Author: Charles Payne

Article:
Was last week a gift from the heavens? Is the worst over? These
are the questions that everyone is asking himself/herself as we
head into a new week with a head of steam and a northerly
directional bias. Have the rains cleared, has the lava cooled?
Or was last week a sick joke of nature, sort of like the
duck-billed platypus? Was it only natural that the markets
finally rebounded?

I know I'm supposed to be answering these questions, not asking
them, but I have to throw the questions and topics out there
before tackling them. The short answer is I'm not sure to any of
the questions above, but let's view them from all sides and see
what we come up with.

First, I don't think there was divine intervention involved in
last week's action. I do believe that there were certain events
in America that probably answered a few prayers. (By the way, if
those trapped miners in Pennsylvania had been rescued during the
week, it would have provided a spark to the action. Though the
comparisons are unfair I couldn't help but think of how decisive
the response to the emergency was compared to the Russian
attempt to save the Kursk a few years ago.)

The biggest prayer was one seeped in anger and even hatred, and
that was for the open arrest of a big-time CEO. When the Regas
family was led away in cuffs, the market was already climbing
off the mat, but the news supercharged the rebound effort and
many speculators that had been waiting patiently found
themselves in a position where they had to jump first and ask
questions later.

It almost makes Americans come across as Huns, but the blood
lust was at the top of many disgruntled investors wish lists.
Still, that wasn't the type of gift that has a very long shelf
life. It was a momentary situation that only whets our appetites
for more. However, investors cannot live on revenge alone. They
need the shelter of a strong economy, the warmth of growing
earnings, and of course safety from a system of checks and
balances that work.

So that takes us to question number two, is the worst over? I'd
say the worst isn't over, if consumers stop spending, if there
are more high profile scandals (I can't believe how many of Wall
Streets top pros are saying that companies like Citibank are
buys on weakness because they're too big for the government to
topple or expose) or if corporate profits don't return
(deflation is still a greater probability than a double dip
recession).

Yes the rains cleared for a few days but the clouds of doubt
still hover above. I'd say either stay in the Ark or near the
gangplank. The lava has cooled, but it is still too hot to relax
or drop one's guard. Yes, this market is like an animal that
doesn't know if it is fowl or fish. So far this year, those that
have felt that the worst was over have suffered cruelty from the
stock market. It would be absurd not to still show vigilance to
such possibilities again.

That brings me to even more sinister thoughts and questions. Was
last week's gift a Trojan horse? The shorts are always going to
short. It becomes a lot more difficult for them to spread their
message and manipulate the market if the forward PE for the S&P
is below 20, as opposed to above 30.

Sometimes they pick certain points to cover and lure in anxious
watchers that have had cash burning a hole in their pockets. The
ensuing rally provides them with another chance to re-short the
market and spread their message of doom with better conviction.
I think the shorts last week had little choice on Wednesday
except to get out of the way. But, they'll be back.

The best gift that investors could receive now a day is the gift
of confidence. They need confidence that the system is working
for, not against them. A flash in the pan isn't going to make
that confidence a reality. It's great to see that the market
still has the ability to post a solid week, but it isn't enough.

Obviously the Bush administration realizes this as members
parachuted over the airwaves this weekend working like Santa's
elves on the eve of Christmas. It is unlikely that their
talkfest did much to soothe nerves, but it does plant seeds. So
perhaps the real gift of the week in general is something akin
to the works of John Chapman - also known as Johnny Appleseed.

The gift of last week could wind up being a seedling, a small
piece of life that could germinate and grow, if watered and
protected properly. It wasn't an ark, but instead could grow
into a lifeboat for investors. I brought up the question of
whether last week was just a natural occurrence. If so its
continuation isn't preordained or certain. Most seeds in nature
don't grow to be giant trees. They have many natural enemies and
impediments. The least of which is a bear sharpening its claws
or searching for fulfillment.

I enjoyed last week's action and saw it as a gift because it
helped to establish parameters that will allow us to analyze and
plot the week ahead. Ironically, the best gift investors could
receive in the days ahead is for the market to test last week's
lows and rebound. As it stands now I'd say that the majority of
investors shunned last week's gift.

Return to sender was the rubberstamp most employed as the market
was rallying. But everyone likes to be wooed, so if the gifts
keep coming then sentiment could improve. The risky part for the
market is that sentiment improves too fast. That is because with
improving sentiment comes higher expectations. It is too early
for investors to expect anything except the worst. When they
look at that Shetland pony, they have to see a Trojan horse.

This doesn't have to go on and on forever, but just a little
while longer. The majority of talking heads on television these
days are telling investors "we are at or close to the bottom".
I've felt that way for a few months, but feel stupid saying it.
" Close" to the bottom could be days or months from here (I'm
still calling for a substantial fourth quarter rally) and I wish
I could be more precise. I don't want to be on the tube a year
from now bragging like the bears that got it wrong for a decade,
and are now acting like superior market players.

Folks, the best gift you can give yourself now is to view the
market with open eyes, know that it will shift, and stay upbeat
about future possibilities and is hedged for current risk.

FINAL THOUGHTS AND OBSERVATIONS I think the time to really
consider the market as a long-term investment may come after a
few more public arrests occur and the Dow doesn't rally for 500
points.

We're close folks.

The two biggest dates on the calendar will be August 14th when
the largest of public companies will began the new procedure of
CEO's personally signing off on financials. And the biggest day
of the year in terms of anticipation may be September 11th, the
one- year anniversary.

I feel a little like Laocoon, warning the citizens of Troy not
to bring that horse into city. Telling them not to lower their
guards and not to rip down the walls that have protected them.

The market has to be tested before the worst is over, and that
test wasn't last week.

About the author:
MORE ABOUT WALL STREET STRATEGIES

Since 1991, Charles Paynes' Wall Street Strategies has
successfully provided timely and effective equity advice to
institutional money managers, retail brokers and individual
investors of all types, and has thousands of subscribers from
hundreds of brokerage firms. http://www.wstreet.com.

For more information, please email research@wstreet.com

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