Amsterdam,

Monday July 26th, 2010. Issue #8, 2010 Market in uptrend A free newsletter from Eirik W. Moe Send an email to eirik.moe@gmail.com if you would like to be added to the distribution list. We are looking at the following in todays newsletter: We have just entered a new uptrend, but you should continue to be cautious Inflation anyone? End of fiscal stimuli proves that the economy looks weak John Paulson From hero to villain in a matter of a few years? And as always my overarching views (with minor editing)

We have just entered a new uptrend, but you should continue to be cautious All my indicators indicated that the market turned to an uptrend on Friday July 23rd. Many of the major US indexes have also broken through both their 50 and 200 day averages and also above the upper boundary for the downward sloping trend channel. I am not fully convinced about the markets ability to sustain the uptrend going forward and would have to see much more strength to be more comfortable with the new uptrend. Even with the market in a new uptrend and close to or having broken through near term resistance levels make sure that you are on alert. We are now going through extraordinary times. The volatility that we have seen in the market lately is a sign that the market players experience a large degree of uncertainty. It is furthermore a sign of a very unhealthy market were you need to be extraordinary cautious with your investments. One out of every three trading days since April 26th has seen either panic buying or panic selling (days where 90% or more of all stocks go either up or down respectively). This is truly extraordinary and a sign of a very unhealthy market. If the market was consistently bearish it would suggest that an important bottom was approaching, like we saw in March last year. If the market was consistently bullish it would also suggest that we most likely would see a multi-month bull market. But in the case were both conditions exist at the same time, like now, it probably means that stocks are setting up for dive. The major dive that I am awaiting will most likely not happen without a signal for a new downtrend has been generated. As the bear market progresses, try to keep in mind the intensity of the few stock market surges that we have seen lately because it should be seen and felt many times over the coming years of bear market. Some of the strongest up days in a bear-market bounce occur near the end of the rally. Inflation anyone? I also wanted to show you another chart that I think helps explain what is going on in terms of the inflation picture. Typically when the Federal Reserve is stimulating the economy, it pumps money into the banking system and then banks lend out more than they receive; this has a multiplying effect. However, because many banks are in danger of failing, the government is requiring them to increase their reserves, and many banks view the activity of loaning money to businesses and consumers as being too risky now. Thus, they are not lending out the new money they have been getting from the Fed. The graph below, from the St. Louis Federal Reserve shows this happening with the M-1 money multiplier. When banks lend less money, the multiplier goes below 1.

 End of fiscal stimuli proves that the economy looks weak Highest federal income tax rate rises to 39.6% in 2011, highest federal dividend tax rate rises to 39.6%, capital gains tax rate rises to 20%, estate tax rate rises to 55%. And if people know tax rates are going up next year, what they will do is they will shift income into this year, obviously, to take advantage of lower tax rates now. And if they do that, that will make this year look a lot better than it otherwise should and make next year look a lot worse. But the current numbers are fine. That's what you'd expect when people are accelerating income in the present. Just before they eliminated the cash-for-clunkers program, auto sales looked great. And the same thing with the housing starts - when they still had the USD 8,000 tax credit. After the cash for clunkers stimuli was over, car sales fell immediately 35%. Also home sales went straight down after home buying incentive of USD 8,000 expired in late April. This proves my statements that the economy is not improving without artificial help, and that the recovery is not sustainable. John Paulson From hero to villain in a matter of a few years? At this point, the peaking process has gone on so long that people who are normally and successfully suspicious find themselves in angling after bargains. A number of savvy hedge fund managers and market luminaries are jumping in to capitalize on the decline from the April highs. John Paulson, who gained infamy by predicting the United States housing bust, is sticking to his bullish stance after losing almost 9% in the first half. A broader, collective sigh of relief may be needed before the downtrend resumes, which we could find in the period we are entering now, but it wont take a lot to bring on the slide which will be even more intense than what the May-early July preamble. I like to look to what the proven experts in the market say and do, but I have a feeling that Paulson might be proven wrong in his wrong bets and that he will go into the history books as the investor who had one lucky shot. My point is that you should always be careful to whose advice you listen to even if they have become sages through their previous investment acumen. Do your own analysis, listen to what is said and done out there, but always be very critical to what you hear. These are my current main thoughts on our outlook: - We are (have been) in a bear market rally. I have no clue when the market will finally top out. Maybe it happens with this correction, maybe not. But I would say it is likely to top out by the latest by end 2010, but the likelihood increases for every correction we enter. Hard 2

to say how much the record liquidity provided by governments around the world could continue to fuel a potential prolonged rally. - Liquidity is what is driving the market, and almost all markets and asset classes have been highly correlated. It is therefore very hard to diversify away from any risk at the current moment. Because of all this liquidity the market could grind on for a little longer. - Expect the USD to strengthen against almost all other currencies in the medium-term. This turn will most likely correspond to the turn in stocks. The USD will strengthen as people want to minimize risk exposure. The USD is however most likely to fall in the longer term together with most other fiat-currencies. - Everybody seems to believe that we will see inflation. Jim Rogers and Marc Faber are both a 100% certain that we are entering hyperinflation. Both extremely successful investors over many years and their views should be reviewed with care. I still believe we will see deflation first as credit and debt is reduced. Long-term I can potentially see that we could enter hyper-inflation. - Bearish on Gold for the medium term. The only major market that has continued to create substantial new tops since 2008 is gold, so this is a market on which investors are now fixated. First it was real estate that would never go down; then it was stocks; then it was commodities; now gold is the only market left on which people can express full optimism. People should though own physical gold and I would continue to buy a little physical gold each month. You want to own gold for the long-term. - In short I am bearish on all typical long markets (equities, non-USD currencies, most major commodities, precious metals, real estate). I think the continuation of the bear market will take us well below the lows seen in March 2009! - Commercial real estate looks very bad and the Chinese stock market will probably correct more than the US in an eventual continued bear market. Also Chinese real estate looks very expensive. In other words, no decoupling of emerging markets. It was a short newsletter this time. Hope you could enjoy that for a change. I will however start working on another one right away and I have a feeling that it will be a longer one. Until then, enjoy the summer, happy investing, and spread some love, Eirik W. Moe I send out these email alerts only when there are indications of larger trend shifts in the markets to try to keep them to a minimum. As always, please let me know if you would like to be removed from the distribution list. No hard feelings : ) Feel free to forward this email to anyone who you think might enjoy it. Please also let me know if you, or anyone you know, would like to be added to the distribution list. Just a reminder: I dont give investment advice. If you choose to invest based on what you read in these newsletters you are on your own. You cant sue me to get your money back or to make me come and snuggle with you to make you feel better. Make up your own mind of what you believe and act accordingly. Dont listen uncritically to other peoples advice. Be the master of your own life. Dates for previous emails that I have sent out (all can be made available upon request): - June 30, 2010 Call: Market in correction - June 16, 2010 Call: Market in uptrend - June 9, 2010 Call: Market in correction - June 3, 2010 Call: Market in uptrend - May 5, 2010 Call: Market in correction

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April 26, 2010 Call: Market in uptrend January 25, 2010 Call: Market in correction November 9, 2009 Call: Market in uptrend October 28, 2009 Call: Market in correction August 24, 2009 (attached below) Call: Market in uptrend August 18, 2009 (attached below) Call: Market in correction June 2, 2009 Uptrend (Nasdaq broke through 200 day line in higher volume) May 5, 2009 Uptrend (beware, Nasdaq is testing 200 day line) March 16, 2009 Call: Market in new uptrend February 18, 2009 Call: End of rally attempt, back in correction January 14, 2009 Call: Market in correction December 3, 2008 Call: Market in uptrend September 5, 2008 Call: Market in correction August 2, 2008 Call: Market in uptrend May 28, 2008 Call: Market in correction

All of the above represents my own views. It is a mix of information written by myself, taken/copied from various leading newsletters, journals, equity analysts and news organization. Some sources that can be recommended include: Agora Financial, Investors Business Daily, Elliott Wave, Robert McHugh Main Line Investors, Marc Faber, John Mauldin, Jim Rogers, and Mish Shedlock to just mention a few. Development in S&P 500 (closing prices) with trend of market based on dates of newsletter

Red line indicates date of newsletter confirming correction/downtrend Blue line indicates date of newsletter confirming uptrend

 Glossary
Distribution day: A distribution day involves the significant decline of a major index in increased volume. It indicates big- money selling. Three to five distribution days over a few weeks, along with poor action among leading stocks, is the pattern that will often end an uptrend. The distribution day count will be reduced by two factors: Time and price appreciation of the index. A distribution day is eliminated after typically 5 weeks and after a run-up of the index of typically 10% above the distribution day. Follow-through day: A follow-through day is a day where one of the indices (Dow, S&P 500 or Nasdaq Composite) closes up 1% or more for the day. The market's volume for the day should be above its average daily volume in addition to always being higher than the prior day's trading. A follow-through day should give the feeling of an explosive rally that is strong, decisive, and conclusive, not begrudging and on the fence. The most powerful follow-throughs usually occur on the fourth to seventh days of the rally, counting day one as the first up day after a bottom has been reached. Follow-throughs after the tenth day may indicate a positive but somewhat weaker new uptrend. An initial follow-through can occur on any one of the indices and is usually followed a few days later on another index. Top-rated stocks/fundamentally strong stocks: Companies that have the best growth prospects both in terms of sales and earnings, both quarterly and yearly over the last three years. High ROE. Best relative stock price performance. Increased ownership by the best performing mutual funds. Share price typically goes up on increased volume and down on lower volume. Usually have a new product or something else that is new about the company that has stimulated, and will continue to stimulate, the earnings- and sales growth. TRIN: The TRIN (TRading INdex) was developed by technician Richard Arms, and has become a staple of almost all technicians' cadre of indicators. Simply enough, the index is calculated as follows: (advancing issues / declining issues) / (up volume / down volume) A reading of 1.0 typically shows that there is even pressure between buying and selling. As selling pressure increases, the TRIN increases. As buying pressure takes over, the TRIN drops. Therefore, one usually sees very high readings near market lows and extended bouts of low readings near market peaks. Disclaimer: First of all, I am shocked to live in a world where we even need to add disclaimers to opinions that we write. It is a shame. So with sadness in my mind and tears in my eyes, here goes. The content in this newsletter is provided as general information only and should not be taken as investment advice. All content shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are

solely the opinions of the author. The author may or may not have a position in any company. Any action that you take as a result of information or analysis in this newsletter is ultimately your responsibility. Consult your investment adviser before making any investment decisions.