| Fellow Investor, Investors have done an impressive job of shaking off a litany of negative storylines and jumping back on the bullish trend to higher stock prices. But let's not lose sight of the fact that S&P 500 bounced right where it should have, at 1,250. Today, it is challenging the next resistance/support level, at 1301. The Apple Complex of tech stocks, which I referred to as a measure of investor sentiment, is also rallying. As TradeMaster Daily Stock Alerts' Jason Cimpl told his members this morning: Yesterday's swift turnaround is a constant reminder that buyers still dominate the long term trend. The bulls have been stopped by 1301 resistance this week, but if they take it back, I'm looking for 1335 and then it's off to fresh highs. Today could be a gap and crap scenario, but the bulls have proven their ability to fend off negative ambiance and move the indices higher. And so you know, Jason has added four upside positions in anticipation of the current recovery rally. *****But let's not lose sight of the challenges the economy and the stock market are facing. Upheaval in the Middle East continues and governments there are ramping up violence to quell the protests. It's reasonable to ask what happens if the violence gets worse. Will the U.N. back a no-fly zone over Saudi Arabia like it did in Libya? That would seem unlikely. I'm no fan of Qaddafi, but it's very clear that Western governments are playing favorites in the Middle East. When it comes to a major oil supplier, I expect righteous indignation will be replaced by more practical concerns. I understand the French foreign minister even said that the action in Libya should serve as a warning to Saudi Arabia and Syria. That's as a naive a statement as I've heard in a while... *****The "Japan rebuild" trade is on, meaning that investors are anticipating profit growth for companies that would help Japan rebuild after the earthquake/tsunami tragedies. Stocks like Caterpillar (NYSE:CAT) and solar stocks like Trina Solar (NYSE:TSL) have made solid moves. Despite the rebuild, Japan's tragedy will be a drag on global GDP. China is expected to lose at least half a point of growth. While rebuilding does boost revenues and profits, it's also an inefficient use of resources. We can expect the rebuild to further inflate industrial commodity prices. | Special opportunity, article continues below.
| |  | | Isn't it time for you to take control of your finances and start building your retirement wealth? | 5 Winning Funds Financial Advisors Aren't Telling You About It should be a crime. There are funds out there making real profits for investors right now, but financial advisors and brokers aren't directing their clients to them.
Why? In some cases it's just plain ignorance; they have a list of their favorite 10 or 20 funds and those are all they ever direct their clients to. In other cases, it's just plain criminal that they promote only those that they get compensation from the brokerages on, whether you make money or not.
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| *****Investors have been somewhat distracted by the events in the Middle East and Japan. At some point, I expect the looming end of QE2 to become a concern. There should be no doubt that QE2 liquidity has found a home in the stock market. It seems inevitable that some kind of correction for stock prices will occur, assuming, of course, that the Fed doesn't signal that QE3 is right around the corner. David Rosenberg, of Gluskin Sheff says we've already been given a roadmap of what will happen when QE2 ends: Last year, from April 23 through to August 27, the Fed allowed its balance sheet to shrink from $1.207 trillion to $1.057 trillion for a 12% contraction as QE1 drew to a close. During that time period, Rosenberg details, the S&P 500 sagged from 1,217 to 1,064. In addition, the S&P 600 small caps fell from 394 to 330. We should also recall that drop in the S&P 500 also coincided with a very uncertain outlook from Cisco (Nasdaq:CSCO). Peter Boockvar, Miller Tabak's equity strategist, expects the Fed to see how the U.S. economy responds to the end of QE2 before introducing more stimulus. But he sounds an ominous warning: "When you have Ben Bernanke running the Fed then you have to remain in hard assets.....That's commodities, precious metals and as much non-dollar exposure as possible." Whatever the longer term outcome, I expect the old stock market axiom, "sell in May," to hold true this year. Look for traders to push prices higher ahead of the May deadline. *****Then there's situation in Europe. Portugal's Prime Minister just quit as his government favors a bailout (that could be as much as $99 billion) over austerity measures to reign in debt. Warren Buffett told CNBC that the EU falling apart isn't "unthinkable." *****Finally, there's oil. Oil prices hit $105 a barrel yesterday, but oil stocks have not responded well to the latest ramp in prices. Exxon Mobil (NYSE:XOM) has moved lower since February 22. It's hard to imagine that stability will return to the Middle East in the near future. And so it's reasonable to expect that the "fear premium" for oil will remain in place long enough for oil companies to lock in higher average selling prices.
The weakness in oil stocks over the last few weeks is something to keep an eye on. Until tomorrow,  | Ian Wyatt
Editor
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