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What Will May Bring?

I said in my last note it will be the "show-me month," we must see some evidence that the economy is clearly stabilizing and with housing at least showing some improvement.

Retailers have had huge moves up on some early signs of stabilization. All this week, retail analysts were putting out notes with this theme:

Deutsche Bank: "sales at the Department Stores appear to be stabilizing, with some signs of stabilization of sales at the Discount Dept. Stores."

Soleil: "we believe that quick response by the industry to a sharp drop in 4Q demand has tightened the supply chain and trimmed a lot of fat, positioning the industry for a profit recovery that could come sooner and be stronger than expected."

Still, many traders expect a final push down this summer. But others are now on the fence and have essentially become technical traders. They are watching for signs that the rally will continue into May before they switch their positions.

JP Morgan said it best in a recent note: "the current rally still falls within what would be regarded as the initial move prior to a retest. A rally past first week of May would force us to reconsider this view, as it would suggest a "V" bottom is more likely."

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