USA Corporate Profits & Dow Jones ForecastBusiness Cycle InvestorDJIA QUARTERLY FORECAST - AUGUST 30, 2006 |
AUGUST 30,
2006 RECOMMENDATION: STAY
OUT
We recommend to “Stay Out” of the Dow Jones Industrial Average Index
(DJIA) until the next quarterly update on November 29, 2006.
Review of the past 3 months
The Second Quarter’s 2006 US Corporate Profits announced today by the USA Government at www.bea.gov grew at much slower rate than in the first quarter. The result is consistent with our May 25, 2006 forecast. The Corporate Profits from current production (with inventory valuation and capital consumption adjustments) increased $49.5 billion in the second quarter, compared with an increase of $175.6 billion in the first quarter (blue line on the charts).
Since our last Recommendation to “Stay Out” when Dow Jones was at 11,211, the DJIA index nervously oscillated between 1O,706 and 11,383 ending at 11,383 level today.
Please note a slight change to the Profit line on the graphs due to the Government’s revision of 2003-2006 economic data announced during August 2006.
3 months outlook:
Our forecast remains unchanged. The latest Business Cycle Index (green line on the charts) remains well below its historical average level. This means unfavorable economic environment for the continuation of the Corporate Profits growth rate and correlated with it broad USA stock market represented by DJIA index.
The “STAY OUT of the market” periods identified by our proprietary methodology have been historically characterized by higher volatility and 40% chance of a major fall in excess of -20% (refer to “maximum fall” column in “Out Period” Performance table). While the methodology is good for identifying strong market upturns, it does not forecast which “Out Period” will experience a major fall.
The Charts above illustrate recent performance until August 30, 2006.
Next quarterly update is planned for November 29, 2006.
Sincerely
The
Business Cycle Investor
August 30, 2006
___________________________________________________________________
Individual Investors invest directly on the quarterly buy and sell signals in the large USA market index Exchange Traded Funds (ETF) or in an equivalent liquid USA market index mutual fund.
The ETF funds trade on the stock market just like normal stocks. One transaction in ETFs provide investors with diversified blue chip portfolio and solid dividends. Transaction and management costs are minimal.
The proprietary Business Cycle Index is an effective leading indicator of corporate profitability for the whole USA economy. The aggregate US Corporate Profits are calculated quarterly by the USA Government and published at www.bea.gov where subscribers may independently verify the forecast.
Corporate Profits have historically shown a high 93% correlation with moves in the major diversified USA stock market indexes: Dow Jones Industrial Average (DJIA) and S&P 500. Hence, the Business Cycle Index can be used as a leading indicator of the broad USA stock market.
The Corporate Profits for the whole US economy don't always move in the same direction or by the same magnitude as the profits reported by individual companies or even the DJIA or S&P 500.
More information about the research methodology can be found at www.businesscycleinvestor.com/methodology.htm
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