THE DINES LETTER
P.O. Box 22, Belvedere, CA 94920.
1 year, 17 issues, $195. www.dinesletter.com.

TDL's Seasonalities: January

       James Dines: "1) In the 54 Januarys since 1950 the Dow-Jones Industrial Average (DJI) has risen 37 times and declined 17 times, bullish almost seven out of ten times (69%).
       2) Action of the first trading week of January and the month as a whole both appear to have some predictive value for the overall market.
       A. S&P: There is a correlation between the rise of the S&P in its first 5 trading days of the year with its rise for the whole year. In the last 34 Januarys, whenever the S&P 500 index rose in its first five days, the S&P 500 rose for the year 29 times, for an 85.3% consistency. In the 5 times it did not work, meaning the S&P 500 closed lower for the year, it is interesting to note that 4 of those years were extraordinarily bearish: 1966 and 1973 were Vietnam War years, 1990 was the year of "Desert Storm," and 2002 was the aftermath of 9/11. However, unexpectedly, when the first 5 days of the S&P 500 declines, as it did 20 times since 1950, the year-end results were split 50:50, hence no correlation. So a rising first week is the action to watch for: the dates are Jan 3 to 7 in 2005.
       B. Dow-Jones Industrial Average: Our Research Department found that in the 22 times in the last 31 Januarys whose first 5 days were up, it led to Dow up years 71% of the time, less impressive than the S&P 500's 85.3%, but nonetheless meaningful. Similar to the S&P 500, when the Dow's first five days ended lower (a total of 12 times since 1961), there was no correlation to its year-end result, and is not useful as a guide. Conclusion: only rising first weeks carry useful correlations.
       3) Popularly known as the "January Barometer," the entire month of January has gained prominence as one of the market's foremost bellwethers. Briefly, whatever happens to markets in the entire month of January often points to the direction of the entire year. As for the S&P 500, records show an almost perfect match between its January performance and its end-of-year performance in every odd-numbered year, all 31 of them, from 1939 to 2003! (This correlation was broken only in 2001 when the S&P 500 was up in January but down for the year). If we look at even-numbered years only, there is no useful correlation - only 11 out of 33 were predictive.
       Turning to the DJI, in 21 of 27 odd-numbered years (78% of the time) there was a match between its January and end-of year performance. In even-numbered years, 18 out of 26 (69%) move together, also pretty accurate. Adding another dimension to our comparison, records show that of the Dow's 17 declining Januarys, 12 likewise ended in declines (71% of the time). For the S&P 500's record, of 18 down Januarys, 11 were followed by down years (61% of the time).
       In conclusion, an up January would be bullish for the market, especially if both the first 5 trading days and the whole month were also up. As to January's predictive ability, the S&P 500 has proven especially dependable in odd years. If both the DJI and the S&P 500 decline this January, the DJI would be more likely to end lower for all of 2005.
       4) As for the Dines Gold Stock Average (DIGSA) 37 Januarys since 1968 included 22 rises, 14 declines, and one neutral, for a 61% bullish record, confirming the validity of the Dines Rule of Gold Seasonality (DIRGS), Dinesism #9.
       Interestingly, the Dines Silver Stock Average's (DISSA) down Januarys show a remarkable accuracy ratio in terms of having predicted silver's direction for the rest of the year. Specifically, of the 10 Januarys in which DISSA was a downer, no fewer than 8 of them resulted in down years for DISSA. On the other hand, the rising Januarys for DISSA only worked around half the time, with 14 up years out of the 26 Januarys - not statistically helpful.
       In conclusion, January is usually a bullish month for gold and silver shares, but if DISSA declined in January that would be a serious negative factor for silver-mining shares for all of 2005. As always, note that there are no stock-market guarantees, only the percentages used in our "educated guesses."

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HENNING, the Curmudgeon

When the bonds break, all hell break loose

       Thomas Henning: "The Bond Market is hanging onto the final stages of the cyclic uptrend as the internals have failed. The Weekly Hard Momentum is getting close to turning bearish and a close below 110, basis the March contract, would confirm a breakdown. Higher rates would usher in an era of debt default and Ponzi scheme implosion. In short, this is when all hell breaks loose. For perspective, see my two recent articles in Bull and Bear entitled "Gold, What the Game is All About, Part I and Part II.
       The Gold Complex has launched a cyclic bull market after gold was sold off from various national treasuries in the late 1990s and accumulated in the open market.
       Near term, the gold has moved into a correction. Let the complex correct. Stay with the main uptrend. Given a bond breakdown with debt default, the world's currencies that are backed by debt will be exposed as nothing but paper. What does that leave as money?
       The Stock Market is beginning to crash downward as initial sell signals have flashed. The breadth indices have been particularly weak
       The favored wave count suggests that a bear cycle is starting. An alternate count, which I can't dismiss, suggests a severe correction with another upleg eventually evolving."
       The stock market reaction to a bond breakdown will bring that jury in."
       Editor's Note: Thomas Henning's column appears regularly in the Bull & Bear Financial Report.

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STOCK TRADER'S ALMANAC INVESTOR
184 Central Ave., Old Tappan, 07675.
Monthly, 1 year, $295.

Bullish seasonality ends for several sectors

       J. Taylor Brown: "January marks the end of bullish seasonality for several sectors. We'll be selling Technology, Internet, Pharmaceutical, Telecom, Broker/Dealers and any extra Semiconductor or Banking positions. Try to sell on strength but in any case be out by the end of January.
       We are now in the part of the year's Best Six Months."

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Forbes/Lehmann INCOME SECURITIES INVESTOR
6175 NW 153rd St., Ste. 201, Miami Lakes, FL 33014.
Monthly, 1 year, $195.

Fixed income will beat stocks again

       Richard Lehmann looks back at where we started in 2004 "Ten year Treasury yields are up 33 basis points or 7.5% for the month, but only 10 basis points or 2.3% for the year. Corporate AAA bond yields are up 40 basis points or 9% for the year, but again, they started the year 21 basis points below Treasuries, an obvious temporary disjoint. The real winners this year were high yield bonds of the single B and CCC variety, which delivered both high returns and capital gains. Can they continue to deliver in 2005? Yes, but remember, at current yield levels you are playing Russian roulette.
       Investment grade preferreds showed the greatest consistency although they suffered through the temporary April rate shock. Below investment grade preferreds tracked the corporate bonds but continued to maintain a 170 to 260 basis point yield premium over bonds. Single B preferreds were the exception to the downward trend in junk with yields going up 92 basis points to date. This is due to the perilous state of airline issues such as Delta and Northwest which offer fabulous current yields, but may never repay the principal. Better news can be found in the preferreds paying dividends subject to only a 15% Federal tax rate, i.e. the QDI preferreds. Yields have declined for both the investment and below investment grade issues reflecting greater recognition by the market of the tax difference. In short, you will find that munis yields are equivalent to 84% to 98% of Treasuries while investment grade QDI preferreds yield 131% of Treasuries. If you're making so much money that tax free munis look attractive, then investment grade QDI preferreds should definitely be on your shopping list."

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EQUITY FUND OUTLOOK
P.O. Box 76, Boston, MA 02117.
Monthly, 1 year, $139.

Seasonal factors favorable

       Thurman Smith: "Market indicators remain positive. Seasonal factors are favorable for higher stock prices through 2005. In the important decennial cycle, all years ending in "5" have been up since the Dow was created in the late 19th Century. The odds of a serious pullback next year are small, barring major external shocks."

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INSIIDE TRACK
P.O. Box 2252, Naperville, IL 60567.
Monthly, 1 year, $179. www.insiidetrack.com.

Trends for long-term
investors, fund traders

       Erik Hadik: "Stock Indices - Stock indices remain on track for a high in 2005 (possibly late-June/early-July).
       Gold & Silver - Long-term uptrends in Gold & Silver consolidating near the highs. Investors should be out of 2-3 year long positions. Next low possible in April 2005.
       Dollar - Long-term trend down and projected to continue into Aug./Sep. 2006. A 3-6 month rebound is possible.
       Commodities - Long-term trends up but correcting. New bull markets could begin in coming months."

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NATIONAL TRENDLINES
14001 Berryville Rd., North Potomac, MD 20874.
1 year, 4 issues, $85.

Volatility will return

       Doug Jimerson: "We expect the flat moving averages of 2004 to be a precursor to volatile, trending markets in 2005. The extreme volatility of a few years ago will return once again, providing investment opportunities for tactical strategies."

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THE LYKE REPORT
P.O. Box 290, Glenview, IL 60025.
Monthly, 1 year, $89.

Invisible license plates

       John Lyke: "While scanning the Internet, I found that you can buy a can of chemical spray that reflects photo radar flash. Spray it on your license plates and they become invisible to cameras. Proven to beat photo radar and red light camera. As the ad says:

• Reflects photo radar flash, helping to prevent a costly ticket! Fast spray-on formula is easily applied in minutes!
• Invisible to the naked eye, only you will know it is on your vehicle!
• Exclusive formula! Good for up to six plates.
• Best alternative for those areas where you can't use an anti-radar license plate cover!
• One application of PhotoBlocker is good for life. Will not wash off, will not fade, nor will it dissolve away.

       Capitalism at its best."

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THE CONTRARIAN'S VIEW
132 Moreland St, Worcester, MA 01609.
1 year, 11 issues, $39.

Living on borrowed time

       Nick Chase: "For as long as the Fed is "in control", when it is raising short-term interest rates (whether gradually and telegraphed or not) this is not bullish for either stock or bonds. Raising rates does not immediately guarantee the death of the bull, but does guarantee it is living on borrowed time.
       The real-estate "leading indicators" tell us that residential real estate will be in a decisive slump by summer 2005. Because the health of real estate is today so closely tied to the overall health of the economy, that means it's likely the economy will be in recession by year-end 2005, thus tipping into recession in the fall.
       Since stocks typically lead the economy by six to nine months, that means a peak in the current bullish jag between January and May 2005. I am leaning toward a peak in mid- to late January, followed by a secondary peak, at lower levels, in late April to mid-May. But I'm not dogmatic about that... let's just say the overall trend is, on balance, neutral into and through the spring.
       Then I see another vicious downleg to this long-term bear market taking us to new lows in 2006, likely summer or fall 2006. Then, looking way out, I think we'll have another bullish phase into 2008, at which point the leading edge of retiring baby-boomers selling paper assets to pay for their living expenses will exert downward pressure on stock prices for many years."

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15-20% increase in Nasdaq for '05

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