On June 18, I laid out my reasons why I believed we were getting set up for a Summer rally, beginning after the July 4th holiday ( Here We Go Again: 10 More Reasons to start getting Bullish again ).

I used all of my favorite technical and sentiment indicators. Although I find these mathematical studies of market and investor psychology fascinating, I can tell many of you found them -- well, a bit arcane. And my most recent analogy of Quantum Mechanics (Schrodingers' Cat) as a way to critique all the whining about the Fed was definitely a yawner for many of you.

I hear you. With the holiday weekend coming up, I will take a break from the linguistic gymnastics and obscure references (the investing world does not need another Dennis Miller). In plain old English, suitable for reading on the beach, here is why I believe we are about to start a powerful 8 - 12 week rally.

1. Markets recover in ADVANCE of economic or earnings improvement - usually by 6 months; Thats why the market crashed 6 months before anyone suspected the economy was decaying. This next rally will foreshadow US economic recovery. (Conversely, no rally suggest further economic weakening).

2. Much lower energy prices than anybody thought: gasoline, oil and natural gas. Everything from the transports and airlines to theme parks (Disney), industrials (ie, GE and International Paper). All can raise numbers on this. Falling energy prices are earnings boosters.

3. The Fed sez "We're not worried." Thats the best of all possible worlds: They cut rates, but also say "More to come; We see things improving, but we still want to have some ammo just in case." Rates likely go down another 1/4 point to 3.5% in August.

4. Two and a half trillion dollars in cash on the sidelines, looking for a home. Are bonds appealling at 3-4%? No, that cash will eventually go to stocks.

5. Inflation anyone? Its nowhere to be seen. Commodity prices are sliding. Look at the CRB index. No one is talking about commodity price increases.

6. US Federal Tax rebates in the mail w/i 60 days.

7. Microsoft: Many fund managers are underinvested in this and will add to their positions; They start a new product cycle in the fall, and have a friendly administration in DC. Yesterday's decision was a big win for them.

Any rally in MSFT helps the Comp, Dow & QQQs move higher -- drawing "late cash" into the market. (That's why its important to be positioned ahead of time).

8. Preannouncement season officially ends today (6/29). We are about to get to earnings season, and that may be better than expected -- certainly less unpleasant surprises than the preannouncement season.

9. Upside suprises: Federal Express & Nike beat numbers; More to come?

10. Bad stocks stop going down. AMCC, VTSS, PMCS, etc. Short-sellers are over exposed. Risk/Reward suggests its bad for them to press further downwards. Short Interest is still very high; Many will cover.

11. 2002 is around the corner. Starting next week, analysts begin to put multiples on next year's earnings (a July ritual). That will be much better than focusing on 2001's mediocre numbers.

12. Next years numbers will have VERY favorable "year ago comparables." Makes to easier to meet and beat numbers.

13. Technically, we have successfully retested on the major market indices, maling a significant higher low.

Bear markets usually end with a climactic sell off -- we saw that on 4/4. The next step is a retest. After the initial crash, we followed with a "powerful oversold bounce, followed by a lower volume, a fear-driven retest that brings the market back into oversold territory and sets up the most meaningful advance off the lows." (T. Dwyer)

The recent retest of 2000 -- but not 1600 was a successful retest of the climactic lows.

Sources: TheStreet.com, CBSmarketwatch, Dorsey Wright

That's my bakers dozen. Have a safe and restful holiday. (There will be no additional market commentaries until July 12, 2001).

If you would like a free subscription to my bi-weekly market comments, please send an email to email to Ritholtz@aol.com, including the word "SUBSCRIBE" in the subject matter line. Previous market comments are archived here.

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