Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

BCA research recently released its Strategy Outlook for the second quarter of 2009, and it’s definitely a must-read. According to BCA,

““The Great Recession of 2008 is probably passing its point of maximum strength and a return to some form of economic stability appears to be in the cards for the second half of the year. Therefore, we expect the reflation trade to dominate global financial markets for the remainder of the year... The biggest challenge going forward is whether policymakers can continue to implement policies that foster growth, stem price deflation and prevent renewed financial instability... Global equities have likely made their recessionary lows. Emerging markets and commodity plays will outperform. The equity markets of the US and the UK will do better than euro area stocks. Japan is a trading market, one due for a period of outperformance.”

Clearly, I agree with the folks at BCA; I too think “a return to some form of economic stability appears to be in the cards for the second half of the year” - probably in the fourth quarter, but most economic indicators should start showing improvement (except for employment numbers). I also think that “global equities have likely made their recessionary lows [and that] emerging markets and commodity plays will outperform,” and that the “equity markets of the US and the UK will do better than euro area stocks.”

Today is session 25 in my day count sequence, and I’ve learned the hard way that buying stampedes tend to exhaust themselves in 17 to 25 days. It’s rare for one to last for more than 30 sessions; the longest one lasted 41 days. Accordingly, I hold only half of the long trading positions scale-bought into the early March lows, and I continue to raise stop-loss points on those positions.

I would also advise hedging some of the long investment positions that have soared since their October/November 2008 lows. If past is prologue, what should happen now is this: Some piece of bad news should come out of nowhere to startle the markets. Consequently, the major indexes will decline for 3 to 5 sessions (sometimes it’s as many as 7 sessions), then they re-rally. In that re-rally, if the indices make new reaction highs, the rally can extend. If, however, they fail to better their recent reaction highs, then a more enduring correction should be in the offing.