Marching Higher

It’s hard to remember the tough times in January these days. What with the economy looking so robust and Greenspan sounding so unworried, it appears that there is no reason for concern. Which has proven reason enough to be concerned at several times in my life.

For now, though, the good times are a rollin’. February nonfarm payrolls rose 262,000 against a consensus forecast of just 225,000. That’s a plus. Real GDP growth has averaged 4.5% for the past six quarters. Manufacturing employment is up 20,000. It is all positive enough to prompt the usually reserved Dick Green at to say, “The economy is now in what should be called boom times.”

The boom is doing wonders for our portfolio. Sun is now up 4%, Ultra Semi up 6%, Maxtor up 82%, Disney up 93%, and Microsoft up 12%. Only Pfizer is down, at -4%, and even that is better than earlier in the year when it was down almost 10%. The Dow portfolios are cooking along as ever. Double the Dow is up some 3% so far this year and up 64% in the past 26 months.

Yet something feels about to give. We’ve been here before, in each of the past two years. Winter is going along so well that investors forget how painful the summers have been. People begin talking about year-end forecasts because they are fresh in mind from their inception the previous December and the market is rising at this moment, but somehow they fail to see the slow, hot months between now and year-end.

If the market ends the year higher than now then the forecast was a good one. But what if between now and that higher end point, there is a swoon that sees prices drop 35% before recovering? That’s precisely what happened to Sun in 2003 and 2004, and now it’s down again. Markets are not guaranteed to repeat, but with so much good news floating about and such outstanding performance lately, it’s hard not to expect a disappointment and mid-year sale.

Key to this is oil. Summer is notorious for driving the price of gasoline higher as people hit the road in droves. Starting from a low base, that is usually not a big problem. This year, though, oil is already at $54 and it could see $60, $70, even $80 over the summer. That will dampen this jubilation.

I’m particularly concerned with Maxtor. The stock has a bright future, of that I’m sure. I’m not sure that it’s all up from here, though. I want to protect our hard-fought gains. So, I’m placing a stop order at $5.80 for half of my remaining position, which is one-quarter of my original position. That will still leave me with a substantial investment should the stock finally break above $6. I hope it does so before hitting my stop, of course. If so, I’ll adjust the stop accordingly.

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