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0920 EST Wednesday March 22 2006

Good Morning: Equity Indices made another valiant effort to run to new interim highs yesterday and mostly succeeded at same, however during the session Bonds began selling off, ie: Longer term Interest Rates started moving higher again, partly in response to Bernanke's speech the night before and then the double whammy of a delay by Microsoft in the launch of its new Window's Vista Operating System till early 2007, thereby missing the 2006 gift season and Intel's continuing weakness after yet another valiant effort to rally in INTC and also the Sox. And as they slumped it caused Wall St to get another bout of late March chills that sent many stocks back into retreat yet again.

As we have said here before, when longer term interest rates continue to rise, while that is overall not necessarily negative for stocks, as it is signaling a strengthening economy, just as it did in 1998 and 1999 as Bonds also rose sharply and stocks actually soared in one of the strongest advances ever, periodically when rates spike higher, this can spook stocks for a few days, before they stabilize and rebound as they have been doing for most of this year, that gradually has resulted in higher highs being set over a number of weeks, especially lately.

However, the market is confronted with the threat of higher long term rates and further increases in short term rates by the Fed and this combo tends to be a drag on stocks, but on the other hand there is the carrot of enticement for stocks to move higher, in expectation that the Fed's work is almost done and in general, from a historical perspective, this can equal a 12% ~ 18% advance in Equities, and then, in the event the Fed actually begins to lower rates, more often than not, this can equate to as much as a 20% to 50% advance in Equities.

Time is marching on and with only 9 months left in the year, the jury is still out on whether this year will be positive and by how much, but the January indicator was exceptionally strong and therefore one cannot rule out a fairly surprising year for 2006, by the time we close out.

The real story may be 2007, which cyclically should be a very strong year and could be a blockbuster, as indicated above, because, by the time we get there, the Fed may well already have started to reduce rates and if the economy can maintain anything close to its current pace, then the Greenspan ~ Bernanke combo will have pulled off one of the most successfully engineered mid-decade slowdowns ever.

Monday marked the expiration of the April Crude Oil contract at around $60.60 and yesterday May Crude became the front month: Get this at a higher premium of around $62. The difference in behavior of Energy of late has been a bottoming out in Natural Gas, said to be trading at an extreme discount to the normal Crude ~ Natural Gas ratio, but the real story that needs to be watched very carefully is that Gasoline is once again trading at a premium to Crude Oil and the rest of the complex. And last year, this combination led to sharply higher prices.


Bankrupt Companies Stage Spectacular Rebounds

Earlier in March in one of our special reports, we offered up a primer of sorts on how to make money out of Bankrupt companies trading on the OTC markets and no sooner than the ink was dry on that report, a number of Bankrupt issues that had been beaten down over earlier weeks began to come back to life. And boy did they ever, the most notable of which has been our nominated stock of the month DPHIQ or Delphi Corp, which Investors should remember is a mighty multi-billion dollar corporation that just fell on hard times, along with GM and so ended up with a Q on the end, from its former DPH, that was once a $20 stock, when GM hit an all-time high of $94 ahead of its spin-off.

And that's the point. As we explained in our report, by the time companies get demoted to the OTC markets, they have had their whole value literally pounded out of them and more often than not, they are ripe for a rebound that a deft amount of stalking can generally pinpoint ahead of time, as we have been doing with our MODAR service and in fact our win-loss ratio in BK stocks has been as high as 9 to 1. The most important thing to remember is, when these rallies begin they can have enormous buying power and durability, because these stocks have huge and powerful followings, with years of investors that involve heavyweight mutual and hedge funds and so the slightest indications of a potential recovery or good enough news that could restore these companies to even a fraction of their former greatness, can often set off enormously powerful buying stampedes. That is kind of what happened over the past four days in Delphi Corp, as the price soared from the low $0.30's to yesterday's $0.98 high. The precursor to that rally was Dana Corp formerly DCN, now DCNAQ, which actually had rallied since mid-March. On top of that, Northwest Airlines and Delta had been under intense pressure all year, but even they rallied quite sharply over recent days. This can be a particularly fertile sector for investors and MODAR has managed to capture most of the large moves that have occurred in this area since inception, including a stellar record of success with OWENQ, with only a couple of losing trades in 1 year.

As we mentioned before, prior to its new troubles, Owens Corning rose 14,175% from its lows of almost exactly 3 years ago, on March 24, '03 at just $0.04 cents to become almost the King of this Boom in terms of stock price appreciation to a high of $5.71 in less than 2 years.

Trade Well
From the Desk of Savant


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Frome the Desk of CT

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