The main point about the stock market

The main point we have made to you about the
stock market
is that despite weakness in many sectors, despite high oil
prices, despite higher interest rates, despite a slowdown in housing,
despite the end of the world coming, despite a crashing dollar, until the
major averages break support, the "market" gets the benefit of the
doubt. Happily, not only has the market held support but most major
indices have now broke out to new highs. It is a positive that the DOW has
moved to new highs. It is a positive that the S&P has moved to new highs.
It is a positive that small and mid-cap indices have moved to new
highs…and it is a positive that the leading and powerful TRANSPORTS just
continue to roll. We know the NASDAQ, NDX and the SOX continue to lag but
in the NASDAQ and NDX case, you have INTC, DELL and recently MSFT on the
morphine drip along with the horrid action in popular INTERNET names like
YHOO, EBAY and AMZN gagging. You can also add the recent $60 drop in GOOGLE
to account for all the laboring.  It is also a positive that WORLD MARKETS
continue to be on a roll and in fact, some areas are just sizzling. We do
believe there has to be a pullback in WORLD MARKETS soon as most have
become ridiculously extended…but momentum is momentum. We have already
been asked about the light volume on Friday and whether it was a worry.
You would have expected stronger volume for such a move…but revert back
to our first thoughts. Until support is broken, the market gets the



BONDS were due for a bounce based on lower
OIL PRICES as well as the fact BONDS have been oversold. BONDS rallied on
Friday. Of course, everyone is saying that BONDS rallied because of the
jobs report. We disagree. The jobs report contained a few numbers that
were bond-unfriendly. This was about a deep oversold condition. Keep in
mind,  longer-term, BONDS are in a bear market. They were just due to
bounce somewhere.

OIL prices have topped out near-term.
Hey…maybe we will get some relief at the pump. We suspect OIL STOCKS will
follow suit. They are extended and overowned…and due for pullbacks. This
does not change the longer-term bullish stance.


Sector time:


Let’s start with what is not working.


HOUSING remains in a deep bear market. All
bounces are sellable. It is only now, after a huge drop, are we getting
poor numbers out of HOUSING companies.


The SOX has been acting better and is coming
up the right side. But with charts like ADI, LLTC, QLGC, SLAB, CREE, NVLS and
the puke INTC, it is a split game in this group. The best looking names
are easily LRCX, CYMI, OVTI, NSM, TXN, ZRAN, MU and TSM. We feel these
names can be exploited on any pullback.



BROKERS bounced sharply on Friday with the
rest of the stock market…but continue to show overall distribution. At the very
least, we believe this group has lost the momentum it has had for a very
long time. We do believe there are still some names that are not under
distribution like UBS…which is very strong, GS and JEF. Names like MER,
LM and LEH have been lagging. The same goes for a few of the INVESTMENT
MANAGERS but love the action in names like SEIC, MEL and STT.


We continue to dislike most areas in the
MEDICAL group. HMOs, BIOTECHS, PHARMA have been under distribution. We
suspect some bouncing is in order off of a deep oversold condition but
until we see volume patterns change, we are wary. There are a few names
that we do like. GSK and BMY in PHARMA…and CELG in BIOTECH for instance.


We have been negative on UTILITIES for months
but things may be changing for the better. First off, TXU is a monster and
should be looked at on pullbacks. We are also liking the action in names
like PCG which is breaking out as we write this.


MICROSOFT- We are in the camp that MSFT may be
headed into DELL and INTC territory…which means some sort of a give-up
phase. DELL and INTC have been slowly leaking to the downside as the
massive overowned position is worked off. Look at the action of these
names…in a good stock market. 


On the good side:


We gave you the BIG BANKS on the set up, the
day before they broke out. They are now rolling. BAC, WFC, WB and even C
have moved to new highs. At this juncture, we would wait for pullbacks
before buying. This is a good sign for the stock market as we have never seen a
stock market get in trouble when this group was moving out. (As of this writing,
WB is down on buyout of GDW.)


GOLD remains in full bull mode. Just keep in
mind that the metal is very extended while the leading stocks need
pullbacks at this juncture. GOLD is probably the most extended investment
out there. Nothing has changed longer-term though.


Other COMMODITIES remain in great shape. They
are also in bull mode but in dire need of pullbacks. In bull markets,
corrections can be as large as 20-25% and be very violent. Nothing has
changed longer-term either here as we would buy all pullbacks into moving
averages and support.


The TRANSPORTS remain in full bull mode. We
continue to be amazed by the leadership in this index. EXPD was the latest
to go bonkers to the upside. AIRLINES continue to be in great shape as AMR
and CAL came out their right sides. Add GOL, LCC and ALK to the strong


For a change, we are now liking the MEDIA
group. We love the recent action in CMCSA and CVC in CABLE and liking
names like NWS, UVN, TV and V.


Sell in May and go away!" As of this
second…NOT! If the stock market decides to top, we will get a few clues before
the party is over. Major averages are singing a different song so far.  


Lastly, there has been a definitive not so
subtle change as mega-cap companies are now getting money flows. We gather
this has something to do with the falling dollar as earnings go up in that
environment. Time will tell whether these companies like KO (which is
starting to move out) have legs to the upside.