I have been observing the following money flow indicators, indicators which I have followed for fifteen years: MZM (Money to Zero Maturity, formerly M2), the NYSE Money Flow Indicator, and the over-bought/over-sold indicator. After close analysis, I have discovered these three money flow indicators are telling us the following.
MZM has held at a positive 10% for the last several weeks. This is good but it must move higher in order to sustain a new rally. A positive 15%-20% position would provide enough liquidity for the economy to sustain a rebound without too much overheating for the near term. One reason why liquidity is slow (fair) to negative (really bad) is because foreign investors sold $13.4 billion in US stocks in March according to the US Treasury Department. This sell-off took the Dow from 10600 a tad above 10000 in late March. Bargain hunters pushed it back up to 10500 in early April. Foreign selling negated the bullishness of domestic buyers, ending April's Dow rally at 10300.
Every negative button for dollar value was punched during the first 18 days of May. Consequently, the dollar began moving lower, causing more and more foreign stockholders to sell US stock holdings eventually causing the Dow to tank below 10000. The continued selling of foreign held US stocks prompted this. Therefore, one can assume that considerable numbers of foreigners have already begun taking profits from huge gains in Chinese stocks.
The NYSE Money Flow Indicator has finally dropped below zero at approximately negative 2000 (or just below). It is very likely that the market will receive an over-sold bounce once the NYSE Money Flow Indicator drops between negative 5000 and negative 10000 (see May 04 issue, page 8).
The oversold-overbought indicator is a moving average of stocks. It measures the number of stocks that move above or below the moving average (MA) of their own price for the past 10 weeks. The stock market is considered oversold when only 30% or less of a stock's price remains below its ten-week MA. As of May 15, this indicator is slightly below 30%, indicating that the market is oversold on the short-term and is ready to rally.
Gold fell below its long-term support of $375 per once, but has since moved slightly above support. Gold is currently at $375.50. Gold moved down from its high of $430 because of China's high anxiety over its rising prices, the rebound in dollar value, and France's announcement that it will consider selling off a substantial amount of its large horde of gold. These factors, as well as investor caution, forced the price of gold to fall drastically.
The Finance Minister of France would have been tarred and feathered had he sold their horde of gold during the recent decline in prices. A fall of $5 to $10 below the $375 level could spell major trouble for gold. Short-term market forces (higher interest rates and dollar value) could cause the price of gold to fall further. The good news is long-term market forces will eventually push the price of gold to new highs. I see higher prices in the future, not lower ones.
Let us take a look at some of my micro cap stock picks. Golden Patriot Corporation (GPTC), a gold exploration company, is still above the recommended price of $0.36, at $0.39. GPTC plans to implement its drill strategy sometime in June or July.
eFoodSafety.com (EFSF) is a food and water purification company with a revolutionary, patented water sterilization process. I recommended the stock in my newsletter at $0.36 and it is currently $0.71. This stock has gained as much as a 100% over the past few weeks, but recently fell back nine cents.
JoyStar Travel (ARGT) is a great service. It personally provided me with the best price on both airfare and hotels for my June trip to Europe, where I will be visiting BFI Consulting in Switzerland in preparation for my Nassau, Bahamas seminar on September 21-23. In my opinion, JoyStar beats by far all the other Internet travel agencies. Its price is currently $1.29. This is the first time I have mentioned this company, but it will not be the last. I am impressed by its unique travel concept and I will explain this in upcoming issues. I may have found a moneymaking Internet travel agency micro cap stock, but I know I have definitely found my new travel agency.
The market's volatility should keep us cautious and vigilant. Stay disciplined and practice your money management strategy-sell stocks if they lose 15% shortly after purchase and sell if a stock makes a profit over 35% or when it loses 25% of profits.
Kenneth Coleman
