Securities Research Services

Monday, May 08, 2006

Indices Look Good, but We Remain Cautious

The weekly views of all major indices are solid as we enter the phase of the market not known for a great deal of strength. Indices are moving up despite pressures from oil and a falling dollar that has gold threatening the $700 level. We frankly don't trust the rally in stocks here but we can also find no reason to try and stand in its way. If prices want to go higher, who are we to argue with them?

Even so, while there are some bullish charts the majority of set ups are risky and require chasing prices higher. We prefer to stay with commodities and foreign companies in the form of ADRs at this time in order to avoid the risk we perceive priced in to the broader US markets. There are some very nice solid trends in Japanese and European ADRs at this time and the risk is much lower and more manageable.

We believe that those who stubbornly attempt to run with the broader market at this time will find as we have for much of this year that more than a normal number of set ups will fail. Time will tell and if by the end of May it is commodities that have corrected and the Fed that has finally relented and seasonality has proven itself wrong this year, then we will relent and admit that we were perhaps overly cautious. We are not holding our breath.

Meanwhile, we are happy to remain with the strong foreign and commodities trends that do actually have some promise here.

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