ON THE PRECIPICE, "Can you hear me now?"

I now restate MY CASE for the Bear MArket Phase II beginning in the not too distant future, IMHO it's time to TAKE COVER AGAIN, and get ready to ride out the storm that almost nobody sees coming.

Unlike when Phase I began in 2000, we now have what the Bear MArket behind us had accomplished, in our memory banks, it wasn't that long ago! But it seems like that experience has been obliterated by the STRONG cyclical Bull that followed, but that my friends is exactly what it was supposed to do. "....it's OK to come back into the water, don't worry."

STUDY this chart of the Dow from 1995. SEE how the MACD was rising from 1990's into 1999/2000 high (NAZ TOPPED IN MArch of 2000). But also see that ROC indicator after rising with it, broke ranks and diverged with a decline RIGHT BEFORE the all time highs!

THAT is exactly what is happening now, except ROC PEAKED back in 2002!!! MACD in 2004 !!! YES, the momentum has GROWN WEAKER as the DOW has struggled HIGHER!!!! AS PLAIN AS DAY, NOT BULL MARKET ACTION!! IMHO (also, if you draw a trend line from the highs and another one from the 1994 low and first 2002 low they form a triangle and MEET right where the DOW is now! and it is UNDERNEATHE these trendlines FORMIDABLE RESISTANCE IMHO)

Now here's where it gets interesting!

From July EWT Financial Forcast http://www.elliottwave.com/ (homepage) I would like to share some important and interesting data.

Leading up to the Dow's all time high IIAA (Investors Intelligence polls) ran NET BULLISH for 65 CONSECUTIVE WEEKS, we all know what happened next.

We are currently at historic measures of 145 STRAIGHT WEEKS of Bulls plurality 145 weeks !!!! MORE than DOUBLE previous stats!

Is this NOT a set up for something?

HELP WANTED IDNEX http://www.bls.gov/opub/ted/2004/dec/wk4/art02.htm
Current reading is 38, since the lows of 37 the high was only 41, the high in 2000 was 80 EIGHTY! This has been the weakest recovery (began in 2001) from a Recession in HISTORY!

Yes we are right near the LOWS in Help Wanted Index, when the Recssion hit, this reading cannot be manipulated like most of the others, what is wrong?

Can you imagine ALL the jobs related to the HOUSING INDUSTRY/ BOOM that HAVE been created? Amazing isn't it, you see how important this sector normaly is, but NOW? it is EVERYTHING!

But when you trade one asset inflation (TECH) for another (Housing) all you get is a maladjusted economy......and one that is not real, one that has caused all kinds of misallocations.....one that has helped build CHina into world power and destroy US manufacturing.....one that raised the level of debt to HISTORIC HIGHS, and brought SAVINGS to historic lows.

NO, from these extremes we DO NOT BEGIN NEW BULL MARKET AND SUSTAINED ECONOMY.....on the DAMN CONTRARY.....

.....WE have USED FORWARD the demand we will wish we had when the next slowdown begins (if not aleady), auto's and housing the FUEL which runs the economy (spurs consumer spending) has been near used up, we have sucked almost dry future demand.

$300 BILLION came from HOME EQUITY LOANS (HELOC), most in history and was used to maintain consumer spending through 2004 and present.

Also I left out before, in the DOW chart linked above, we see important 50 WEEK moving average FLATTENING OUT, NOT RISING STRONG like in previous bull market, it looks VERY SIMILAR as it did leading into 2000 top and so I believe we are witnessing a complex but definately topping process near completion, based on my comments here.

ALso though dollar volume lags (cheaper prices) SHARE volume of the most speculative issues (Bulletin Board) has DOUBLED from its BUBBLE TOP HIGH!!! WTF??

Not only have stocks run up to underside of trendline resistance (mentioned above) but we have reached the 62% FIB RETRACEMENT (EWFF) from the lows created from PHASE I of Bear market......yes it could go higher, but the evidence says that is not MOST likely end game......the market will of course tell us.

Value, and small caps even Transports have hit all time highs AFTER Phase I of the Bear ended, amazing isn't it? But maybe that synchronizes all for the next Phase?

C, JPM, WMT have been WEAK, Walmart NOT able so far to get and stay above $50 break......why would a Citi Bank not come along for this wonderful rally?

ALL this undercurrent, while the FED is looking at something else, concerned with INFLATION??? LOL intent on raising rates and no word of when they are done?

When they are done will not be a happy day, and when they have to CUT again, will not either as even they will need to come clean as to real economic environment.

With 70% already owning homes, lowering rates will not work this time IMHO. YES, WATCH FINANCIALS AND HOUSING, perhaps the key to it all.

Duratek