Crocuses-Final Thoughts.

If you looked at all the charts we posted over the weekend you would have come away understanding our opinions in almost each case.

1. Stocks and indices are just beginning to show the first traces of what might eventually become a change in market trend.

2. Stocks and indices are for the most part trading at the higher end of the trading ranges established after last Autumn's melt down.

3. Most stocks and indices are currently overbought and currently vulnerable to some kind of correction.

We'll learn quite a bit on how the market responds over the next several weeks. Seemingly on cue, stocks sold off on average at around a 3% clip yesterday and followed through with that decline at today's open. But then the buyers came in with stocks stronger in the last hour of trading. In essence stocks retraced their losses from yesterday but did not for the most part erase the gap from yesterday's open. Meaning that stocks are still trading at levels where they opened Monday morning but have rallied back up through the past two day's lows.

If this pullback is the beginning of something more sustaining on the upside, then stocks should only retrace a portion of the last six week's rally. Anything beyond the markets retracing about 1/2 of its recent gains would suggest that what we have been experiencing is nothing more than a bear market rally. That's why the next couple of weeks could be important in trying to figure out where we are in terms of overall market structure. It will be important to see if any further correction is orderly and controlled or if market participants panic leading to a more volatile sell-off.

There is an old market saw that the market teaches you a lesson time after time until you learn it; then it changes the lesson. As the market has moved up in these last few weeks we have felt it prudent in appropriate accounts to take just a small amount of certain positions off the table. In most of our accounts this has simply meant in going from absurdly low levels of cash to just low levels of cash. This is cash we would like to redeploy if we do get some sort of correction. If stocks continue to rally we have in appropriate accounts a sufficient amount of exposure in order to participate in any further advance.

But stocks have rallied from each correction in the past month making sellers at least in the short run leave some money on the table. Again where we have done this it has been very small amounts and has been meant to lower our risk exposure. The point though is that buyers are becoming conditioned to buy market dips. At some point that strategy will not work and buyers will not be rewarded for taking on these trades. The market's actions these next several weeks could tell us when this might be.