1. “LESS BAD” FOR HOW LONG?
Bullish analysts continue to gush that it is too early to take profits because there is sufficient positive data to support a further market rally. The FACTS do not support this view. However, markets can continue to rally into the Summer before returning or crashing back to earth.  Most money managers agree the easy and relatively lower risk investments have ALREADY been made. Going forward it will be increasingly risky even to the fundamentally challenged bull.  I still prefer the old saw: “Sell in May and go away.”
 

MICROCAPS & RISK APPETITE

Ø       Should markets rally to 9000 or higher on the illusion of recovery, will microcaps be far behind? I think not. 

Ø       Should market trend sideways, microcaps will outperform large caps.

Ø       However, when markets drop back this summer, many microcaps will fall as well and even further- hence, limit greed and use strict money management.

Given the above view, I may accumulate more undervalued quality microcaps in the precious metals and energy sectors along with some special situations in early June or late August.
I recommend up to a double allocation (usually 5/10% for  a medium/high risk portfolio) of 10-20%, while selling/reducing//stop protect/writing covered calls on larger caps ahead of the July summer earnings season.
This will NOT give you a full participation to the upside of any strong market rally, but this strategy will allow me to sleep at night while counting the days before the current rally ends.
.

US$/GOLD/OIL:

Crude awakening: It's oil about the U.S. dollar

U.S. dollar’s 18-month stint as a safe-haven currency is over
Last week the US$ reached our Fair Value as well P1 and P2 positional trading targets of $.81 and $80.  Meanwhile, Gold and Silver are approaching fundamental resistance/breakouts of $1000 and $15.  We believe, OIL, on the other hand, is overvalued above $55 short term, but medium term under valued. 

Will the US Dollar continue to fall and gold and silver explode in June?  We will be taking/locking in some short term trading profits before a quick end of the week trading Sell. The next key time is circa June 3.
More to follow next week.
 

KEY DATES:    MAY 27, 29
DJIA:                8270 PIVOT 
SPX:                900 PIVOT  R1 880  R2 865 R3 825  S1 910 S2 935  S3 940
NASDAQ:        1710 PIVOT
XAU:                PIVOT135 SUPPORT 155 RESISTANCE
JUNE GOLD:    960 PIVOT 920 SUPPORT 988 RESISTANCE
JULY SILVER:  13.55 PIVOT $15 TO $15.25 RESISTANCE
XOI:                900 PIVOT 990 RESISTANCE
DEC OIL:          65 PIVOT 56 SUPPORT 68 RESISTANCE  

The current Market Marker Sentiment changes mid June.
2008 CLOSE:           DJIA   8776, SPX   903 & NASDAQ 1577
2007 CLOSE:           DJIA 13264, SPX 1468 & NASDAQ 2655
2006 CLOSE:           DJIA 12463, SPX 1418 & NASDAQ 2415
2005 CLOSE:           DJIA 10717, SPX 1248 & NASDAQ 2205
DJIA:                       11 ~ FV 3 UV; 8 offer 4%+ Dividends 4 offer 5%+ Dividends.
THINK TRADITIONAL SWISS AND PRESERVE CAPITAL: FOCUS ON PROTECTING AGAINST DOWNSIDE RISK 

2. It's All About Canada
HW: I agree and believe Canada while 10% of the US economy, can sensibly be 20% of one’s US or North American global allocation.
NOTE: I have just updated our WSNW premium subscriber post: CANADA 12 (5/20/2009).
 

BUSINESS & BANQUETS
At the CCG China Rising investment conference last week, I found the expected bullish future optimism, e.g. China’s Four Trillion RMB Stimulus Plan coupled with investing for the long term mantra.
While only a few see the summer crisis which strongly targets Chindia, there are good reasons to slowly accumulate very slowly after the deluge.
At the CCG Four Star analyst luncheon,  I found several potential future picks of potential interest: Jinpan International (JST), an electrical infrastructure/wind power play, American Oriental Bioengineering (AOB), pharmaceuticals, China Fire & Safety (CFSG),  industrial fire safety and ATA (ATAI), computer based education and testing. 

Talisman Energy (TLM) is a geographically diverse oil and natural gas play. Highlights of their analyst presentation include:

• Reduced exploration budget as with almost all energy companies.
• Selling non core conventional assets to fund unconventional areas.
• Difficult to forecast in today’s volatile market conditions. Like many in the industry, they acknowledge short term concerns, but are medium term bullish e.g. TLM’s less active hedging going forward is a bullish long term indicator for energy. 

We consider TLM sufficiently financed and well run, but currently fairly valued and therefore has a Sector Neutral rating.
 

3. In June, gold will either break out above $1000 or retreat back into seasonal cycles.  Be prepared for either move.
This coming midweek. we stop/take profits depending on the failed or successful tests of  960/1000 for gold  and 15/16 for silver.
NOTE: Gold and Silver stocks are historically undervalued vs. their underlying physical commodities.
 

4. "There's normally a cautious factor in the summer because a lot of people go away and close the books and the market takes a rest. But this time could be different, as I believe we're coming out of a recession."
Peter Cardillo, market economist, Avalon Partners.
HW: Given you are wrong on these economic views, I suspect you will also be wrong on your market views! 

“The fear has shifted from being in to being out.  We’re starting to see people come back in, knock on our door. The flow is picking up.”
Frederic Dickson, chief market strategist for D. A. Davidson & Company
HW: That is so “last week”. Just wait until mid Summer! 

“Trees don’t grow to the sky and stocks don’t move in a straight line.  After a huge rally, you’d expect to see some consolidation.”
Philip Orlando, chief equity strategist, Federated Investors
HW:  Yes.
 

5. Dan Dorfman: Bad Vibes from the Stars The L-shaped economy that we're in is one which won't get much better and will require an adjustment to lower economic growth and a lower standard of ...

 

Frightening News About Dividend Stocks

 

Stocks' momentum faces some critical obstacles 

6. READER: If the market reaches new tops, it can fall heavily?
HW: Yes, because the real economic news will continue to be bad into July when it will be worse.
How long reality will be  ignored by market investors is the question. It can be as long as two months or end any day!
 
 READER:  How is the astrology for the rest of the year?
HW: We first release that information publicly to non-premium WSNW subscribers at our July Triple Gold Conference. 

READER: Re: Dan Dorfman: Bad Vibes from the Stars The L-shaped economy that we're in is one which won't get much better and will require an adjustment to lower economic
This soufflé does not rise twice... 2003-2007 was delusional and everyone admits it Yet they are all striving to replicate it..
HW: I agree.

READER: I may be totally misreading your updates, but I thought you were advising rotation out of gold until later this summer.  Have other events/market changed that?
HW: Are you talking hedging, investing or trading gold? All have different time phrases and profit/loss entry/exits.

By two key times in June we reduce/protect for seasonal reasons, but different market cap stocks should be treated differently as well.
READER: Investing.
HW: Until the end of May, we are more bullish on silver. Then we protect some profits on both investing gold and silver.
Note: Precious Metals may or may not correct seasonality in July and August, but I always like to take some profits before they disappear.

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