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0920 EDT Wednesday June 14, 2006

Good Morning: There are some compelling long term background explanations as to why markets around the World have suffered the corrections that began just over a month or so most cases or earlier in the year in the case of a few others and as far as US markets are concerned, so far we are tracing out what we had expressed our fears of earlier this year on occasion, that being in the very longest term analysis of our 40 to 50 year bull market scenario, we are perhaps either in the A or C wave of some expression of a 3 - 4 correction that actually counterbalances a larger 1 - 2 formation back in the 1980's, and the speed with which this has occurred suggests that it may have run its course, if it stops right here and markets steady up or rebound. As thus far, there is an arguable case that this three wave pattern is visible, not only in the metals sectors, but also in the emerging markets as well as in the US. What is significant and could be described for now, as the best case scenario going forward, would be for a rebound to unfold across all markets and as we indicated last week, we thought this might occur by mid-month and so here we are almost, with the prospect of a mid to late month bottom, that could be inspired by a sharp rebound in overseas markets that have been drastically oversold in one of the sharpest unified three wave corrections of all time and that should the uptrend resume with force it would definitely strengthen the case that this was simply a large counteractive correction. The Mexican market is a case study in point, having been cut back from just shy of 22,000 at 21822.93 to 16,653.93 or 23.69 % which is interestingly, similar to the percentage pullback in Gold and is symptomatic of many other markets. What will be telling now, is how all of these markets behave going forward and in particular, how they might stabilize at these levels and soon potentially resume their uptrends. It is important to keep in mind that with Global growth continuing at an unprecedented rate, that as long as this pace can be maintained, with little or no slowdown, then there would be a powerful justification for markets to resume their upward trends as these trends have been very strong indeed for the most part and in numerous cases have been setting new all time record highs for months if not years. Should the Federal Reserve even raise rates again this month, that could be taken as a signal of continuing strength and might actually illicit a very different reaction from the previous meeting, especially if the wordage is different, like something to the effect that this may be the last. On the other hand, since the Fed may have spooked itself by its own misdeeds, anticipation of a pause could also rally markets from here 'til then and that is the basis of our call this morning. That the markets could begin to anticipate an end to rate hikes and that in of itself is a powerful market elixir, as is the anticipation of an eventual lowering of rates, which actually could happen sooner or later depending upon how the ongoing data unfolds. And as we stated before, we saw a correction coming in 2006 at some stage. What took everybody by a big surprise, was the way it unfolded and it is probably fair to say most investors were resigned to a mid to late year pullback, that came in a bit ahead of schedule in a rather uncharacteristic strong May to start with, followed by the brutality that followed, into where we are now. Here's an interesting thought though, that could still be a template for the remainder of the year and keep in mind that cyclically,' 06 should be a bottoming year ahead of what could be a very strong 2007 and if our long term bull market scenario holds up, a 6 year undulating 3-4 formation, could pave the way for a super fifth wave to unfold beginning later this year through 2007 that could carry well into the end of this decade, much of which could actually be powered by a declining US Dollar that could potentially fix some of the current fiscal imbalances. The old Wall St adage as goes January so goes the year: Remember how about a third of the way into January we suffered a brutal 3 wave correction that came roaring right back and ultimately led to new highs by the end of the month in the broader indices and new highs by March in the leading indices, such a scenario could be played out over the remainder of the year wherein we could potentially close out 06 at levels somewhere between here and recent highs as the markets potentially position themselves for what should be a very strong 2007

Trade Well
From the Desk of Savant

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