Weekly Report

Market Vane Bulls is the second highest reading we have had since 1993. This supports our view that the recent action in semiconductor stocks, while speculative and unhealthy, is not a sign of an imminent market peak, and therefore a stronger than average second half of the year is likely. GLD could build a quick base here, with a slight decline in SLV, before the next advance above 400.

Stocks are trading ok but overextended on the main indexes. We have two forecasts for interest rates. The first is a short to intermediate-term forecast that rates will pull back to the bottom end of the consolidation. The second is that ultimately these will break out and move higher.

The idea here is that we are not seeing a rally in Growth, but rather in Tech. FBO Weekly Breadth Indicator suggests the rally is on thinner ice than most market participants see. We are expecting a big drop in oil soon. The question is whether it starts in June.

We continue see signs of excessive optimism. We are not sellers here, just deferring buying. What do FXI and KWEB charts say about the Chinese economy? We actually think the message is bullish longer-term, as stocks like Chinese financials and industrials are doing well.

We still expect choppy to down into the end of May or so and we will deploy the rest of our cash. The dollar is NOT weakening, and in fact is quite strong on an intermediate to long-term basis.

Stocks fell on Friday and although the decline was not severe in terms of percentages, the behavior of the fixed income markets has caused some fear in the press. We continue to look for some pullback into the end of May.

Here are some key numbers to determine if a pullback has started: QQQ below 687, and SPY below 727 would be strong indications. Above 104 on WTI would imply a test of the 115-area. On BRENT above 108 would imply a new high.

We believe that the markets are suggesting the economy is strong and looking past the Iran Imbroglio. Right now, trading support on WTIC is 89 or so, and on BRENT is 96 or so. Trading resistance on WTIC is 108 (lower than the 120 high), while on BRENT it is 115, the high for this move. A drop here in $GASO could fuel the strong second half we have been looking for.

Please add some small cap positions with a six-month time horizon. We would start to add MUB and LQD into fixed income models or add to them if you have them already.

April had the worst put call readings in many, many years and this should have a greater effect on prices than improving intermediate sentiment. IJR is making new highs while MDY is stalling. The bottom line for us is that we would still use strength to sell oil price sensitive stocks, slowly, to move to an underweight in this area.