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[TTHQ Staff]

NICK'S PICKS A Decision Point Publication By TraderNick April 17, 2004 MARKET OVERVIEW: This market resembles a car being driven by a student driver with four left feet. Two feet, economic growth and corporate earnings, are mashing the gas pedal. The other two feet, inflation fears and Iraq, are standing on the brake. As a result, the car lurches a lot but doesn't go anywhere. Ever since the March employment report showed a dramatic pick up in jobs growth, fears of inflation and an interest rate hike have percolated through the markets. A strong retail sales report and continued strength in commodity prices helped bring the pot to boil last week. All traders could talk about or think about was inflation. The bond market tanked. Rate sensitive stock sectors collapsed, and the dreaded "D" word, deflation, vanished from Wall Street's mind and vocabulary. Fed funds futures are currently pricing in a 25 basis points rate hike, to come as early as the FOMC's next meeting on May 4. Some clairvoyants are talking 50 basis points. And just about no one believes that Fed chairman Alan Greenspan will, or can, put off a rate hike until after the presidential election, which was market gospel only a few short weeks ago. Never mind that history tells us that the stock market usually goes up during the 12 months following a first rate hike, and that it takes a series of hikes to derail the gravy train. Traders didn't want to hear it last week, and they likely won't want to hear it next week or the week after either as they dig their foxholes ahead of the Fed's early May meeting. One problem is that the panic comes at an unfortunate time, just as we're entering the last two weeks of favorable market seasonality. The "hold until May, then go away," syndrome. The Fed might also like to see at least one more monthly jobs report before making up its mind, but the calendar is not cooperating there either, putting Mr. Greenspan in something of bind. If the Fed, wanting more information, stands pat at the May 4 meeting, the market may surge. Or not. Another strong jobs report close on the meeting's heels would likely raise fears that the Fed was falling behind the curve on inflation; it's silly, of course, but there is always someone worrying about something. On the other hand, if Mr. Greenspan decides that a preemptive strike is in order and the economy cools in the second half, as many think it might, he may make things worse than they have to be. Frankly, the market probably needs a cooling off period to let earnings catch up with valuations. They're working on it, but still have a ways to go. In the meantime, the major market indexes and vast majority of sector indexes, have worked off their recent overbought conditions and are now lolling in the middle of their ST regression channels. On the Dow and SPX charts, the fastest ST indicators are starting to turn up (not the case with the Naz) but the IT indicators are still in free fall. Technically, everything is still in an uptrend and prices remain above their 200 day EMAs, but another couple of weeks like the last couple could change all that. Suffice to say that traders will be all ears, listening for clues, when Mr. Greenspan testifies before the Senate Banking Committee on Tuesday afternoon. I know what I'd do if I were the septuagenarian Fed chairman: Retire. Current support/resistance levels on the primary indexes are Dow 10350-10600, S&P 1090-1150, and Nasdaq 1950-2100. NICK'S PICKS WEEK IN REVIEW: Weekly Position Performance: AMGN +2.17% (added on Mon), DD +3.57%, DIA -0.77% (closed out Thu), JNJ +6.41%, MRK +5.49%, MSFT -1.26%, PFE +5.67%, QQQ -2.14% (closed out Thu), SPY -1.23% (stopped out Thu). Weekly Summary: S&P 500 -0.41%. Picks +1.99%. 2004 Year To Date Summary (Closed/Realized): S&P 500 +2.04%. Picks +9.14%. 2004 Year To Date Summary (Closed & Open Combined): S&P 500 +2.04%. Picks +15.09%. Previous Years Summary (Realized/Finalized): 1998 S&P +26.67%, Picks +43.47% 1999 S&P +19.53%, Picks +37.77% 2000 S&P -10.14%, Picks +46.08% 2001 S&P -13.04%, Picks -48.02% 2002 S&P -23.37%, Picks +15.03% 2003 S&P +26.38%, Picks +35.20% Avg. Annual Return Over Life of Letter (Realized/Finalized): S&P +4.33%, Picks +21.59% TRADE WELL! **************** ABOUT TRADER NICK TraderNick is the cyber name of Nicholas Proffitt. Mr. Proffitt is a former Newsweek bureau chief in Saigon, Beirut, London, and Nairobi, and a former best-selling novelist. Since 1990, he has been a full-time private stock trader for his own account.