May 13th

Good Morning All,

Nine and a half weeks have passed since the March rally began, and after a really good run to the upside many stocks and the broad indexes are looking a little peaked. The tech sector (my particular favourite) has been undergoing some serious profit taking since the end of week eight, while agriculture and biotech stocks have continued to soar. Joining them, since the announcement of the bank stress tests of last week, have been a number of smaller bank operations and regional entities: CNB, COOP, FITB, SUPR and RF to name a few.

Many investors have remained on the sidelines throughout the rally as their disbelief in markets has been coloured by their reading of current economic headlines. I will not argue the point with the doomsters, beyond mentioning that stock and commodity markets traded to all time highs during 2007 in the face of dire long-term predictions by a few who knew that housing prices had peaked in 2005, and that bank asset statements were fundamentally flawed. It would appear to this observer that a 14,000 DOW or TSX was far riskier than the 6,500 levels we so recently visited. Now we are listening to the many....who don't know dick.

I have written of a five- to eight-week rally that would go away in May for a little while before it resumed its upward course to a 1050-1150 S&P mid-summer high. We have now passed the eight week window and a sideways correction has taken hold; the question before us "is how long will this last and how deep will the move be?" This conundrum cannot be answered with great conviction based on fundamentals at this stage, so we will have to fall back on technicals. For this I will rely on moving averages and David Nichols' "Fractal Report" wherein he states that a breaking close below 893 on the S&P500 would create a short term sell signal. I think this could take us to the 790 level, thereby recreating yet another generational opportunity. If, on the other hand, markets hold and then trade above 930 on this index, the race upward will resume and the momentum trade will be bullish.

Commentary to come at another time.

"If I could just get it on paper, I'd tell you what I think I did." Jimmy Buffett