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[TTHQ Staff]

Todd Market Forecast Stock Market Update for the close on Thursday 05/26/05

www.toddmarketforecast.com

Available Mon- Friday after 6:00 p.m. Eastern, 3:00 Pacific.

DOW + 80 on 1250 net advances

NASDAQ COMP. + 21 on 1100 net advances

STOCK MARKET ANALYSIS:

One reason to be bullish on the stock market is the direction of interest rates. Yes, we know, the Fed keeps on raising rates, but these are the short term variety. Long term rates, which are controlled by market forces, are dropping like a stone. The long bond has rallied over 7% in the past two months. This means that long term government bonds are at a forty year high and yields are at a forty year low.

Why is this important? Low bond yields present less competition for stocks and historically, stocks and bond yields have had an inverse relationship. This relationship has become a bit skewed since 1998, but it is still important.

If the Fed keeps raising short term rates, we will reach a point where long rates are lower than short rates and this "inverted yield curve" has been associated by some economists with a recession. This is why some observers are suggesting that the Fed tightening period is nearing an end. It makes sense to us. Greenspan's tenure is coming to a close and he probably doesn't want to cloud his legacy with a recession. If the current tightening does cease, the stock market would most likely explode to the upside.

Today's action was somewhat expected since the past two declining days didn't seem to have much conviction. Friday is a pre holiday session. If we were forced to pick a direction, we would say down, but the main trend still looks higher.


NEWS AND FUNDAMENTALS:

The first quarter GDP was a bit lower than expected coming in at 3.5%. The consensus was for a rise of 3.6%. However, this was an upward revision of the last reading which was 3.1%. The Chain deflator, which measures inflation, came in a 3.2%, lower than the anticipated 3.3%. Initial claims were 323k, lower than the consensus 325k.

On the stock front, Toll Brothers, Apollo Group, Brown Shoe and Flowers Foods rose 6%, 2%, 7% and 7% on good earnings. Ditto for Genesco, Michael's Stores and Wind River Systems which added 11%, 4% and 22%. Cree Inc. jumped 9% on a purchase commitment from Sumitomo. Waddell and Reed rose 10% on an upgrade by Merrill Lynch.

On the negative side, Dollar General, Fred's and Hormel Foods dropped 10%, 3% and 8% on earnings. Novell dropped 7% on a greater than expected loss and finally, Petco met earnings projections, but guided lower and gave up 10%.






BOTTOM LINE:

Our S&P and NASDAQ intermediate term systems are back on a buy signal as of the close on Thursday, April 21, 2005. Mutual fund investors are 100% invested in a growth fund or S&P 500 Index fund of their choice.

SPY and QQQQ traders are on the sidelines for now.

For new subscribers, the QQQQ and SPY are exchange traded funds or Spiders.

The former mimics the Nasdaq 100 and the latter mimics the S&P 500. ---- Additionally, an m.i.t. order means "market if touched" It means that your order becomes a market order if the price is touched.

OTHER MARKETS

We are on a buy signal for bonds.

We are on a buy for the dollar and a sell for the Euro.

We are on a sell signal for gold.

We remain long term positive on all major world markets, including those of the U.S., Britain, Canada, Germany, France and Japan.



STEVE TODD

A SHORT BIOGRAPHY


Editor and publisher of the Todd Market Forecast, a monthly stock market newsletter with an included nightly hotline. Steve Todd has a degree in history with a minor in mathematics. This should be a good combination for stock market analysis.

Steve has published articles on the economy and stock market in the following publications: Barron’s, Stock Market Magazine, Futures Magazine, The National Educator, and others.

His stock market commentary is heard on the following stations: CNBC, Bloomberg, CNNfn, Associated Press Radio, Business Radio Network, CKNW in Vancouver, British Columbia, KFWB, Los Angeles and ROBTV in Toronto, Ontario.

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