How many predicted that the market would break out to new highs within 2 months of staging its worst sell off in several years?  Not many, if any and certainly not me.  The action has been unusual, but given that the market has a way of fooling the majority, not completely surprising.  Quite frankly, technicaly analysis hasn’t been a good predictor of late.  Usually a massive sell off takes time to repair itself (often times by retesting the lows), not indicate that another bull run is around the corner.  Does that mean it’s time to throw price/volume and support/resistance analysis out the window? Heck no!  Technical analys isn’t anywhere to close to 100% accurate, it just provides you with a reasonable probablity of a move in any direction.  It’s without a doubt right on more than dead wrong. 

So where the heck do we go from here?  Oh right, Dow 13,000 as all the headlines are predicting for Monday.  That’s a reasonable assumption, but lets take a step back for a bit and look at what has taken place in terms of the positve and negative.  Maybe then we can make some sense out of this schizo market.  On the positive side, we have break outs in the Dow to a new all time high and a break out in the S&P to a new multi year (and fast approaching its all time high).  This in and of itself is very bullish.  It doesn’t pay to fight it.  Just as you would with the break out of any stock, it’s important to take a look at the bases of the indices that resulted in the break out.  Is it healthy enough to provide a sustained move for the bulls?  The quick answer is no.  The base is V shaped with heavy volume in the left side and little buyer conviction in the right side.  Friday’s bust out move was impressive on the surface, but remember that options expiration and most likely short covering distorted it a bit.   Throw in the fact that the Dow has now risen in 21 of the past 26 days following that key reversal on March 14th and you have conditions that are very ripe for a pull back of some degree.   I have said before that we should expect  the market to test those February lows again before heading higher, but I no longer think that will be the case anytime soon.  A more likely scenario is coming back to test the 50 day moving average and at most the 200 day moving average.  That just might be enough for the market to repair the damage done on February 27th, not to mention provide a great entry point for increasing my exposure on the long side.

At this point, don’t chase the bull and if you have nice profits don’t be greedy.  Lock in some of that and wait for a better entry.

::: Model Portfolio Update :::

It’s been frustrating to continue to sit with half the portfolio in shorts and cash as the market breaks out to new highs, but I’m not going to chase this overbought market and will remain patient..  I’m waiting for the right time to get more aggressive on the long side and that time isn’t now.  I did make a couple transactions last week – I covered one of my shorts in FTEK for an 11% gain and initiated a position on the long side in a top breakout play.  For the week, the portfolio was off .9%, dropping the YTD performance to 6.7% but still ahead of the S&P500.  It continues to be led by my long term core holding in Google which got  a bump after an impressive earnings report on Thursday.  Current allocation is 50% long, 27% short and 23% cash.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Residential Construction: 9.25%
2. Mortgage Investment: 8.05%
3. Sporting Goods: 6.10%
4. Semiconductor – Broadline: 5.30%
5. Semiconductor Specialized: 5.00%
6. Industrial Equip Wholesale: 4.90%
7. Investment Brokerage – National:  4.80%
8. Farm & Construction Machinery: 4.75%
9. Surety & Title Insurance: 4.70%
10. Credit Services: 4.65%

– Top 10 Worst Performing Industries For the Week –

1. Music & Video Stores: -5.50%
2. Semiconductor – Memory Chips: -3.20%
3. Medical Practitioners: -3.20%
4. Internet Information Providers: -2.05%
5. Savings & Loans: -2.05%
6. Broadcasting – Radio: -1.85%
7. Specialized Health Services: -1.80%
8. Oil & Gas Equip and Services: -1.65%
9. Oil & Gas – Independent: -1.45%
10. Gold: -1.35%

– Top 5 Best Performing ETFs For the Week –
 
1. Ishares Home Construction (ITB)  7.50%
2. SPDR Homebuilders (XHB) 6.80%
3. HLDRS Semis (SMH) 5.10%
4. SPDR Financial (XLF) 4.00%
5. Ishares South Africa (EZA) 3.75%

– Worst 5 Performing ETF’s –

1. HLDRS Internet (HHH)  -4.20%
2. US Oil Fund (USO) -2.85%
3. Central Fund of Canada (CEF) -2.20%
4. Market Vectors Gold Miners (GDX) -2.10%
5. Templeton Russia & Eastern Europe (TRF) -1.90%

:::  IPO’s Worth Watching for This Week :::

1. EDENOR (EDN): Argentina’s largest public electric utility. Known as EDENOR, it distributes electricity on an exclusive basis to the northwestern zone of the greater Buenos Aires metropolitan area and the northern portion of the city. It services about 1 million people. Set to start trading on Wednesday.

::: Upcoming Economic Reports (4/23/07 – 4/27/07) :::

Monday:        None
Tuesday:       Consumer Confidence, Existing Home Sales
Wednesday:  Fed Beige Book, Durable Orders, New Home Sales, Crude Inventories
Thursday:      Initial Claims
Friday:           GDP (adv)

::: Notable Upcoming Earnings Reports I’ll Be Watching This Week :::

Monday:
Grant Prideco (GRP), Core Laboratories (CLB), Amgen (AMGN)

Tuesday:
ENSCO Intl (ESV), Icon (ICLR), Coach (COH), Anixter Intl (AXE), EZCORP (EZPW), Chicago Mercantile (CME), Travelzoo (TZOO), Amazon (AMZN)

Wednesday:
Smith International (SII), SEI Investments (SEIC), Apple Computer (AAPL), Akamai Technologies (AKAM), Allegheny Technologies (ATI), International Securities (ISE), UAL Corp (UAUA), RPC Inc (RES), Corning (GLW), Ryland Group (RYL)

Thursday:
NYSE Euronext (NYX), Microsoft (MSFT), Vasco Data Security (VDSI),  Falconstor Software (FALC), Psychiatric Solutions (PSYS), Silicon Motion Technology (SIMO), Silver Wheaton (SLW), Comcast (CMCSA), Monster (MNST), MEMC Electronic Materials (WFR), Cash America (CSH), TheStreet.com (TSCM), Sunpower Corp (SPWR), Life Time Fitness (LTM), Digital River (DRIV), 3M (MMM), CBOT Holdings (BOT), Beazer Homes (BZH)

Friday:     
National Oilwell (NOV), CTC Media (CTCM), Cameron International (CAM), Baidu.com (BIDU), Cameco (CCJ),