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To: Kelvin Taylor who wrote (47893)	4/25/2003 7:04:35 AM
From: Kelvin Taylor	Respond to of 53068

Commentary about the market going forward: ...My take is that we will repeat the 2002 scenario with a 'fake-out breakout' to the upside followed by a break below support." My sense is that we are about to experience this "fake-out breakout." The stage has been set for such a rally by: 1) The so-called "resolution" of the war in Iraq. 2) The "free pass" trade as so ably described by Michael Santoli in the 4/7/03 issue of Barron's. According to Santoli, "Investors have decided to give the economy and corporate sector the benefit of the doubt, and are ascribing recent weakness to war-related developments." 3) The collective brain cramp experienced by the investment community during earnings reporting season, as the focus turns to "beating the Street number" as opposed to "the Street number is crappy, even if it's beaten by the usual penny." 4) Investors withdrew a chunk of money from stock funds in February and in the likely event that they withdrew again in March this would mark the ninth such month out of the past 10. Bear markets often take a breather by rallying to a level that begins to attract investors back into the market, at which point the decline resumes. My guess is that the fake-out breakout could carry as high as 9000 on the Dow, or about eight percent higher based on today's closing level. What will contribute to the rally's demise? I'd suggest the following: 1) Long-term resistance – in the 9000 area for the Dow and in the 950 area for the S&P 500 – at the 50-percent correction levels of the decline from the March 2002 top to the March 2003 bottom. 2) A lifting from investors' minds of the earnings reporting season fog, accompanied by a realization that first-quarter earnings were poor and the much-vaunted "second-half recovery" may be a mirage. 3) A resumption of the decline in the dollar, whose long-term chart screams "danger!" 4) A bullish extreme in investor sentiment. We've already seen some danger signals on the sentiment front, with the disparity of bullish vs. bearish sentiment in the Investors Intelligence survey at its widest since the January 2003 market top and with the CBOE Market Volatility Index (VIX) matching its extreme lows of November 2002 and January 2003. 5) A major depletion of the buying power provided by short covering, as forced liquidation causes short interest to decline. 6) Any indication that our troops will remain bogged down in Iraq or that the chance of war in other locales has increased. Market gyrations notwithstanding, I continue to believe investors should concentrate in small and mid-cap technology, Internet, and biotechnology names while maintaining a healthy cash reserve. Some exposure to beaten-down gold and airline names can be maintained by those of a more speculative bent. The largest-cap stocks in the major indices should continue to be avoided. - Bernie Schaeffer