Market Analysis for Feb 17th, 2003

I am one of those people who thinks in terms of cycles and phases, and who believes whole-heartedly in the truism and reality of the expression: "For every action there is a reaction."

In other words, after a bull market from 1982 to 2000 (18 years), now we find ourselves in the reaction, which could last 5, 6, or 8 years- based on proportionality, couldn't it?

Or, how about the Clinton Years? Apart from his innate intelligence, and his mastery of the political game, Clinton was one lucky son of a gun... the economy, the stock market, interest rates, forgeign policy, etc... you name it, and Clinton enjoyed the fruits of it. His biggest problem was Monica... not Bin Laden- although many people now believe the terrorist should have been...

For those of you who live in NY or the Northeast, this has been a brutal Winter- cold, and snowy, moreso than we have experienced for years... Businesses in the NE have suffered from a sluggish economy, threat of war and renewed terrorism, slack consumer confidence, and NOW, A BLIZZARD on top of it all. This 3-day holiday weekend was supposed to be a retailers delight, right? Well, between the threat of terrorism that existed going into the weekend, and the devastation of the blizzard, few if any buisnesses capitalized on President's Day. In fact, most could not even open for business.

When the retail sales data come out next month, remember what the blizzard was like, because it likely sucked the stuffing right out of parts of the economy as well....

To me, this is a Bear Market Blizzard, and appropriate for the times we are living in. It seems that everywhere we look there are major challenges- financially, emotionally, militarily, politically... on and on and on...

Yep, this is the flip side of The Clinton Years, and it seems to me that we are smack in the heart of it... And President Bush got caught holding a number of bags that he certainly did not bargain for....

If my perceptions are correct about the ferociousness of this bear market, and we are in the heart of it, then rallies like the one that transpired on Thursday, Friday, and today are counter-trend affairs that should be used by investors to exit some portion of their long side exposure, and/or establish hedged or short positions. Unless the rallies exhibit bullish form, and until the masses are scared to embrace every advance as the beginning of a new bull market, my suspicion- and my work- tell me to beware of the bull trap.

Finally, you might ask am I hopelessly bearish? And do I look for signs of THE BOTTOM or THE TURN?

The answer to the first is, NO,, while the anwer to the second is, definitely.

Right now, despite the upmove in the March S&P from 805 to 842, the pattern and the sentiment argue against Thursday's low being THE sustainable turn that we all desire.

And on Tuesday morning, as Washington and the Northeast dig out from under the crushing weight of all that snow, we still will be faced by a blizzard of uncertainty about Iraq, N.Korea, Al Queda, the growing anti-war movement, the increasing isolation of the Bush Administration and the U.S., the strength of the U.S. economy, and the efficacy of the Federal Reserve... among others.

Is the worst behind us? Have investors discounted the worst at this point? Let's put it this way- as the old adage goes: Let's hope for the best, but expect (be prepared) for the worst. And that means we continue to trade defensively until signals that this bear market are history -- signals that we just don't have yet.