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.