No Breakdown Yet

December 11, 2006
Mark Boucher

The benefit of the doubt still
belongs to the bulls we believe as long as the major indexes donâ€™t ALL break
below the levels of 11/28. Weâ€™ve now got a decent number of stocks
meeting our criteria for long exposure as well, and they are for the most part
performing well in the bull run.

We continue to recommend bond exposure be lightened as TLTâ€™s
(
TLT |
Quote |
Chart |
News |
PowerRating)
get above 92 but that bond exposure be maintained as a strong portion of
portfolios until evidence mounts that leading economic indicators are turning
higher.

Housing stocks broke above the 50% barrier and it looks as
though the turn up in the NAHB Housing Index has once again predicted a bottom
in these stocks. They are currently leading in terms of Relative Strength though
many in the group are forming bases that could be bought on breakouts.

Our thesis that the dollar will be unlikely to drop below the
78-80 level without a lengthy period of consolidation or even a substantial
bottom got some more credence this week as The Economist showed the falling
dollar on its cover. Major magazine covers generally come into play when a move
is NEARLY OVER, rarely when there is room for it to go further. With major
dollar support at 80, and news cover death having been delivered to the dollar
bear it is not impossible for the dollar to keep moving down, but it is
extremely unlikely.

So far oil seems to be basing while oil stocks continue to
lead the advance. We suspect that energy stocks and China region stocks remain
prime candidates for a major mania later this decade and that buying these on
corrections during the expected soft-landing will make good long-term trades.

Overall we still continue to suggest less than aggressive
allocation to global equities, however we would no longer look to add or
accumulate TLTâ€™s on corrections and would begin taking partial profits on TLTâ€™s
over 92. We still expect that the slowdown is not over and that the Fed will not
letup on a tightening bias until the slowdown develops more clearly so that
inflation does not reappear and get entrenched, but bonds gains have been swift
and further bond yield declines will become less likely unless a recession
develops. The risk of recession is still large enough that we would not suggest
selling ALL or even half of TLTâ€™s yet, but some profit taking will soon be in
order we believe. We also continue to like some pairs, and some select big-cap
dominated groups along with the small number of stocks meeting our criteria for
below normal allocation to stocks with partial short-hedging in weaker groups.

Lots of bonds (TLTâ€™s) and as well as similar sized big-cap
exposure still seems prudent to us here until the environment becomes clearer.
Long/short pairs and some broad big-cap exposure to some of our preferred groups
and stocks meeting our criteria can be participated in as well. The tradeoff
between bonds and stocks should be closely monitored as bonds are providing a
critical cushion to the blow of a slowing economy in what we suspect is a
budding soft-landing that often prove difficult to trade.

Mark Boucher has been ranked #1 by Nelson’s World’s Best Money Managers for
his 5-year compounded annual rate of return of 26.6%.

For those not familiar with our long/short strategies, we suggest you review my
book “The Hedge Fund Edge“, my course “The
Science of Trading“, my video seminar, where I discuss many new techniques,
and my latest educational product, the

interactive training module. Basically, we have rigorous criteria for
potential long stocks that we call “up-fuel”, as well as rigorous criteria for
potential short stocks that we call “down-fuel”. His website is
www.midasresourcegroup.com.

No Breakdown Yet

BUY THE FEAR, SELL THE GREED

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