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Driftwood

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I'm taking some time to research a longer piece for Monday, but here are some quick thoughts about today.
I keep being asked by various media outlets about how consumers were sitting on their couch watching the war in Iraq. The thinking has been that spending would be weak for now. Then, once the War is over, consumers will get back up, feeling much better, and go spend up a storm creating the much needed economic recovery.

Uhhh, howd that theory work out, given the much stronger-than-expected retail sales number in March? And does that mean the expected economic spike for April may not happen? I am not sure and will wait to hear Brian Reynolds' take on it. One thing for sure, the media will be all over the question.

I was just chatting with Brian about the above point and he pointed out that the economy did nothing after the Gulf War, and that led to a 10-year move in stocks culminating in the bubble. The main difference between now and then is that bonds were in a secular bull market during that 10-year period, and that's unlikely to happen this time.

To show you just how neutral the market looks relative to some of the daily indicators I use, the percentage of oversold stocks in the OEX is 19, while the percentage of overbought is 24. Those are pretty equal and everything else is in the middle. Basically, the market is in drift mode looking for the next catalyst. It is a little different in the NDX where 32% are oversold and 9% are overbought. Not yet compelling either way but highlights Toddo's recent S's over N's comment.

I've heard a number of people talking about early-cycle stocks doing well. Doesn't that typically happen coming out of a recession? I'll have to do some work on that one after a year of being out of recession. Looking at the chart below, this economic recovery isn't too dissimilar to the one after 1991 recession and first Gulf War. In that case, the market and cyclical stocks bottomed in the recession and then never looked back. That isn't exactly the case now. Be careful about using traditional frameworks in a non-traditional environment.

Volume continues to be weak, especially relative to the bull market. Sure, there has been a pickup, but how important is it when stocks under $5 comprise a large part of the volume? Since the beginning of the year, Lucent (LU:NYSE), stuck under $2, has averaged 45 million shares a day. How meaningful to the overall trend can that be?

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No positions in stocks mentioned.
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