Farrell: In the middle of "Amen Corner"

Gary Player genuflectedon the eighteenth green at Augusta the other day and said if heaven had a golf course, it would be Augusta. The Mastersis full of religious overtones since the most famous three holes in golf make up the "Amen Corner." Three holes that have crushed many a Masters dream. Make it through those three holes and you can be a contender. I would like to think the market has made it past its Amen Corner, but we probably are right in the middle of it. We pared the first (actually the eleventh) and have a good tee shot setting us up on the second, but still some game ahead. (Sorry, but I love the Masters tournament. I have never played Augusta so if any of you reading this... ?)

We're in a bit of a dream-like state with the market right now after Wells Fargo's announcement last Thursday that banks can indeed make money. Leading up to that announcement were little signs that the economic decline is coming to an end. The commercial paper market seems to be standing on its own. U.S exports rose for the first time in seven months and imports fell. We buy what we want but sell what foreign buyers need thus the improvement in trade figures. Unemployment claims are still bad but seem to have leveled off. There has been better, or at least not as bad as feared news, out of the housing sector, retail sales and factory orders.

The news from overseas is a bit better as well. Chinese demand for raw materialshas improved. Steel mills in China imported record amounts of iron ore indicating they see a pickup in demand for finished steel. Chinese banks made $400 billion in new loans in the first two months of 2009 and both car sales and housing sales have picked up. And while their exports, which make up about one-third of the economy, fell for the fifth straight month in March, the rate of decline has slowed appreciably.

The market was loving all the news and the Wells announcement fortifies the view the worst is over. I believe the worst is indeed over, but feel the need to be cautious after the best market move in many a year. 84% of stocks are trading above their 50 day moving average. In the past that has indicated a stall is ahead. Financial shares have led the rally and Barron's reports that as a group they are 26% above their 50 day moving averagewhich is the widest gap in two decades. One of my partners on the trading desk at Soleil, Scott Bowen, figured that while Thursday's volume was about 25% above the 200 day moving average of volume (that's good), about one-third of that day's activity was in four low priced stocks out of the five most active - Bank of America, Citi, Wells Fargo, GM and Ford. Wells is the one that actually has a double digit price!

The Wells Fargo surprise might be more company specific than we would want. Figure they marked everything down from Wachovia before they acquired it and what you get is a doubling of the deposit base and a spring loaded opportunity to surprise on earnings with all the Wachovia baggage having been jettisoned before completion of the deal. Credit to Wells and JP Morgan for being well positioned enough to acquire troubled assets at discounted prices but aside from those banks that made acquisitions we may not see such an upside surprise when the other banks report.

We also need to see an improvement in credit spreads before we can be comfortable with the idea of an extended stock market rally. I don't think stocks can continue without a significant improvement in the credit markets. While the unweighted S&P has outperformed its weighted cousin by 10% or so which indicates broad market participation and not activity in just a few names, the total volume is still anemic and without volume on the upside I feel we are soon due for a pause.

But that's ok. Thursday's close at 856 on the S&P puts us well ahead of the 50 average at about 790 as well as a good bit above the 100 day of 828. I think a higher potential in the lower 800 range will be support and the bottoming process could start to yield higher lows as we continue to work our way through this.

On a lighter note:The pastor was out walking when he saw his five year old son and friends preparing to bury a dead bird they found. With pride he watched as his son was chosen by the posse to say a few words. "Glory be to the Faaaather, to the Sooon, and into the hole he goooes." Gotta love the kids!