The First Day of Spring

Spring is usually busy for me, but 2007 has been atypically hectic. It's been two months since I've posted, and I want to thank everyone for their e-mails and PM's. Rest assured, my sabbatical was merely an illusion: I've followed the market every day, maintaining my normal routine. I just haven't had the time or energy to write about it.

In my last post (Jan 28), investors were waiting for the bears to follow-through and give the stock market its first real correction in six months. As it turned out, investors would wait another full month (20 trading days) -- and 4.1% of further gains -- before the market finally obliged and sold off.

Then, in just five sessions, the NASDAQ tumbled almost 8%. Triggered by the infamous 9% down day in China on Feb 27, the US pullback sent volatility soaring and bearish sentiment skyrocketing. Last week, bearish readings at lowrisk.com hit a 9-month high. Blogger sentiment at Ticker Sense pegged the needle, posting the highest levels of bearishness ever recorded! Put buying exploded, newsletters turned bearish, QID volume ballooned, the VIX doubled, and "carry trade" and "subprime" reached pop jargon status.

Curiously, while all of this was happening, the SPX shed just 6.8% and the Dow just 6.6%. This was an unusual disconnect, made all the more strange by the price of copper. As the world-wide markets fell apart, copper rallied an eye-popping 17%. Since bottoming in early Feb, copper is up 28%.

One of the market's most famous tricks is to move higher with the least number of investors participating. It happened in August, and it happened again last week. Even after a dramatic, mother-of-all Reversal Tuesday and a double-bottom, the vast majority of investors were unconvinced. Over the next four days, the mainstream press obsessed about real estate and the Fed, and investors prepped for new lows. Meanwhile, subprimes found fresh capital, the Shanghai climbed back to its highs and shrewd investors drove 4 days and 3.2% of low-volume short-covering.

Which brings us to today. For the record, the 2007 vernal equinox also saw a classic, Day 6 IBD follow-through. Volume shot up 24%, most of it in the final 1 3/4 hours of trading. Officially, we're now in a confirmed rally, though it's still early and many things can (and will) happen. The financials were very involved today, which was the single most important thing about today's action.

If this rally holds, the increased volatility means that it will likely favor high-flyers. Stocks that suffered the least and sit near their highs are favored to be the leaders moving forward. Buy strength and sell weakness. That said, these are merely tendencies -- not laws -- and powerful exceptions will emerge.

Finally, remember that the stock market is NOT the US economy. In fact, it's not even a very good proxy for it. All of the US economic woes are very real, but the US market is another thing altogether, more global than ever, with its own rules and rhythms. This is why the market can rally 2% on big volume, while the economy still faces grave uncertainties. Listen to the pundits, but trust the market.

Thanks to all the great posters that have showed up over the past eight weeks. The board's a better place for everyone's efforts.

TOF, a special thanks to you for all of your work. I know it takes time, so thanks.

I'm now swamped with projects in four time zones on three continents. I'll do my best to check in when I can.

End of month, end of quarter, and three more weeks to fund 2006 retirement accounts. Maybe not tomorrow, but the markets move higher from here. How long it continues is another thing altogether.

best

dk

We're back in Snap's famous box. Though a yawning gap lies just above, getting out of this 5-month band of congestion is the real test.