THEME: CAPITULATION

"It is probably no surprise to most that the DJIA is significantly undervalued to the [Nasdaq-100] by nearly any valuation measure used," writes Bernstein. "The catalyst for a change in leadership between these two indices might be the deceleration of the profits cycle. Even the biggest of bulls are forecasting that the profits cycle will decelerate in 2004, and the DJIA has recently tended to outperform the Nasdaq-100 when the profits cycle decelerates." (Merrill Lynch Research, Oct. 27)

Capitulation from the most vocal of bears.

THEME: SMART MONEY

"Test time: Will the S&P now mimic the Nikkei in late 1993?" asks Hyman. "On cue with the Nikkei's early 1993 pattern, the S&P rallied through the first part of 2003, but now the Nikkei's pattern suggests the S&P moves down into early 2004." (ISI Group Research, Oct. 28)

Ed Hyman was correct in calling the up cycle. He is an early indicator of a possible down cycle.


MEME: PRESIDENTIAL CYCLE

"Since the beginning of this year, I've been predicting a classic Presidential-election upturn cycle for the economy and the stock market during 2003 and 2004," Yardeni writes. "Increasingly, it seems to me that we are experiencing not just a classic rerun of this cycle, but the textbook version. We have (1) very easy money and (2) very simulative tax cuts. In addition, the Bush administration has (3) talked the dollar down, thus giving a competitive lift to manufacturers in key electoral states. What else could they possibly do to boost the economy and stock prices before next year's election? I believe that they have one more trick in their bag of tricks. The Bush Boys and Girls might (4) rev-up oil exports from Iraq next year." Prudential Equity Group Research, Oct. 17)