When the stock market’s mood is all roses and champagne and the analysts are sporting party hats, what do we make of it?

Is it a red flag or what?

The thought occurred to us recently as we caught a loquacious money manager, Mal Spooner, waxing poetic over an alluring assortment of stocks — alluring to him anyway — during a guest appearance on Report On Business TV’s Market Call.



Host Jim O’Connell couldn’t even wipe the brash grin off Mal’s face with a sobering reminder that one of his guest’s previous top picks on the show had tanked by about 90 per cent.

Even some of the conservative analysts have been having a terrible time reining in their emotions. Smiles can be dangerous things in the stock market.

The last time we saw so much froth on the mouths of the soothsayers was last spring when an inebriated herd of retail investors were merrily being paraded to the precipice — of Head-Smashed-In Buffalo Jump.

During bearish times in mid-winter, when we asked Spooner for his view of the market, the manager of the YMG Capital Growth Fund guffawed nervously. This was interpreted as a reassuring sign that the market might be close to bottoming out.

Indeed, the bearish market sentiment did in fact shake the market out of its doldrums.

Extreme market sentiment is explained in an intriguing book called Investment Psychology Explained in which author Martin J. Pring writes: “When emotions reach an extreme, we should expect to see an extreme movement in prices in the opposite direction to the prevailing trend.”

The recent prevailing trend has been a bullish rally in which many beaten stocks have recovered by 30 to 50 per cent, leading to prices and price-to-earnings ratios that appear vulnerable to a pullback.

At this writing, we were still awaiting word on whether U.S. Federal Reserve chairman Alan Greenspan would cut interest rates by the 50 basis points that seemed to be built into the market.

Anything less than 50 points promised to play havoc with those ominous lines on the psychological charts — the laugh lines.

The market is a bubbling cauldron of emotions.

The trick is in knowing when to leave the party.

PRO'S THREE STARS

Vancouver-based mining analyst Rob Van Doorn is cautiously optimistic over the prospects for gold prices, which have been lying dormant for what seems forever. “The recession in gold prices has been very severe indeed for a couple of years and most people have left and given up, which I suppose makes it an opportunity,” says Van Doorn, of Loewen, Ondaatje & McCutcheon.

“But I find it very difficult to give any clever prediction on gold prices. Let’s just say significantly higher (by year end). But if gold makes a move, it may also come back very rapidly.”

Van Doorn is sticking with the two winners he picked here in December, Eldorado Gold (ELD-TSE) and Pacific Northwest (PFN-CDNX), and adding Philex Gold (PGI-CDNX).

All are speculative buys.

Philex has already rallied in the past year from eight cents to its current price of $1.60 (year range, .08-$2.11). “They have a major gold and copper discovery in the Philippines that could create some real excitement.”

Eldorado recently spiked to .485 cents on its Turkish gold prospects (year range, .305-.90) and Pacific Northwest, a promising palladium and platinum exploration company, recently traded at 93 cents (year range, .49-$1.87).

Van Doorn’s record: +10 per cent (Pacific Northwest +58 per cent, Eldorado +13 per cent, Great Basin Gold -41 per cent).

* CHEERS: To Calgary-based Wi-LAN, one of few Canadian wireless companies that has been able to announce news with substance this year.

Wi-LAN silenced its skeptics in announcing it has the green light from the Federal Communications Commission to market its high-profile W-OFDM technology in the U.S.

That’s a milestone as well as a significant victory over U.S.-based Cisco Systems, the schoolyard bully of the wireless wars.

* JEERS: To Nortel Networks CEO John Roth, who failed miserably by not having a successor in place before announcing his retirement.

With chief operating officer Clarence Chandran also retiring for health reasons, there is no heir apparent.

Gosh, shouldn’t a skipper who earned $130 million as Nortel’s CEO last year have hired some bench strength that would have given shareholders the assurance that a worthy replacement was in the fold?

Roth says a successor will be hired long before his departure next April. But that just isn’t good enough to appease shareholders weary of being slapped in the face by the fibreoptics giant.

HOT ALBERTA STOCK

DYNETEK INDUSTRIES

DNK-TSE 3.55

Up 95 cents (+36.5%) on 116,076 shares (for week ending May 11)

Shareholders embraced news that the Calgary-based company had a new application for its Advanced Lightweight Fuel Storage Systems for storage of compressed oxygen and sold six units to a B.C. company, Gas Ex Avalanche Control. The stock is still almost $5 off its year high of $8.40. CFO Robb Thompson says the company is exploring opportunities in North America, South America and Europe.

COLD ALBERTA STOCK

SCAFFOLD CONNECTION

SFD-TSE 27 cents

Down 12 cents (-31%) on 119,282 shares (for week ending May 11)

Is it something they didn't say? The stock in the Fort Saskatchewan supplier of scaffolding services and equipment tanked on no news, with 100,000 shares trading in one day. The company hasn't had a lot to say since announcing in February that it had a joint venture alliance with a U.S. counterpart, United Scaffolding.