SPECIAL EMAIL REPORT

5/2/03, 10 A.M.

 

By Andre Weisbrod

 

This market wants to go up.  You can almost feel the pent-up demand. 

 

Yesterday's market showed resilience in the face of doubt.  At one point the Dow was down over 138 points, yet it ended the day down less than 28 points.   As it has been most of the year, the NASDAQ was even stronger, ending up over 8 points after being down over 12 points.

 

At this point, all the major indexes are meeting resistance.  The DOW needs to break through 8500 strongly.  Then it can mount an assault on the 9000 level.  For the DOW to climb back into a bullish trend after three years of this bear market, it must rise above 9000 and not retreat.

 

The S&P 500 needs to break through the 950 level, the NASADAQ the 1500 level and the Russell 2000 (small companies) the 415 level.  Some "backing and filling" before the next strong up move would make sense.  Strong support levels should exist at about 8000 for the Dow, 870 for the S&P500, 1345 for the NASDAQ and 370 for the Russell 2000.

 

For months the uncertainty of Iraq effectively kept the markets form advancing.  The war lid has been unlatched, but has not been thrown open yet.  The politics and practicalities of rebuilding Iraq will not be easy.  Add in problems with Syria and North Korea and you have a sticky hinge.  So far the Iraq undertaking has been extremely successful, but worries persist.

 

 


While the lid is ready to open, ongoing concerns about the general economy are providing another sticky hinge.  Almost daily we are faced with conflicting news.

 


Text Box: S&P 500 IndexMy view is that the balance of conditions has shifted toward the positive.  A string of good earnings and other economic news might be all it takes to launch stocks into a bonafide bullish trend.  Until then, the trading ranges of the past eight months are still in play.

 

Because a strong upward trend has not yet been established, I am staying relatively conservative with our stock funds.  Including cash positions in the underlying funds owned, I estimate we have around 20% cash.  I have also kept some of our hedge positions, though I have lightened up on these and have "nibbled" a bit in some sectors that have shown more strength.

 

From a long term perpective history would seem to be on the side of those with the courage to buy stocks during this time.  As you contemplate your personal decisions, consider the alternatives.  Money markets savings accounts and short-term bonds at 1-2% yields.  Quality intermediate bonds at 3-4%.  With inflation running at over 2.5%, how are conservative investments going to keep pace after taxes and inflation. 

 

Sooner or later stocks have to make money or we will have problems that would threaten our whole way of life.  If you have a basic confidence in this country and the companies that are its engine, then stocks are still the primary long-term solution to making real returns above inflation and taxes.