Rich Confirmation and Cycle Analysis

The market has been volatile lately. Sometimes sudden surges and sudden drops sicken the stomach and can make even the most rock solid of investors skittish.

Maybe you feel uncertain these days. Maybe you question your portfolio. Maybe you wish you’d done something differently about a month ago.

I haven’t wavered one bit from my belief that we’re going to see a rally, then a slump in Aug/Sept, then another rally to year-end. I don’t know the exact percentages nor the exact dates, but I think that pattern is what will play out.

I want to give you information that I received from two readers yesterday. Each in a different way shows a reason to believe in what I’m doing here at The Kelly Letter.

First, from Chris in Maryland, with names changed to protect the rich:

I live in a waterfront community in Maryland. A good portion of our neighbors are “part-timers”, meaning they use their homes as vacation homes and live and work someplace else.

One of these neighbors has become a close friend. His name is Anderson Haynes, and he used to run the National Geographic channel, and now is a V.P. at Sony Music in New York City. This guy travels in circles that I didn’t know existed, i.e. has cars sent to drive him around, hangs out at Bruce Springsteen’s house, gets email jokes forwarded to him by Tom Brokaw, etc.

So this weekend, Anderson invites his personal portfolio manager over to hang out by our community pool. This guy’s name is August Cantor, and you can’t open an account with him unless you have $1,000,000 to invest. When Anderson introduced us, I joked: “So this is the guy that had you buy Lucent?!” which got a big laugh, and Cantor responded, “What would you have him buy?” I said “Intel”. His jaw dropped!

Later, he cornered me and asked me how I knew about Intel, when the rest of the market is avoiding it. I basically just repeated all of your talking points, and he was amazed. He asked what other stocks I was active in, and I rattled off The Kelly Letter portfolio. He turned to my wife and said, “You guys don’t need me, you are doing exactly what I am doing!”

It’s always good to get confirmation from the likes of the well-heeled Anderson and August team.

I should also mention that The Kelly Letter is happy to count among its readers people of all wealth levels, from college students just starting out, to busy families of four trying to make the monthly mortgage payment, to private-jet-owning types similar to Mr. Cantor’s client roster. No matter where you are on your path to wealth, reading my letters will help you.

Next, I received a great summary of recent cycle analysis by Julian Pilliost, a 52-year-old market technician. As a member of the Market Technician’s Association, Julian was selected to spend time on Wall Street alongside greats like Alan Shaw and Louise Yamada at Smith Barney, Phil Roth at Dean Witter, and Ralph Acampora at Prudential Securities. Julian left a brokerage job at A.G. Edwards to strike out on his own, where he remains today. He wrote:

My cycle work shows the next 10-week and 3-week cycle lows in the July 19 to July 23 time frame. But the 36-week cycle, which bottomed in late March, should be UP into Aug. 4, which is 18 weeks from late March. The 25-week cycle, which also put in a low on Mar. 31, should be UP into the June 27 time frame.

So, the combination of the longer term 25-week and 36-week cycles’ upward pressure could outweigh the shorter term 3-week and 10-week cycles’ scheduled mid-July low. [Consistent with your forecast, the bottom line is:] UP into mid- to late-July seems logical.

Sentiment wise, the May decline was very helpful and served to clear out any overt optimism. Sentiment here is very much under-believed by most all measures. The most recent CBOE Weekly Put/Call ratio came in at 0.73, which is the highest reading since 0.76 for the week of Oct. 14. Similarly, Consensus % Bulls was 44% for the week of May 26, which is also the lowest reading since 47% and 48% for the weeks of Oct. 21 and Oct. 28.

A survey shows bears at 62%! Investor’s Intelligence puts the ratio of bulls/bears at 1.43, not quite the 1.37 level seen at the mid-March low, but still a multi-year low, a level which has marked intermediate-term buying opportunities since 2002.

So, sentiment also appears very supportive for a short- to intermediate-term advance.

I’d like to thank both Chris and Julian for taking the time to send these notes. I hope their information helps you to see that the world of Wall Street has not ended. There’s evidence to support my thesis. The plans I’ve had in place since long before this latest downturn are still valid.

If you’ve ever wondered what professional guidance can do for you during turbulent times, why not give The Kelly Letter a shot? It’s just a penny for one month, and then just $5.48 per month thereafter. If you join now, you’ll get my soon-to-be-released report “Surviving The Summer Slump” and all action mails helping you to prepare for the real downturn ahead.

I explain more about the letter here. I hope to welcome you soon!

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