years. Certain stocks in this sector will also do very well, though one has to be very careful about taking positions in those small bulletin board stocks.

Platinum Leads Gold and it appears to have already started to correct; it has broken through its 4th and 3rd up trend lines. A break below the 2nd up trend line could result in a fast and violent move downwards to the 550-600 ranges. Platinum took off before Gold and It now appears to be correcting before Gold bullion. This further reinforces the view that Gold bullion is close to experiencing some sort of correction in the near future. Once again both the correction in Platinum and Gold bullion should be viewed a buying opportunities and not as signs to dump ones holding in these sectors.

The Oil sector is currently experiencing a minor correction, this correction could in turn into a 1-4 month consolidation; therefore right now its not a great time to be taking new positions except in certain key stocks. If you are familiar with basic trend analysis, you can look for stocks that have just broken out and therefore are not to far away from their main trend lines; use 1-2 year charts. Once this correction/consolidation is over, watch many of these oil stocks explode to new highs.

The biotech sector should see some really great gains. If you look at IBB which is the biotech ETF, you will see that it has broken its down trend line and has established a new up trend line. Taking positions in key small cap biotech's could be very profitable. again simply perform a sector scan and look for those stocks that have just broken their down trend lines and established new up trend lines.

Its hard to say just how long the correction will last once it begins, but as we stated before any serious pull backs should be viewed as buying opportunities. The dollar has simply been smashed to pieces and has dropped rather to fast; fundamentally the dollar is dead but we all know that there are times when the markets simply ignore fundamentals. We believe that the dollar will experience a rather strong bear market rally and the amount Gold bullion corrects will depend on how strong this rally will be. If you are versed with TA and have a working knowledge of trend analysis then you will be able to time your entry pretty well when this correction ends. Under no circumstances should one sell their entire Gold position at most one should take some profits off the table which is prudent thing to do with any investment.

We are only going to list some ETF's today. We believe that IBB and PPH should do very well over the next few months.

You can view a partial archive of our past newsletters, by clicking on the link below

Many of you have written in asking us if we could offer some sort of a discount trial membership to the market update service. Well for a limited time you can test drive the market Update service for only $29.99 for the first 30 days, A savings of 21 dollars from the normal rate.

If you would like us to address certain sectors or have questions please feel send them in and we will do our best to answer them in the next update. Please do not write in asking us whether you should buy or sell a specific stock. The next update will be sent out about 2-3 weeks from today.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

Symbol	DEC 2, 2003	NOV 23, 2004
GSS	8.30	4.34
CAU	4.21	1.28
MNG	2.63	1.31
NEM	50	48.35
BGO	4.12	3.43
KGC	9.20	8.15
IAG	8.27	7.11
MFN	8.90	8.00
AAUK	22.08	23.91
AEM	11.86	15.91
GOLD Bullion	404.60	447.90
GOLD	14.02	12.35
XAU	112.29	107.71
HUI	256	237