Our interpretation of recent market action is that the month-long consolidation in stocks is about to resolve with an upside breakout. It now looks likely that all the major stock indexes will move erratically higher and it also seems likely that they will regain their record highs some time within the next six months or so.

Therefore cover short positions in the NASDAQ and Dow Jones futures markets right away. Stay with our only other short position in Amazon.

There appears to be a major change in leadership away from some previously hot sectors and into some new ones.

Biotech and health care stocks are gathering strength. Among those we are looking at are Amgen (AMGN), Idec Pharmaceuticals(IDPH), Chiron (CHIR), Merck (MRK), Genzyme(GENZ), Medimmune (MEDI) and Quest Diagnostics (DGX).

There are still some high tech stocks that have a really good reward to risk, but very few. We note 3 Com (COMS) in particular. However, you have only to see how Oracle and semi-conductors have fallen apart to beware this sector. IBM almost looks like a short sale and Hewlett Packard looks suspicious.

There are also some mainline stocks that look as if they may be ending a consolidation, among them Wal-Mart (WMT) and Home Depot (HD).

We are absolutely not deterred from holding petroleum stocks as a result of the shakedown yesterday. They are priced for $25 oil or less and we expect them to be generating profits far above what most people are expecting. We expect that in due course people will come to regard these stocks as beneficiaries of technological innovation the way the banking industry came into favor. Notable for productivity improvements as well as assured growth in output is Suncor (SU) and the oil service companies all look great. The natural gas shortage is real and price could go a lot higher. There is also a looming world shortage of crude oil as demand closes in on deliverable supply.

A full bulletin expected this weekend.

Stockscom