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PEERLESS FORECASTS
Vol.15  No. 20
December 5, 1997
DJI= 8149.13
(C) 1997, Wm. Schmidt, Ph.D. - Tiger Software

Use Mode3

Headlines

Santa Claus Has Arrived Early.  DJI Challenges Its Highs.  But Market
Leadership Seems Especially Defensive.   NASDAQ Badly Lags.

Operative PEERLESS S9 Is A Distinct Warning. Seasonal Strength
Is Boosting Highest Accumulation High-Caps.

Is Strength in Financial Stocks A Bullish Sign?
Or A Sign of Deepening  Individual Indebtedness?  

Breadth And Volume Will Need to Expand To Avoid Bearish Fourth S9
in January.  Wild but Narrow December Blow-Off Is Expected if SP-500
Surpasses 1003 in Its Broadening Formation.
 

Santa Claus has come early. Usually the most bullish part of December is
its last two weeks. Score a breakout for the DJI.  Friday it overpowered
the resistance line running through its highs. This still leaves it 111
points shy of making a new closing high above its previous highest closing,
8259.31, on 8/6/97. Resistance overhead must therefore still be expected.
The rules of the broad trading range are still most apt to assert 
themselves. 

Bullishly the breakout Friday was confirmed by the OEX and the SP-500,
which closed in all-time high territories. The OEX, however still needs to
surpass the resistance line that defines the top boundary of its broadening
formation. As this line crosses just 2 points above Friday's close, we may
see the OEX  breakout on Monday. Using the height of the previous pattern
to determine a price objective, an OEX breakout could set the stage for a
further rise of 55 OEX points.   Similarly, the SP-500 has made a new
all-time high. Its resistance line in its broadening formation crosses at
1003, a full 20 points above its Friday close. I would think that a breakout
by the SP-500 above its upper boundary could usher in a wild run-up. That,
at least, is one scenario, given the broadening formations. (See page 3.)

Another scenario is distinctly bearish. Broadening formations are rare.
But they have a bearish reputation when they appear after a long advance.
With warnings of stocks’ over-valuation acting like distant thunder, we
should pay close attention to  market history.  After December's typical 
bullishness is played out, every three or four years January often acts as 
a pivotal month and a bear market or steep decline starts.  That is what 
happened early in 1966, 1969, 1973, 1977, 1980 (February), 1981,
1984, 1990 and 1994 (February).  Historically another pivot downwards
is due early next year.
	

With this as background, we should pay close attention to signs of the the 
market's internal strength. While the long-term momentum of the averages 
is good, there are many disturbing technical signs of weakening internal 
strength. 

The NASDAQ is flagrantly not confirming the DJI's strength.  It now
stands 112 points below its October highest closing.  Our "NASDJI".
relative strength indicator is negative and downtrending.  (See page 4).
When it last reached such low levels, February 1997, it was about to lose
another 100 points over the next 2 months. Not widely reported, the
NASDAQ's Advance-Decline Line made a new low, not a new high
this weak.

Speculative interest in high techs now is generally sinking.  A healthy market
fires on all cylinders, not just defensive and interest-rate driven investment 
vehicles, as are now in favor.  The bullish case would be greatly 
strengthened by more investment interest in the growth potential of 
technology stocks..  Of course, the decline may be temporary.  It may be 
partly due to temporary year-end tax-related selling.  But the danger is 
that renewed interest in high stocks will not be rekindled and that their 
weakness is telegraphing advance notice of a bear market to start next year.  
At the least, the NASDAQ needs to surpass 1660 to escape the
appearance of forming a dreaded head and shoulders pattern.  To have
this reliable pattern be completed the NASDAQ would have to drop
below 1540.  

Now look at the PEERLESS-DJI chart on page 2.  Other bearish signs are 
evident. The PEERLESS "P" and "V" indicators are badly lagging the rally 
so far.  The current value of the "P"-Indicator is only +80.  This is below 
even its levels of a few days ago.  It will need to markedly improve for a 
BUY B4 to be permitted. The "V"-Indicator stands at only -22.  If it stays 
at these levels we will very likely see another S9 signal in January.  
(None can appear in December.)  And if it occurs before January 20th next 
year that would be the fourth set of S9 signals over an 11-month span.  
This is a condition, which since 1965 has led to a bear market in 4 cases 
immediately.  The four cases are well known to readers of our PEERLESS 
manual and our 26% per year blue chip system.  The fourth S9's occurred in 
January 1973, July 1974, March 1981 and October 1987.   Note that if a 
full year is used, instead of 11 months, an exception emerges to our perfect 
track record of "4 S9's and then a bear market".  The exception is
interesting.  In 1986-1987 there were clinched S9's on  June 4th 1986,
August 1986, April 1987, May 7th, 1987.  Thus, if you use a 12 month rule
regarding S9's there is the case of the fourth clinched S9 on May 7th, 1987,
which  led to a bad market break but not a bear market.  On the other hand,
if you use an 11 months or less rule, which I prefer and which tests better,
there are only 4 cases. Since the first clinched S9 in the current series
occurred on 2/20/97, it will be most dangerous if there is a fourth clinched
S9 before 1/20/97. 
	

Traders, I think it will be helpful at this juncture to also closely monitor 
the 10-day moving average of NYSE Up-Volume and Down-Volume.
The 10-day moving of Down volume has broken it recent downtrend-line,
which is bearish;  while the 10-day moving average of Up-Volume has
recently refused to make a recovery high. It will be short-term bearish
when the 10-day Up-Volume moving average turns down.   

Also worrisome is the diminished internal strength status of a  number of 
leading blue chips.  IBM (page 5) has made an impressive price-breakout
past 110 but its Accumulation Index positive consistency is just 69.  The last 
time it was this low was in 1992, just before it fell from 100 to 45.  GE, 
which is often considered an excellent proxy for the DJI has a 200-day AI 
score of just 85 and its current IP21 (Accumulation Index) reading is 
negative.  Similarly, American Express (page 4) has an AI/200 score of just 
59 and shows a new TIGER-stock sell S9 signal.  Boeing's stock has just 
dropped bearishly below its flat 30-week moving average and 200-day
moving average.  Disney's stock had been very strong.  Then last week
its CEO, Michael Eisner, announced he was exercising and selling a huge
number of shares, in the millions. Our favorite DJI stock, JP Morgan,
has rallied delightfully and has just made a new all-time high.  This would
be encouraging, but for the fact that its OBV Line is failing miserably.  
Aggressive buyers are very small in number. The stock is going up on short 
covering and because it is tightly held.  Typically to send a stock a great 
deal higher, there has to be much more aggressive buying.  (See page 4.) The 
bullish force of December and the beneficial effects of lower interest 
rates are buoying up the higher capitalized stocks for now.  They are sending 
up many a financial stock.  Look at some examples on pages 5- 6. Even 
utility stocks like Boston Edison are making it into our Elite Report. But 
our pickings look extremely defensive.  Big money is clearly very cautious. 
We should be, too.

Traders can make money, I think, in the bank and telephone stocks shown
on pages 5-6.  I would buy BCOM, WBPR, CFX as well as TELU at
30 1/2 stop and UBSI at 45 stop.  In general, try to limit your buying to
stocks whose AI/200 scores are above 180.  Set 15%-20% objectives
for breakouts.

PEERLESS FORECASTS  is a bi-weekly research report primarily
for users of Tiger Investment  Software. It is sent out on alternate Saturdays.
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(C) 1981-2005, William Schmidt, Ph.D.  
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