The Dow undercut its March and then its January lows settling around 11,346. The Dow is down almost 1700 points since mid May. The transports have cracked 5000 though this index is holding up much better. Banks and GM are finally being downgraded to sell. Only weeks ago you heard the mantra, stocks are cheap, its close to the bottom and all that other crap. Now reality has set in. Some hedge funds which are highly leveraged and bet wrong have to be in trouble. The VIX is no where near panic levels. Barron's has resigned itself to the belief that the financials won't recover until 2010. Wall Street analysts are biased, and therefore worthless. The only truth is in the charts. While a rally could surface some time in July, it should be a bear market rally which should be used to sell stocks and originate new shorts. A Dow rally into the 11,800 to 12,100 area would be the sweet spot for this action plan.

We had our 800 point plus rally to over 13,000 on the Dow from the Bear Stearns panic bailout low in the low 12,000's. Now the Dow has dropped under 12,000 down over 1,000 points from mid May. We are teetering on the brink once more. The second half of this year in the stock market may very well be decided in the next 2 to 4 weeks.

Big Brown and the stock market. Before the Belmont Stakes everyone was convinced that Big Brown would be the first horse in 30 years to win the Triple Crown. When reporters questioned why Big Brown would succeed where others have failed they were told, "Big Brown is different". In 1999 when internet stocks without earnings were selling for 140 times earnings (if they had earnings at all) and some companies with no sales had market valuations 10 times that of General Motors, journalists were told, "this time its different" Well the lesson of Big Brown as the lesson of the stock market is that its never different.

Friday April 18th, the Dow closes over 12,800, the Dow Transports close over 5,000. At the same time new highs on the NYSE dwarfed new lows by 3 to 1. Bad new predominates, but the market does not care, it wants to go higher. For example HOG announced sharply lower slaes and layoffs, but its stock is in the same 37 area as it was a couple of months ago when we told everyone to cover their short. The market is sold out for now. Whether this up move is sustainable--only time will tell. We will not know this until Memorial Day. However, you cannot be short this market yet..... Trust the market, but as Reagan used to say, "verify"

April will be the most important month in the stock market for 2008. It will resolve the issue as to whether the rally of the past two months was the beginning of a new up move, or just a blip in an ongoing bear market which started in the fall of 2007. So far the first 10 trading days in April goes to the bears. Especailly because GE a company who has gamed earnings for years, missed its estimated. GE is a bellwhether of the economy because of its broad industry reach. The market is failing and failing badly at a key technical juncture. Every rally into resisitance is met with failure. Unless the Dow can break above 12,800 along with a move by the Dow Transports above 5,000 it is still a bear market.

In this horrendous economy who profits? Pawn shops and pay day loan companies. Any business that provides temporary relief to struggling every day lower middle class working stiffs down on their luck. Demand for cash is great, and the cost of capital is ever being lowered by the Federal Reserve. Check out Cash America International on the NYSE (Symbol CSH) and EZ Corp on the Nasdaq (Symbol EZPW) Both companies are the prime benificiary of the current economic crisis.

What little respect I had for CNBC I lost today. This morning when Warren Buffett told Becky Quick that we are in a recession, she looked at him incredulously. Two seconds later, the bottom of the screen flashed a red "Breaking News".....Buffett says we are in a Recession. Duh!!!!!!!!!!!! Do these people live in the same world as the rest of us? I am tired of listening to these nitwits tell an unsuspecting public that---1. The subprime mess would not carry over into the general economy;and 2. That those who sold stocks last summer were stupid "lemmings" (according to Erin Burnett). I have learned more about the market from Tori Spellings reality show than from the biased talking heads on CNBC. Becky Quicks ignorance has personified this today and this speaks volumes about the financial media in general--they offer absolutely no value to an investor and probably detract from the sum total of all knowledge. What I do know is that we will probably have a nice tradeable bottom from here which is around DOW 12,200.

Todays Federal Reserve emergency action cutting the discount rate 75 basis points inter-meeting (the first time since 2001 such an inter-meeting action was taken) is nothing more than the Bank America Bail Out Plan. Last week, BAC took on the rest of Countrywide (CFC) and now the Fed has helped them by softening the cost of taking on the carcas of this crappy company. Almost 6 months to the day, we told you to short Harley Davidson (HOG) in the mid 60's. Well this morning HOG opened at 34.75!!Because of the fed action and because we have over 30 points in the trade, it is now time to cover the short. I think, err.... I know that HOG is going lower, but take the money because you never know how long this fed induced counter trend rally can last. You can always reshort after the gittiness ends. HOG has already bounced to the 37-38 area off the lows. So take that great trade off now.......

THERE IS NOT ENOUGH PAIN YET! The market has shrugged off the potential housing crisis as if nothing has happened. Even our short HOG dropped like a rock only to recover to 50. But this cheerfulness should be short lived. Economists have no clue how slow the real economy is. Just look at the roads. There is less traffic where I live despite fantastic weather. And gas prices have hardly budged even though crude futures set record highs daily. I am no genius, but even I can figure out that domestic US gas stations are seeing less demand. World demand must be incresing to justify $85 per barrel. But certainly not here. If the oil cracks then we will have a worldwide recession. If not, the recession will be contained only to the U.S. giving further credence that we do not matter as much as we used to.

With the real estate market malaise that we warned you about, and with interest rates ticking higher and gas prices, its obvious that adults don't have the same amount of $$$ to buy expensive toys. Thus Harley Davidson (HOG) is exhibit A as the type of company that will struggle from future sluggish sales. Short Harley Davidson, up to 66, with a buy stop above 70. If we are right about this one, the downside is almost 20 points to the low 40's.

The disappointing retail sales for this holiday season can be traced directly to the decline in the real estate market as consumers can no longer tap the equity of thier homes to spend elsewhere in the economy. Wall Street economists are "shocked" because they can no longer relate to the real economy due to their mighty status as the elite of this country. How can a Wall Street economist accurately predict what the masses will do, if he or she takes home millions in bonuses? These economists just assume everyone is doing well. Its impossible to feel the pain of the average broke American conusmer.

For the first time in 2.5 years the price of gasoline is lower than it was 12 months ago. We thought this would happen and we posted this a year ago. But what was surprising was how long, the prices held up. We thought they would collapse a lot faster. But we will take what we can get.

Two great business quotes from the Financial Times:

On Business Travel-"90 percent of business trips could be cancelled with no damage to the business. People travel on business because it makes them feel important, because they are paranoid that something bad will happen if they do not and because they want air miles that will enable them to fly even more. Mostly, video conferences or phone calls would do instead. Business travel might be said to broaden the mind but it thins the bottom line and the ozone layer."--Lucy Kellaway

On Hedge Funds--"Robbed of its cloak of secrecy and its unconventional financing, private equity's stock picking looks all too human."

Right on Schedule the Federal Reserve sensing a slowdown in the US economy, stopped raising rates today. Just as we said back in May from the Mortgage Brokers junk mail, we surmised this would be a good indicator and it was!

Sayanora to the Transportation Average today which broke down. Say goodbye to the restaurants and the retailers. Money is rotating into the Dow and the S&P for now as they have held up relatively well so far. But as Joe Louis used to say about his opponents, "They can run but they can't hide" Eventually they will come for the big caps in the S&P 500 before the final rout is complete.

Adavanced Micro Devices (AMD) is one of the most hated stocks in the universe. Down over 60% from its high in March of above $42, it now sits at around $17 on huge volume. Many think AMD is over paying for ATYT, a Canadian based computer graphics chip company. Others think Intel is going to crush AMD in a price war to win back market share. I'm going to be the contrarian here and tell you that that the downside is limited, and its time to buy.

The shares of NYX closed today below 50. There were 7 new highs on the NYSE today, and 148 new lows. The Nasdaq recorded 17 new highs and 213 new lows. The percent of stocks below their 200 day moving average is now in the 40's. These are temporary extreme numbers. Sometime this week, with option expiration, we will make a tradable bottom. But longer term, to quote Yogi, " it aint over till its over" Now do you know why this blog is titled, "The I told you so Newsletter"?

This was the worst May in six years. The decline took no prisoners. A feeble rally today stopped the bleeding temporarily. The end of the month and the beginning of a new month are usually positive for stock prices because of the auto deduct-inflow into the mutual funds. After this money is used, we need to test the lows of last Wednesday which are 11,000 for the Dow;1245 for the S&P 500; and 1554 for the Nasdaq 100. The possible catalyst for the resumed downward test might come on Friday as the Government releases the Employment statistics for May. If the market is able to hold above these benchmarks, then a sustained rally can take place. If the market takes out these lows on a closing basis, then this correction is not over and we will be in for a difficult second half of 2006.

When will the rise in interest rates peak? To answer this $64,000 question I had to look no further than my mailbox yesterday afternoon. A mortgage broker sent a mass mailing to me (presumably because my Home Equity Loan company sold him the mailing list) demanding that I lock in my prime based adjustable Home Equity Line of credit to a fixed rate. In bold 16 point type the letter stated, AFTER 15 STRAIGHT RATE INCREASES ISN'T IT TIME YOU DO SOMETHING ABOUT IT?? THE NEXT INCREASE WILL BE IN MAY, WHAT ARE YOU WAITING FOR? The ad goes on, "The Federal Reserve has increased rates 15 straight times in the last 4 years with no end in sight.....Most experts believe more increases are on the way."

I never got a letter from this guy after the first increase, or the the fourth or the seventh or the eleventh. Now I get one. Guess what? Rates will stop going up in the next 60 days. Case closed.

"Sell in May and Go Away" I usually hate these wall street nursery rhymes. They are too cute and they seldom work. But this time, I believe that sometime in May will be the best sale of the year in the market. There are just two many things that could stymie the economy--interest rates, oil, Iraq, Iran, the fall of the dollar, rising commodities, etc. But one should look no further than the recent action of the NY Stock Exchange Group (NYX) which went public two months ago. Its down 30 points from the high and has given everything back from the time it first acquired Archipeligo. Conspiracy theorists would say the best time to sell would be after Thursday when the NYX completes it secondary offering. Regardless it is never a good sign of a healthy market when its feature IPO falls on its own weight over a mere two month period. The last time this happened was when ATT Wireless (AWE) failed to hold its IPO price in the year 2000 and we all know what happened next--- a 2 1/2 year bear market. The telltale signs here will be an S&P close under 1300 then under 1245 and if that happens, sayonara baby.