Back to the Market… On Friday, stocks concluded a rather strong week on a dull note, ending the trading day near the unchanged mark. This was good news, considering the revelation that companies cut jobs for the third straight month. Nonfarm payrolls fell 80,000, which was worse than the 50,000 decline economists expected. This number shows the largest decline since 2003. In addition, January’s reading was revised lower to -76,000 from -23,000, and February’s reading was revised lower to -76,000 from -63,000, if you can believe the fictitious government numbers (as traders always do). Meanwhile, the unemployment rate supposedly increased to 5.1% from 4.8%. (We all know the unemployment rate is more than double the number reported.)

Seven of the ten sectors finished higher.

Agriculture-chemical company Mosaic (MOS) (***) soared 10.1% on Friday after the company reported better than expected third quarter earnings. Consequently, the materials sector (+1.4%) provided leadership and posted a strong 6.6% gain for the week.

The energy sector (+1.0%) also lent some support to the broader market. It rose in conjunction with the 2.3% advance in crude oil prices.

The financial sector (-1.4%) acted as a braking factor to the stock market, with another round of earnings estimate cuts. JPMorgan cut its earnings estimates for Citigroup © (****), Bank of America (BAC) (***), and Wachovia (WB) (***). Also weighing on financials was word that Deutsche Bank added JPMorgan Chase (JPM) (***), Citigroup, Sun Trust Banks (STI) (***), and PNC Financial (PNC) (***) to their short-term sell portfolio. Deutsche cited continued issues related to increasing credit losses, capital markets dislocations, and weak revenue growth at the banks. Contrarians see these downgrades as buy signals.

For the week, the S&P gained 4.2%, the Dow advanced 3.2%, and the Nasdaq gained 4.2%, its best weekly gain in 2.5 years.

The Fed has already lowered rates by 3 percentage points since mid-September to prop up an economy hit hard by a liquidity crisis brought on by what many economists see as the worst housing slump since the Great Depression. Fed Chairman Ben Bernanke admitted to Congress last week that a recession "was possible." Talk about denial!

A New York Times/CBS News poll released on Friday showed that 81% of Americans said that things were "seriously" on the wrong track, up from 69%t a year ago and 35% in early 2002. I guess that means that the U.S. economy is headed still lower as dumb, self-serving politicians continue to think only of themselves.

VIEW OF THE GRIDS ABOVE
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• The VI Index (Vulnerability Index) has improved considerably since the last issue with a consistently lower reading each week. With a reading of 20 this week, a neutral reading, we can expect to see much less of the extreme vulnerability and volatility that we have seen since November. Certainly we could see a day or two of 200+ point moves in the major indices, but these kinds of days should be far fewer than we have been seeing. (This index uses dozens of technical, fundamental, sentiment, and monetary numbers that I incorporate into my twenty-one-year-old vulnerability formula each week.) +-
• The MSI Index continues its string of very weak readings with a –65 this week, but as with the VI Index, we see consistent improvement with lower readings each week. I expect the improving trend to continue for most of this year. (This index considers many key technical indicators and wraps them into one number. I developed the formula for this index eleven years ago.) --
• The Cyclical Bull/Bear Index continues to portray the Cyclical Bear Market with a reading of –6 this week. For the past four weeks, the readings have bounced back and forth between readings of –6 and –7. We are now into the fourth month of the Cyclical Bear Market (within a Secular Bull Market). (Cyclical Markets normally run from two months to two years. Secular Markets usually run from 8 to 20 years.) --
• The Friday Confidence Index has become less consistent in its string of negative readings. Much greater variability has entered the picture with a +17 three weeks ago and a –5 last week. This week we find a neutral +2 reading. I expect Big Money to be less fearful on Fridays going forward as the general pattern continues to shift towards recovery. (Remember: this number is not predictive, as some of the other numbers are. It is merely a snapshot of how strong or weak the Market really is (momentum) on the final trading day when Big Money is indicating confidence or fear about holding securities over the weekend.) -
• The Crash Barometer this week continues to show a very safe reading of .51, so no surprise market crash is imminent, as if we need a surprise 20% drop or more from where the Market stands now! In fact, the reading this week is the lowest I have recorded in three years. (The stock market treads dangerous ground when it displays internal divergences. The higher the reading, the more bearish in a bull market, and the lower, the more bullish. Readings below 2.0 are particularly benign, while readings above 4.0 and especially above 4.5 constitute a sell signal in a bull market and a buy signal in a protracted bear market. This indicator predicts declines and recoveries generally of more than 20%.) ++
• Current Short-Term Market Valuation, Overbought, Oversold Index: The broad Market is now oversold by a whopping 63% according to the short-term numbers that go into this index. Such a reading normally portends a high probability of a rally (or a rally continuing if one is underway) when the number is this positive. So the probability of the rally continuing is much stronger than a new decline developing from here. (Generally an overbought reading of 30% or more is the greatest concern. An oversold reading of more than 40% normally represents a long-term buying opportunity.) (Very Bullish) ++
• The Expected Range for the Market (on a Dow Scale) for the next six months to a year is 11,500 to 14,050 (Friday’s Market close: 12,609, nearly a 600-point improvement from the last issue but only just above the reading of December of 2000!). (Of course, the Market does not have to stay within this range. Keep in mind, however, that a move above or below the expected range suggests that a move in the opposite direction is more likely. The Potential Expected Range is based on a technical analysis of the highest probabilities.)
• The Broadest Measure of the Market (the real U.S. Stock Market) since the last issue, shows a strong gain of 7%, with some very strong rally days and a few days of severe loses. For the new year, the broad Market is now down 7%. And for the past 52-weeks, the Market is down 6%. Portfolios I manage are up an average of 4% for the new year and up 9% for the past 52-weeks.
• PiVot Dates: (MAR 17, 20, 21, 27, 31, APR 1, 4) On March 17, the Market completed its decline and began a strong rally the following day. On March 20^th, the Market rallied strongly. The listed 21^st was an error since the Market was not open. On the 27^th, the broad Market declined sharply and the decline continued the following day. On the 31^st, another strong rally began that continued into Friday. April 1, an expected strong PiVot Date, saw the strongest rally since March 18^th. Then on last Friday, April 4^th, the Market formed a doji candlestick, indicating indecision and a possible pullback this week.

VIEW OF CHARTS I MONITOR

Below you will find a brief summary of some of the charts I monitor with bullish and bearish implications noted after each. They appear in no particular order. (+ = bullish, ++ = very bullish, - = bearish, -- = very bearish, +- = neutral)

• The Investor’s Intelligence Indicator fell to a reading of 31.1 a month ago, which constituted a Contrarian buy signal. This strong buy signal proved to be prescient as the rally began the following week, as I suggested it might, when I wrote, "Such a level of panic is seen by Contrarians as a window of opportunity. Contrarians are stepping in now to scoop up some great deals on undervalued investments." This week the reading stands at 36.4, which is neutral. But we are still under the buy signal, which normally continues its influence for ten weeks or more. (Each week Investors Intelligence surveys 140 financial newsletter writers to determine whether they are leaning bullish or bearish in their opinions to subscribers. The resulting Survey gives us the weekly percentage of bulls vs. bears and is considered a contrary indicator, since extremes in either direction signal a potential reversal of the market’s trend. Generally when less than 35% of these newsletter writers are bullish, a buy signal is given. And when at least 60% of them are bullish, a sell signal is given.) (Very Bullish) ++
• The Daily Banking Index (an important proxy for the whole market) has bounced off its Jan 22^nd low several times and is now finally showing an improving trend. The chart is in much better shape than it was last time. I stated at that time that the chart was in such terrible shape that "a rally is not far off." (Neutral and improving) +-
• The DeathCross Index gave a new SELL signal in the middle of February and it remains on that signal as of Friday. The chart cannot move to a buy signal until stocks perform well for another month or more. (Crossings on this chart occur rarely and last for a couple of weeks to several years.) (Very Bearish) --
• The Utilities Weekly Index had broken down badly this year, but the good news is that we got a new buy signal on this important index this past week. (The Utilities Index is very sensitive to interest rates so it often gives advanced warning of major market moves.) (Bullish) +
• The Weekly Housing Index has shown remarkable improvement since last time and is now slightly bullish. (Bullish) +
• The Dow Weekly Chart formed a double top in July and October, and I stated at the time that the Market could be in trouble. Since then, the Market moved below all support levels and was very close to its long-term support line three weeks ago. This week, however, the index has improved greatly, moving above short-term support. Its MACD also turned bullish. (Slightly Bullish) +
• The (XAU) Precious Metals Index took off after hitting a low in the middle of August. It then created a double top in November and January, which suggested much more choppy action ahead. Two issues ago I suggested that we might see a pullback. We got that pullback. Then in the last issue, I indicated that Precious Metals gurus were wildly bullish and I would be a seller or at least have stops in place on metals stocks. I also said that I would not be a buyer of precious metals or precious metals stocks at that time. After a dramatic drop since the last issue, precious metals rebounded a bit last week. The Friday closing price was above long-term support but just touching all other support levels. All its other indicators are still bearish. With the collapse of the dollar and a lower interest rate trend (with increasing inflation) precious metals should remain neutral to bullish with choppy action for the rest of this year. (Neutral) +-
• The (XOI) Oil Index has been showing topping action since it hit its high in early March. The range for oil over the past couple of weeks has been $98 to $110. Although the price is above all support levels, its MACD and AROON have turned bearish (Neutral) +-
• The REITS Weekly Index (real estate) formed a double bottom in January and March and has been moving up unevenly since. The chart has improved dramatically since last time and is now neutral to bullish. (Bullish) +
• The Russell 2000 Small Cap Daily Index (small cap stocks, which often lead the market higher and lower) is also showing dramatic improvement since last time. (Bullish) +
• The SOX Daily Index (semiconductors, a leading Market indicator) has been the worst looking chart of them all for many months now, but it did turn around last week. It is now showing bullish signs, although I cannot rate it better than neutral at this time. (Neutral) +-
• The S&P500 Long Term Index (Monthly) crashed through major support at the end of December so this index is still below key support. (Crossings on the downside are very bearish.) (Very Bearish) --
• The Dow Daily Transportation Index (an important index for confirming rallies and declines) has been the shinning star among indices for months now. After struggling last month, it is now on a bullish track once again, and is clearly the best looking chart of all. (Bullish) +
• The VIX Fear Index (important for Market turns) flashed a new buy signal just before the last issue with a spike 19% higher and a move above 30. The reading got as high as 35.5 during the following week. It has since fallen back to neutral territory, but we are still on the buy signal from last time. (Bullish) +
• The Broker/Dealer Index (a leading index) is still in bad shape, but improving. It is just not improving as quickly as the others. (Bearish) -
• Sell in May, Buy in October Signal (This strategy produces the greatest returns when coupled with the Dow MACD indicator. The sell signal can occur any time after April 1 and the buy signal can occur any time after October 1). As I have written in previous issues, "The Buy signal that we got on the ‘Sell in May, Buy in October Signal’ that we got on November 30 has turned out to be a very bad call this year, for the first time in many, many years." (Bullish, following the rules of this indicator, but a losing call this year.) +

FINAL COMMENTS

Last time, I wrote, "With the exception of the new buy signals for the broad Market on the Investor’s Intelligence Indicator and the VIX Fear Index, all other Indices (excluding Precious Metals and Oil) are pointing down dramatically… so much so that, taken together as a group, they could easily constitute a Contrarian buy signal. Charts hardly ever look more bearish than they do right now. Contrarians believe that when things look the worst, the best lies ahead. The Recession is well underway, in its fourth month, and I believe it is half over. Remember that stocks rebound sharply long before Recessions end." My comments were perfectly timed, as the Market has rebounded strongly over the past three weeks.

Since November we have witnessed good, and even great companies being dumped across the board to the point that several weeks ago they were down to levels far below their true worth. In fact, according to one source, 67% of all stocks traded in the U.S. (4,500 stocks) are down over the past four months. And 2,000 of those names (46%+) are down 15% or more! And big names such as American Express(AXP) (***), Amgen (AMGN) (****), and Hitachi (HIT) (***) have not returned anything to investors for the past three years! As I stated in the late summer and early fall, one cannot hide from a broad downturn. Even undervalued, high dividend stocks fall with the overpriced, no dividend stocks… a reality which makes little sense, but which happens in every broad stock sell-off.

In such difficult times, one can sell everything and wait for better days, or put more cash to work in the Market to take advantage of low prices. Contrarians live for these declines… to build portfolios of excellent companies at bargain prices. Investing, after all, is about making money over a decade or more. While market conditions like those we have seen since November are painful, they are a blessing for those astute enough to build positions for future wealth.   Now is the time to consider big names and dividend-paying closed end funds that have been beaten down the most. Some great names have seen declines of 50% to 90% over the past few months.

Contrarian investors, reacting quickly in the opening days of the Iraq invasion, made money because they went against the consensus view. Great opportunities existed then in the closed-end fund arena as they do now. Discounts are high once again. Unlike more familiar open-end mutual funds, where the share price is based on the actual net asset value (NAV), shares on closed-end funds are priced according to supply and demand, as you know from previous discussions. A closed-end fund in demand can trade higher than its actual NAV, creating a "premium." Conversely, a closed-end fund with few buyers may trade below its NAV, creating a "discount." Those are the ones that Contrarians scoop up if they have a decent track record.

By far the most volatile, exciting, and interesting group to trade consists of the foreign equity funds. Foreign equity funds are not only affected by general rises or declines in the stock market, but are also impacted by natural disasters, world economic events, currency values, and political issues. Over the three decades I have been trading closed-end funds, I have witnessed panicked investors head for the exits and throw away shares at wide discounts because of various disruptions and dislocations. For the astute Contrarian, these events represent buying opportunities. Taking a Contrarian approach to trading closed end funds, therefore, works very well if out-of-favor funds are purchased when they are at a wide discount… and then sold when they trade at a high premium. The premium or discount of closed end funds can be found on a number of internet sites, with www.moringstar.com being my favorite for fund research.

One further note is that buying at wide discounts also creates an exceptionally favorable risk-reward relationship because, if the market moves lower, the excessive discount cushions losses. In a bull Market, nice profits can be made as the share price rallies and the discount narrows.

Here are some of the foreign closed-end funds I currently own or have owned or trade on a regular basis. Those few that are overvalued at the present time should be avoided or purchased sparingly. I have included the fund name, its trading symbol, my rating for the next twelve months, and the current discount/premium.

• Aberdeen Australia Equity Fund (IAF) (****), one of my favorites and a current holding in many portfolios I manage +3%
• ASA Limitied (ASA) (****) –9%
• Asia Tigers Fund (GRR) (***) –10%
• Central European Equity Fund (CEE) (***) –13%
• Central Fund of Canada (CEF) (****) +9%
• China Fund (CHN) (****) –15%
• Emerging Markets Telecommunications Fund (ETF) (****) –11%
• First Israel Fund (ISL) (****) +13%
• Greater China Fund (GCH) (****) –13%
• Japan Equity Fund (JEQ) (***) –8%
• Japan Smaller Capitalization Fund (JOF) (***) –3%
• Korea Equity Fund (KEF) (***) –11%
• Korea Fund (KF) (***) –7%
• Morgan Stanley Eastern Europe Fund (RNE) (****) –10%
• New Germany Fund (GF) (***) –15%
• Petroleum & Resources Corp. (PEO) (***) –12%
• Turkish Investment Fund (TKF) (***) +9%
• Morgan Stanley China (CAF) (***) –18%
• Third Canadian General Investments Ltd (THD) (***) –13%
• Mexico Fund (MXF) (***) –16%
• Templeton Dragon Fund (TDF) (***) –15%
• Mexico Income & Equity (MXE) (***) –15%
• New Ireland Fund (IRL) (***) –14%
• Swiss Helvetia Fund (SWZ) (***) –13%
• European Equity Fund (EEA) (***) –13%
• Singapore Fund (SGF) (***) –13%
• Thai Capital (TF) (***) –13%
• Latin America Equity (LAQ) (***) –11%
• Morgan Stanley Emerging Mkts (MSF) (***) –10%
• Chile Fund (CH) (***) –7%
• Indonesia Fund (IF) (***) –6%

Also, look at some of the smaller U.S. government and investment grade bond funds to benefit from a flight to quality during a selling panic.

Since this is the final issue of this newsletter, I wish to take a longer view of the Market going forward. First of all, I do believe the worst is over in the financial crisis, even though, we may see the collapse of another major bank or brokerage firm. We have had a double bottom in the Market so stocks should move (unevenly) for the remainder of the year. I continue to believe that we will enjoy a 15% gain for the broad Market this year. This would mean that we should see a Market reach a high for the year near the record high around 14,000 (using a Dow scale). I expect the old record high to fall next year with a new high in place sometime during the year. I expect the Fed to begin increasing interest rates at that time to fight increasing inflation. Furthermore, I expect the decline that begins next year to end in 2010 when the Fed reverses its stance of fighting inflation and begins to worry about an economic slump... which will take interest rates down again. I expect the rally to last a year or more, followed by a very severe decline, taking the Market to a low in 2012 and the best buying opportunity since 2005.

Looking ahead even further, I expect we will see the broad Market (using a Dow scale) stand near 25,000 ten years from now and 52,000 twenty years from now. Of course, those numbers are not as significant as they might first appear, since they are based on increasingly worthless U.S. dollars. Still, investing in companies that pay nice dividends provides the best path for financial stability and the potential for wealth. The goal always is to stay ahead of inflation and monetary devaluation. Of course adding options and other trading vehicles to the mix improves the odds for even greater success.

I suspect that energy, water, utilities, metals and minerals, as well as communications, and technology (especially nanotechnology) represent the best investment plays for the next ten to twenty years. I expect we will see major breakthroughs in medicine that will make medicine today look very primitive by contrast.

Unfortunately, I expect government incompetence, stupidity, and corruption to continue, taking the U.S. further and further way from its Constitution and democracy. Once admired by the rest of the world, the U.S. continues to slip in prestige, thanks to the greed and ignorance of its leaders. I do not expect that trend to change any time soon. The majority of U.S. citizens will continue to be embarrassed by government leadership from the top down, into the foreseeable future.

No matter what the politics of the moment or the manipulative tactics of the media, the smart investor keeps his or her eye on the future and long-term goals by doing just the opposite of guru advice and media recommendations.

I wish everyone the very best of health and financial success now and always.

And continue to pray for the best and prepare for the worst.

  FINAL ISSUE   .