Same 'Ole, Same 'Ole 2-15-07

Good Afternoon.

The market continues to exhibit remarkable resilience. Every time the Bears seem to get the slightest bit of an edge, the Bulls retake control and administer some more nicks and cuts to the ursine crowd. In fact, the Bears have been so battered over the past 7 months that the Bulls can easily have their way with them. Kinda reminds us of how Mr. Peepers from SNL devoured an apple. Think of that next time when the market suddenly springs to life as it teeters just above key support levels.

Big Ben has been doing his "thang" to the senate and house over the past couple of days. Essentially, he has reiterated the "goldilocks" scenario which has added more fuel for the Bulls. Many were dreading a more hawkish testimony; when that failed to materialize a nice relief rally took hold. However, the mojo seems to be a little light on this particular rally compared to the countless others that we have seen over the past several months. In fact, most of the upside has been coming from stocks that are bouncing versus any breakouts. This usually foreshadows better times for the Bears.

The earnings season is now complete and the corporate performance overall was lackluster. Amazingly, the market will look ahead to the preannouncement season that should start to make noise in the next few weeks. Market participants were disappointed with the corporate earnings growth and guidance which was announced in January. Therefore, they may be more hesitant in running the market up into the next go around.

The Gold and Energy stocks delivered a nice shakeout over the past month or two. They have since come back (especially Gold) and are starting to form a nice base at key levels. Oh, and Winter finally came to the Northeast despite what a few Energy Bears were starting to believe a few short weeks ago. OPEC has done a nice job of bringing down inventories and has even signaled that further supply cuts may not be needed. Are they anticipating tighter supply in which it would be difficult for them to keep up as was the case in early 2006? The U.S. Economy has certainly shown signs of stability taking the recession trade off of the table for the time being which also helps the intermediate term case for Oil.

If You Held a Taser to Our Head:
We continue to hold a healthy smattering of Energy and Gold longs. We also find ourselves dinking around with ultra short term trades on the long side due to our significant distrust of the market. We see many signs of danger and you can add the extremely poor relative performance of the Small Cap index versus the senior averages to our long list of complaints. Eventually reality will prevail and this market will give up a huge portion of the recent gains. The fact that the Dow and S&P 500 have not suffered more than a 2% correction since July is ominous. This type of action has not been seen in over 50 years and has made the job especially difficult for Money Managers who have any capability for market timing and or hedging. Only the Long Only funds are happy, in fact they are downright arrogant! Arrogance does not last long in the financial markets and always ends badly.

Hope you're doing well.

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