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Correction Phase

March 2, 2011 – 5:58 pm

It appears we are still in the corrective phase for stocks with yesterday’s 145 point fall in the DOW. Actually, that is not a bad sign as corrections in a bull market would normally be about 10% and last week’s fall was only about 3% at its worst. That is not really enough to shake out the week hands holding stocks.

Yesterday, we saw a strong ISM number at 61.3% for February which is the highest reading in seven years. So our manufacturing sector is doing very well. This is an indication of a fundamentally improving economy. The problem is not basic manufacturing or the service sector in our economy. It is housing and labor.

Housing is not going to improve anytime soon and that will always drag job growth. However, the ADP jobs report out this morning came in higher than expected with 217,000 new jobs produced in February. Friday we will get the official government report which may not be so high since it counts not only private sector jobs but government jobs and it looks like government jobs are starting to shrink, finally. You will note private sector jobs in a recession disappear over night while government jobs keep growing. Now, with government debt ballooning out of control payrolls are starting to fall.

The correction we are experiencing will not last long and it is a health restoring event. When the Middle East starts to calm oil prices will fall and our market will rise once again. It is just impossible to gauge how long it will last.

Good Trading
Steve Peasley

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