Is this a time to be bullish or bearish on the market?

Good question – as people tend to say when they need a few years to ponder an answer. Confusion reigns. The bulls are sounding a tad bearish and the bears are sounding a tad bullish, so let’s just say we’re kind of sheepish.

The buzzword these days is “cautiously optimistic,” which is Wall Street lingo for “we don’t have a clue what’s going on.” The market has taken on a disturbingly split personality that is driving investors nuts since its robust rally in the first quarter of the year, swinging wildly but never really going anywhere.

As we enter the traditional summer doldrums season, the market has all the conviction of a bleating lamb in a slaughterhouse. The bulls aren’t exactly pounding the table. Nor are the bears exactly running for cover under the table.

What the street agrees on is that the market historically climbs a so-called wall of worry, but nobody seems to know how many bricks it will take to complete the construction of this mighty wall. Even in an environment of healthy earnings and economic growth, the stock market is a deer caught in the headlights, waiting for the next size-14 shoe to drop, be it Alan Greenspan’s (the interest-rate shoe) or George Bush’s (the U.S. election shoe) or Eliot Spitzer’s (the corporate scandal shoe).

Everywhere, there is fear and uncertainty.

Fear and uncertainty over whether U.S. Federal Reserve chairman Greenspan will raise interest rates at an accelerated pace when the stock market has been pricing in slow and steady rate hikes.

Fear and uncertainty over how this year’s U.S. election plays out, with doubt growing over the prospect for President Bush and his market-friendly tax-cut policies.

Fear and uncertainty over the impact of high oil prices on the economy and inflationary prospects.

Fear and uncertainty over geopolitical hotspots such as Iraq and the U.S. government’s warning about possible terrorist attacks in the U.S. this summer.

Two primary schools of thought seem to be in vogue.

One, you can safely stay on the sidelines this summer and wait for some of the fear and uncertainty to play itself out because it’s a historically quiet season in which the market train seldom has the steam to leave the station.

Two, those who make a killing in the stock market are those who have the moxy to jump in when all around them are petrified with fear.

Investment author Phil Dow subscribes to the latter school, but doesn’t seem to be pounding the table, either.

“What I see,” says Dow, market strategist with RBC Dain Rauscher and author of The Citizen Investor, “is this pervasive opinion that there will be a better time to buy stocks and that we’ll all know when it comes. But it never happens that way. The only way to participate in a market recovery is to be in it beforehand.”

The bears have the view that the market is an accident waiting to happen.

“There doesn’t seem to be the overwhelming pessimism that you typically see at a bottom,” says Charles Blood, strategist with U.S.-based Brown Brothers Harriman. “I think the markets are vulnerable on the downside.”

Of course, the trouble for the sheep is figuring out which flock to follow.

* “PERFECTLY INEFFICIENT”: That’s how Calgary investment strategist Kirby Thibeault describes the perplexing state of North American markets this year.

Thibeault, president of Kapital Investment Corp., an interactive market commentary (www.kapital-investments.com), explains thusly: “The behaviour of financial market participants has demonstrated that their behaviour en masse, which has principally been driven by institutional investors, does not appreciate the economic and financial data at present, especially in a forward-looking sense.”

Thibeault cites economic data demonstrating that post-Second World War expansions in the U.S. have become increasingly longer.

The last U.S. expansion spanned 10 years, from 1991 to 2001, and during that span the Nasdaq index grew by more than 500 per cent while the S&P 500 index grew by about 270 per cent.

“With the current economic and financial foundation in place, it remains my view that the global business cycle, principally led by the U.S., is just getting started and investors (who) buy and sell over very short-term periods continue to erode their expected rates of return,” Thibeault says.

“Corporate profits are expected to remain very strong for at least the following 12-month period across corporate America. Once sentiment improves, or more market uncertainty is removed, I think over the next 12 months we could see the S&P 500 jump by at least 10 per cent and the Nasdaq jump even more.”

* SAGE WORDS: “Have strength and buy when things do look bleak and sell when they look too good to be true.”

– Claude Rosenberg, money manager and investment author.



HOT STOCK*
WHITE KNIGHT RESOURCES
WKR-TSXV $1.00
Up 40 cents (+66.7%) on 5.7 million shares
(for week ending June 18)
With the junior mining stocks starting to percolate again, White Knight was knighted to lead the charge. Investors piled into stock in the Vancouver-based exploration play on news of a $2-million private placement in the company by a major player, Kinross Gold (K-TSX). White Knight owns an intriguing property in Nevada where some of the majors have been staking claims.



COLD STOCK*
YANGARRA RESOURCES
AYX-TSXV $1.05
Down 55 cents (-34.4%) on 726,500 shares
(for week ending June 18)
This mega-tank job was anything but a stunner considering Yangarra’s chilling three-pronged news release. The Calgary junior oil and gas company reported production declines greater than previously announced, drilling delays and the canning of a previously announced financing. Seems the stockholders caught the hint.

*Canadian stocks over $1