MARKET UPDATE

P.O. Box 290708
Brooklyn, NY 11229
718-891-5900 & 718-891-2455 (fax)
www.StealthStocksOnline.com

This is Dennis Slothower with your Stealth Stocks Market Update for Monday, May 06, 2002.

SUMMARY OF RECOMMENDATIONS:

NOTE: All stops should be placed GTC (good till canceled). Please note that "SELL STOPS" are updated on a weekly basis. All entry prices are based on Tuesday's close. A "HOLD" is a recommendation from a previous week. A "BUY" is a new recommendation. For new subscribers I suggest you build your portfolios by taking the new "BUY" signals.

MARKET COMMENTARY:

I am just amazed at this stock market. Once again the indexes are extremely deceptive of what is really taking place under the surface. Most investors would be surprised to learn a "stealth bull" is on the loose in the stock market but that is exactly what is happening. This week is another example of weakness in the indexes while at the same time more stocks are advancing than declining. In fact, the advance/decline line for the NYSE broke to new highs this week on the indexes. A majority of our stock recommendations also made 52 week highs, such as GAN (+36%), HLYW (+21%), and RDN (+14%) since recommended.

Frankly, the market is as split as I have ever seen it, with several sectors in a strong bull market while the big-cap technology stocks continue to drag down the indexes. For example, for the first three months of the year, 346 companies in the S&P 500 rose for every 154 that fell. The current situation is almost the flip side of the bull market's top in 1999, when investors saw about 256 shares drop for 241 that rose, but the S&P 500 soared 19.5 percent. This is not a broad-based, everything-goes-down market. For example, the average stock in the S&P 500 was up about 4 percent in the first quarter, even as the overall index lost 0.06 percent, according to S&P.

There is a reason why the market is so split, however. While the GDP figures for the first quarter were reported at 5.8%, the Federal Reserve has drained the money supply significantly since the first of the year, undercutting the growth rate of the economy in order to bring it down to their acceptable growth targets. The Fed does not want to promote a robust economy and ignite inflation again. They would like to see growth at about 2 or 3% for the GDP, so we see them taking away liquidity again to rein in the growth level.

For example, M2 is now at a -2.5% compared to growing nearly 15% at the first of the year. This is like driving your car on the freeway, with one foot on the gas pedal (low interest rates) and the other foot on the brake pedal (falling money supply). This is what is causing the market to be so split. With interest rates at 40-year lows we see a number of sectors in well establish uptrends. The financial and banking stocks are doing extremely well and I have some excellent stocks in this sector of our portfolios that show some very impressive uptrends.

The rise in crude oil is a negative in one sense but it is a positive in another, because it also acts to slow down the economy, which means interest rates aren't likely to rise until later in the year. Consequently, we are seeing residential construction doing extremely well. The builders should continue to do well for at least another quarter or two. We are beginning to see some early signs of a slowing economy, which helps to drive down long-term interest rates as well. So this sector looks attractive as well as the automotive sector. General Motors is experiencing strong demand for their products and it is essentially benefitting from this low interest rate environment.

We are now coming into an important juncture in the economy. The Fed's monetary policies have about a quarter or so lag time. We are starting to see the economy beginning to slow again. From my experience and perspective, I believe we should see the Fed start to inject liquidity again, which will produce growth again in the third quarter. The Fed has to increase the money supply now in order to see growth in the third quarter.

It is no wonder we are seeing weakness in the telecommunication and technology sectors with the Fed cutting the money supply. When the Fed begins the second phase, however, watch for this sector to come roaring back, which will only help to lift the stock market.

I know these are unsure times. The Middle East situation, the falling U.S. dollar, rising crude oil prices and the uncertainties in the economy are factors that are very unsettling but it is out of such uncertainties that bull markets are born. We are seeing some excellent trends develop in a number of sectors that are benefiting from this environment and I want you to own these stocks. I want to leave you with this one thought. "Remember, the greatest risk of all is the unwillingness to take a risk. Unless you take a risk, you have a 100% chance of accomplishing nothing." Tom Basso.