Investors came out of the gate Monday morning ready to buy stocks. They also bought stocks on Tuesday and they went wild on Wednesday when the Fed announced the results of their Federal Open Market Committee meeting. Much of the buying was predicated on the belief that the Fed would relax its bias from raising interests to fight inflation to lowering interest rates to support the economy and to relieve the sub-prime mortgage problem. Apparently, the Bulls think they got what they wanted. Even though many analysts have disputed the meaning of the Fed's remarks, there's another problem.

The downturn which started from the February 22nd peak is incomplete. While the drawdown on the Price of the VectorVest Composite from the 02/22/07 peak to the 03/05/07 low point was 6.3%, and many market mavens think that was enough, our key market timing indicators suggest it was not. As I said in my essay two weeks ago, I like to see our Market Timing Indicator, MTI, go down to about 0.60 and the Buy/Sell Ratio, BSR, go below 0.20 to signal a solid bottom. This did not happen. The MTI went down to 0.69 and the BSR went to 0.38 on the 03/05/07 low point. So I'm not comfortable with the current rally. Moreover, I have a hard time seeing the market taking off from its current level.

Yes, the Fed said the right things last Wednesday to support a sustainable rally. In fact, it reminded me of 1995 when Dr. Greenspan was engineering the impossible dream, a soft landing. (See my essay of 09/29/06.) But can Dr. Bernanke do it now? Yes, I think he can. The strength of the world economy will keep the U.S. from going into recession. This, of course, would be very good for stock prices and I do expect 2007 to be a good year for the stock market. But I still would like to see a slam, bang, bone-crushing sell-off to provide the bargain prices needed for a long rally. Until the market consolidates and the MTI and BSR hit those trigger points cited above, it still has to complete some Unfinished Business.

THE HOMEBUILDER'S DEMISE.
Here's a blurb from an article written by Mr. Matt Blackman, a Trade System Guru: "With the benefit of hindsight, we know now that the real estate market peaked around mid-summer 2006. But a year earlier in August 2005, the VectorVest homebuilder's index, a basket of 26 homebuilders and suppliers, had already peaked. By the end of 2005, while the majority of investors continued to be bullish on real estate, chart readers and traders had begun to turn bearish. What did they see that the market didn't?"

Mr. Blackman shows the reader what he saw using stunning graphics from VectorVest. To access the article click on http://www.marketwatch.com/news/newsletters/gurus_corner.asp.

You may recall that I wrote about the Presidential Cycle in my essay of 12/30/05. It says, basically, that stock market performance is usually mediocre during the first two years of a President's term, but is quite good in the last two years of the term. We are now in the second year of President Bush's second term. Therefore, this indicator is saying that 2006 is likely to be only a so - so year for the stock market. This indicator was on the mark last year.

I wrote about the so-called "January Barometer" last year in my essay dated 01/21/05. This indicator, created by Mr. Yale Hirsch of Stock Market Almanac fame, says that the market's performance for the year will emulate January's performance. The Price of the VectorVest Composite fell $0.65 a share last January, so the market should have also gone down. The DJIA did, in fact, close down slightly last year, but the S&P 500 and NASDAQ composite were up slightly. The Price of the V V C was up 4.0%. I'd have to say that this indicator was also on the mark last year.

So both the Presidential cycle and the January Barometer worked last year. How are they doing so far this year? As of last night, the Price of the V V C was up 4.7%. Unless the market tanks over the next two days, the January Barometer is signaling an up market for 2006. The Presidential Cycle implies that 2006 won't be so hot, so it's not looking too good right now. But hold on a minute.

If one were to use 1998 and 2002 as examples, they would see that the market started off reasonably well in both of those years, then began to crumble in May and June. In both cases, the market bottomed in October and rallied strongly into the following year. If this market does the same thing, the early months will look pretty good, the summer months will be painful and the latter months will be those of recovery. In the end, the January Barometer will have done its thing early in the year and the Presidential Cycle should rule in the latter months.

If the Presidential Cycle works as it has in the past, the big rally which is expected to start late this year will last clear through January of 2008. So that's the story on Two Good Indicators.

THANK YOU VERY MUCH.
A new man, Dr. Ben Bernanke, will be taking over as Chairman of The Federal Reserve Board next Tuesday, January 31st. Many analysts are concerned about how well Dr. Bernanke will fill the very large shoes of current Chairman, Dr. Alan Greenspan. This was also the case 18 years ago when Dr. Greenspan took over from Mr. Paul Volcker.

The story of this transition was told in an excellent article, "Skepticism Greeted Greenspan, too," in yesterday's edition of USA Today. Mr. Volcker was a giant of a man, both physically and intellectually. He took office in 1979 when inflation was looking to go out of control. To make a long story short, Mr. Volcker took care of that.

What about Dr. Greenspan? How well did he do? There's a crowd in New York that doesn't think he did very well at all and criticize him at every turn. That's easy to do because anyone could allege that things would have gone much better had Dr. Greenspan done this or that. There is no way to know what might have happened had the geniuses had their way, so let's look at some facts:

Yes, there were three recessions and some economic slow-downs during his tenure. There were several financial crises, three bear markets and several market melt-downs, too. But through it all, Dr. Greenspan made the moves to right the problems and this country prevailed and prospered. Gross Domestic Product, for example, grew from $4.8 trillion in 1987 to $12.6 trillion in 2005 for a gain of 163%. Population rose 21.8%, from 243 million to 296 million, over this same period. So per capita spending is now greater than ever before. For investors, the S&P 500 went from 300 in August 1987 to 1,284 today, a gain of 328%. For that, I say nice job Dr. G., and Thank You Very Much.