MY VIEW – THE SHORT TERM:  I continue to believe that the stock market will probably move higher over the next 5 weeks. 

Two weeks ago I indicated the stock market will probably increase substantially over the upcoming 5 weeks according to one market forecaster that has been accurate recently.  For those investors who have moved money out of the market, I recommended that you move some of the money back into the market now and then consider taking profits January 19, 2009 – depending upon what the 5 signals (discussed below) are telling us at that time. 

UPDATE:  the stock market showed some impressive strength to withstand some very bad news and still finish up (only slightly, but still UP).  So, I continue to believe that the stock market will probably move higher over the next 5 weeks.

MY VIEW – THE LONG TERM:  It is not yet time to return to your long term asset allocation portfolio. 

As we described nine weeks ago, many of you have reacted to our warnings and advice in the Weekly Commentary by moving some money out of the stock market.  You now have the challenge of timing your entry back into the market. 

Also, nine weeks ago we described five signals we have identified to give us an idea when to start moving money back into the market.  Here is an update on what those 5 signals are telling us about investing: 

There has been improvement in only one of the signals.  And, the real economy continues to suffer - the length and severity of this suffering is still unknown.  Unemployment is a growing problem.

But, the stock market has the capability of temporarily overlooking negative news and rebound even during a long term bear market.  Both the optimism surrounding President-elect Obama coupled with the short-term solution to the auto industry bailout will probably provide the basis for this short term move.  During the next 5 weeks the stock market could overlook the negatives in our 5 signals and move higher.

However, we recommend that you do not return to your long term asset allocation model until our 5 signals show improvement.  This is the eighth weekly report on them:  

1. The U.S. housing market – here we will track the Case-Shiller Index.  No activity noted this week.

2. Foreign money buying up healthy small and regional banks. No activity noted this week.

3. LIBOR – London Interbank Offered Rate – this is the interest rate that bank offer to lend unsecured funds to other banks.  Higher rates indicate stress in the banking system.  SOME IMPROVEMENT NOTED HERE LAST WEEK WHICH INDICATES THE FINANCIAL ECONOMY CONTINUES TO MEND.

4. The California economy – California, in many respects, has spear-headed the U.S. into this mess and will probably lead us out of it.  And, California is a microcosm of the U.S. because it contains everything from agriculture to technology to tourism.  No improvement noted this week.

5. A technical indicator – a reliable buy signal is when the 50 day moving average (of the S&P 500 Index) moves above the 200 day moving average.  No improvement noted in the 50 day or 200 day moving average trend lines this week.