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Excerpt from Raymond James strategist Jeffrey Saut's latest essay

...[L]ast week marked a major change in the “body language” of the Federal Reserve. Our sense is that the Fed is now going to jawbone the U.S. dollar higher, and attempt to (take) interest rates marginally higher, even though we don’t think the Fed will raise rates in the short run. Meanwhile, the politicos are trying to break the price of crude oil and other commodities.

All of this is giving the “Street” the sense that the worst is in the rearview mirror; and, that even if Lehman Brothers (LEH) defaults the Fed’s “checkbook” will bail them out in a Bear Stearns (NYSE:BSC) déjà vu dance. These perceptions are why I believe we have entered the middle part of the envisioned “W”-shaped economic environment, which should cause stocks to lift.

And, at least the corporate insiders are listening, for insider selling has fallen more than 60% year-over-year, while insider buying is up by about the same amount. Despite this optimism, however, many portfolio managers [PMs] seem to have adopted a new investing mantra – invest not to make money, but rather not to lose money – as many of their favorite stocks have recently experienced “air pockets” on the downside.

The PMs know that they have to stay pretty fully invested so there seems to be a scramble for “safe” stocks. However, even these alleged “safe” stocks are breaking down, as can be seen in the chart patterns of General Electric (NYSE:GE), Pfizer (NYSE:PFE), Home Depot (NYSE:HD), Eastman Kodak (EK), etc. as things continue to get curiouser and curiouser.

The call for this week: In last Monday’s missive we wrote,

“For whatever reason, last week’s schizophrenia caused the S&P 500 to break below its May reaction low, rendering a near-term price target into the 1320 – 1330 support zone. If that occurs, we would consider initiating ‘long’ trading positions like we did at the January/March trading ‘lows.’ It should also be noted that our proprietary oversold oscillator is close to rendering its first oversold ‘buy signal’ in years.”

Later that week, in Thursday’s verbal strategy comments, we told participants to begin a scale “in” buying approach in the indexes (ETFs) of their choice with close trailing stop-loss points. On Friday that “call” looked pretty good, but as Lowry’s notes, “The longevity of a rally is directly correlated to the strength of investor Demand during the rally.”

While only time will tell if this “lift” can gain momentum, we are optimistic and would point out that unlike the Bear Stearns crisis, gold is not rising and the U.S. dollar is not diving. These are NOT unimportant observations since last week’s news environment was certainly “dollar dour.”

Source: Saut: We're in the Middle of a 'W' Market; Scale Into Positions