Daily Market Assessment

Last week finished on a very positive note. In ten days the market recovered almost all of its losses; in fact, the S&P500 is actually up 1.3% YTD. Over five trading days the DOW reclaimed 541 points and a new rally was confirmed. We are definitely back into bull territory!

What was the cause of the quick bounce-back, you ask? Thank Uncle Ben (Bernanke, that is). His comments following the FOMC meeting last week did two things: secondly, he removed the Fed's bias toward additional rate hikes which had been haunting the market all year; he indicated that the Fed thinks they have control of inflation, which opens up the possibility of a rate cut!

Right now Merrill Lynch and Goldman Sachs are scoring a 100+ basis drop in the next twelve months as a 75% probability! Believe me when I say that a drop from the current 5.5% down to 4.5% in four quarters would stimulate the market enormously.

Remember, it's not what will happen that counts in the market. It's only what people with money BELIEVE will happen that counts! The long-overdue correction this past month, plus a positive outlook from the Fed is just what the traders needed.

One of the more interesting aspects of the rapid recovery from our sharp 6.7% fall-off from February 26 to March 7, is the way in which the Fibonacci numbers have been hit on every major index. We are showing a 61.8 retracement on the DJI, the SPX, and the COMPQ. Since we are leaving for Italy this week, I am taking the close adherance of the markets to the numbers theory of a 13th century Italian mathematician as a positive sign overall.

All this optimism does not stop me from being cautious this week, however. It's going to take a few more closings above these current support levels for a new base to become firm. I look for sideways trading between 1410 and 1436 on the SPX, and a few down days preceding the holiday weekend (Good Friday). In fact, the another area of concern on the market overall was the lack of really large confirming volume. We need to see everybody back in the pool. Also, Schaeffer's put/call options index (SOIR) is strongly bearish, having achieved four-year highs late last week. A contrarian would see that as bullish, but I would hope for an evacuation effort by the shorts this week. The quick recovery apparently caught them with their pants down.

Strong industry sectors include transports, energy, brokers, biotech and software. Weak sectors are semiconductors, retail, computers, homebuilders and pharma.

Summary: Short-term neutral; long-term bullish.