What an ugly week it was !

Hi, Friends,


Last weekend in this report, I said, "it's obvious that there isn't a rate cut in sight, but rather, it's a likely possibility that 10 Year interest rates will go above 5% soon, possibly as soon as next week," and, "in a nutshell, we'll continue "following the money," but being careful with our positions because a falling dollar and rising rates cannot be good for U.S. stocks in the long run."



Maybe I should stop saying things like that because, sure enough, rates went up and stocks went down this week, with a vengeance!



Treasury yields popped above 5%, the highest since last August, and oil prices rose into the mid-sixties. To top things off, "Backstage Ben" Bernanke, the U.S. Fed Chief, made a center stage appearance in South Africa on Tuesday and said that risks to moderating inflation "remain to the upside" and that "demand is high relative to capacity."



Mixed together, these negative elements were enough to send the Dow down more than 400 points in 3 days. For the month so far, the Dow is down 1.8%, the S@P 1.9%, and the NASDAQ, 1.5%



At Wall Street Sector Selector, we were stopped out of one position, a new trade that was closed at our 5% money management stop loss. I hate it when that happens, but our other positions held on OK and this is where our inherent diversification and money management discipline pays off.



Overall, we locked in 3% gains for May and are up 6.25% year to date, including this week's downdraft, and maintain our average of 85% of all trades making money.



What's ahead? More volatility until the market absorbs the changing interest rate environment. A continuing shift to gold, oil and natural resources as inflation becomes more of a player on the global scene, falling bond prices and a continued drop in the U.S. Dollar.



All of these shifting trends will present us with profit making opportunities in the months ahead as they become more clear and well established.



Also, remember that the 6 worst months of the year are May through October, with the Dow losing more than 500 points during those months compared to gaining more than 11,000 over the other six months of the year when looking back to 1950. When you factor in this eveseasonal "June Gloom," I don't feel bad about lightening up on equity exposure, and personally don't plan to add new money to the market until autumn's chill fills the mountain air in Bend.



So, take a deep breath and enjoy the rest of your weekend. I was home for a short Friday and Saturday after a long week in Japan and Taipei. It was just enough time to see my #2 son play in a Celtic fiddle performance at the old Tower Theatre in Bend, have a latte or two with my wife, pick up some clean clothes and catch up on a little jet lag. Sunday evening takes me to London where I plan to get a feel for the changing interest rate climate in Europe.





Till next week.


Your partner in prosperity,


John Nyaradi

Publisher

Wall Street Sector Selector
http://www.wallstreetsectorselector.com