I’m alive, really .. but barely.  It’s been a crazy few weeks with the gyrating market and a spike of new members here at SelfInvestors.com but I assure you that posting will resume more frequently very soon.  Lots to catch up on.. now where was I last here at the blog….

Ah, in my last full market report on September 7th, I thought the market would test the July lows and test it did in a big way.  I haven’t done a good job of updating on the market action here recently, but have been on top of it with my members (remember, you can receive my near nightly reports for free by registering at the top left).

I’d like to recap my notes to members over the past few weeks, then provide a look at the current market action and where we might be headed from here.

A day after my last full report, Fannie and Freddie were bailed out and the resulting move had me a bit surprised, but mentioned to members "Remember a few things – we are still in a bear market and there is absolutely little to no leadership.  Tomorrow’s action will be very important.  I always like to see what the market does AFTER a major news event or Fed decision.. it’s often much more telling.  So we wait…."

Indeed, the action the following day on September 9th was telling and a complete reversal of the temporary Fannie/Freddie bailout euphoria as the market plunged big with heavy volume. In my email to members.. "Today’s move was obviously a big negative if you’re a bull.  While volume didn’t come in heavier than yesterday (so technically not considered distribution), it was way above average so I’ll go ahead and call it what it is.. institutional selling.  I still believe the indices are poised to test the July lows at some point.  Who knows.. they may just do that tomorrow.  Please remain extremely careful down here.. 100% cash isn’t a bad place to be while the market negotiates another bottoming attempt."

Following a few days of relative stability, the market again took a turn for the worse on Sept 15th as Lehman collapsed and AIG was on the brink, which prompted me to send an email to my members titled "Who’s Controlling Your Financial Future".  I’m including it here in its entirety.

"First of all I want to congratulate you if you’ve taken the time out
of your busy week each week to spend the 5 minutes to read my
reports.  You likely watched today’s plunge in the market with no
worry, knowing your portfolio was intact, possibly even making money.
I have been stressing the importance of moving to cash particularly
in the last few weeks as the market became much more uncertain.  No,
I’m not a market magician, not a guru, just a guy who happens to
trade for a living based on what the charts are telling me.  There is
no magic involved, just price and volume, support and resistance.  I
just try to relay that information to you in a concise manner a few
times a week.  I know that many will delete my reports as soon as
they arrive, but if I can hammer home the idea that yes you can time
the markets to a certain degree and preserve that hard earned capital
to just a few people, then I will continue to do what I do.  I’d
love to hear how you are faring in this market, so feel free to drop
me a line.

Of course, I don’t need to spend any more of your time rehashing
today’s events.  You can hear all about it on the evening news.  My
job is to help make you money and preserve your capital because quite
frankly Wall St. and the Jim Cramers of the world aren’t going to do
that for you.  If the tech crash less than 10 years ago and financial
crash of today aren’t enough to convince people of that, I don’t
know what will.  It’s time to take control of your own account and
trade for yourself. 

Lately I’ve been thinking of those that are retired and trusting
their retirement accounts will be there for them.  These people
don’t check their accounts on a daily  basis because they trust.
They believe, because Wall St has ingrained it in them for so many
years, that there are "safe" investments that will provide nice
returns if you just hold them for the long haul.  Let me ask you –
wouldn’t you have considered a Washington Mutual safe? How about
Citigroup? AIG?  I hope that the general investing public now
realizes that few investments are safe for the long haul.

It’s hard to see what good can come from this financial disaster
with so many lives ruined (at least in a financial sense) but I
always believe that things happen for a reason with a much better
situation when the dust clears – as cliche as that sounds.  Wall St
was way overdue for a wake up call after years of extraordinary greed
and arrogance and you can’t help but think that new rules and
regulations will now pave much of Wall St, leading to a stronger
institution.  That being said, I my heart goes out to those that
spent so many years at firms like Bear and Lehman, trusting that
their leaders wouldn’t run the company into the ground.  Prison
should be the only option for those inept CEOs.

If you have been hurt financially by the events of the past year,
keep your head up and take some important lessons away.  I also
encourage you to take the next step and take control of your own
account.  It’s empowering and financially rewarding with the right
guidance.  If you’re willing to take that step I can get you headed
in the right direction, just let me know. 

Switching gears a bit, I’d like to talk briefly about today’s
market action.  Yes it was ugly.  More importantly, the S&P took out
the July low and closed at the low of the day with heavy volume.
What this does unfortunately is set us up for further deterioration
in the coming days.  On the bright side, the Nasdaq and Dow are still
holding up above the July lows so we’ll need to watch these levels
tomorrow right along with the VIX which looks poised and ready to
test the levels of the Aug 07, Jan 08 and March 08 correction bottoms
around 35 -37.50."

It didn’t take long before all the indices took out the July lows and appeared headed for the abyss.  Two days later on September 17th, growing concerns about the financial markets caused widespread panic with the indices closing at the lows of the day with heavy volume and no major support levels intact.  It certainly created a situation where murmurs of a market meltdown became more widespread on that Wednesday evening.  I mentioned this to members..

"Certainly, taking out the lows of yesterday sets the market up for
the possibility of another big plunge down, but there are some silver
linings to point out.  For one, the VIX is nearly at levels not seen
since Jan 08 and Aug 07.  The VIX currently sits at 36.22 and will
need to hit 37.50 to touch the level of those previous correction
bottoms.  However, I want to point out that at the 2001 and 2002
bottoms, the VIX spiked to above 55.  The Dow would need to plunge
another 1500 – 2000 points to reach that level.  It "could" happen
at some point, but lets zero in on at that 37.50 level first and see
how the market reacts to that level.  Another positive is that Jim
Cramer, who is quite possibly the worst market timer (at least
visible one) that has ever lived, doesn’t believe this market is
done going down.  I tend to agree, but hey I’m trying to find some
positives from today.. it aint easy.

Tomorrow will obviously be a very important day.  Remember though..
it’s not how we open, but how we close.  Until we start seeing a
trend of institutions buying into the close, this market isn’t going
anywhere.  I wouldn’t mind seeing the market down a few hundred more
in the morning, the VIX touching 37.50, followed by sustained buying
throughout the day for another day of capitulation.  .. but of course
the market doesn’t care what I want."

Thursday morning, after an initial rise, the market fell off a cliff and panic ensued with the VIX ("fear index") rising to levels not seen since the market crash of 2001/2002 which created the possibility of capitulation…  then news that the UK was banning short selling and Paulson working on an RTC type fix for banks and brokerages broke, sending shorts scrambling as the day ended in dramatic capitulation.  My email to members titled "Extreme Fear? You Betcha, Capitulation? You Betcha summed up the days action:

"Heading into today we had that VIX spike and major plunge in the indices yesterday to contend with, setting us up for the potential of some kind of wash out.  I felt like we were close.  I mentioned the doom and gloom of Jim Cramer last night and working late last night I couldn’t help but notice the story on Nightline about the "market in crisis".  They were interviewing CNBC talking heads including Cramer and discussing the collapse of AIG, Lehman, etc.  The world was coming to an end and Nightline was there with the story.. Read any major newspaper and the headlines were the same.  When you see this kind of negativity headlining the major news networks and newspapers, the average person becomes aware, creating a situation where everyone who has wanted to sell has done already done so.

Quite frankly, I was disappointed with the open as the indices jumped right out of the gate.  I really wanted to see a quick flush out right at the open.  It wasn’t long before I got my wish.  The indices turned tail, not only erasing a 200 point gain, but closing in on a loss of 200 by mid day as the VIX ("the fear index") broke through 37.50 (where it topped during the Aug 07 and Jan 08 bottoms) and touched 42.  The fear was here and everywhere.  Putnam Investments announced that were closing an institutional money market fund due to significant redemption pressure.  My concern at the time was that the VIX would want to test the area round 50, which it tested during the 2001/2002 market crash.  For that to happen, the Dow would have had to plunge another 400 points from the lowest levels of the day.

That may have very well happened if not for news out of the UK that it was halting all shorting on financial stocks until January.  That seemed to put a floor under the market for the time being and the market recovered quickly.  The icing on the cake for today’s dramatic reversal was news that Hank Paulson was working on an RTC type fix for banks and brokerages in order to clear their balance sheets of toxicity.  That sent shorts, who have had a field day this year, scrambling to cover positions.

Today was huge.  It’s a tremendous start to finding a bottom in this market and the lows of the day could very well be a lasting bottom.  What we got today was capitulation on a grand scale which changes the game for me.  Instead of sitting largely on the sidelines, I’m now going shopping and looking to scale into a few more long positions but only on orderly pull backs.  There is no reason to chase this move because there will be plenty of opportunity.. be patient, wait for you entry and don’t be afraid to initiate a position (albeit a smaller one that you would initiate in a bull market).  "

Now obviously a recap of what happened to the market in the past isn’t going to help make you money in the market next week but I wanted to recap my notes to members over the past couple weeks because it helps illustrate the kinds of emotions I was going through, the importance of fear as illustrated by the VIX and newspaper/TV headlines , the importance of how the market closes each day (not where it trades intraday)… oh and Jim Cramer as the ultimate contrarian indicator 🙂

So where do we stand now?  This market is certainly on much better footing now than it was on Wednesday night/Thursday morning of last week following that dramatic day of capitulation and it has changed the game for me somewhat, but I am being cautious.  I wanted to see an orderly retracement of that big move on Thurs & Friday in order to add a bit more skin into the game on the long side and we are getting it now.  I actually added a long position in the semiconductors near the close today but may hold off on additional long exposure until the rescue plan is passed.

Let’s take a look at the charts of the indices.  I’m using the weekly charts of the indices this week to get a better sense of the bigger picture.  The big picture is the large downward "bear market" channel that has been carving out since late last year, finding support and resistance along the way.  With Thursday’s capitulation move off the bottom of the channel, we find ourselves in a situation with good potential for a tradeable rally to the next level of major resistance which would most likely come in the area around S&P 1325 in another month or so. See how we have retraced about half of that weekly capitulation move?  This is the point where I want to put a little skin in the game on the long side.  By no means am I getting overly aggressive though.. this is STILL a bear market and should be respected. 

You see a nearly identical situation in the Dow with a capitulation move off support of the bottom of the channel last week and retracing some of that move this week.  So, major support around 10500 and the first major level of resistance around 11750 (previous resistance and the 200 dma on the weekly) .. if it can clear that, look for a move to test the top of the channel around 12250.

The Nasdaq is much further up in its channel currently and that’s a bit of a concern because it doesn’t have much room to run before hitting major resistance.  The area around 2325 – 2350 is going to be mighty formidable resistance but that’s still a nice 200 point pop from current levels, so certainly a tradeable rally.  I would like to see the Nasdaq close at 2200 or higher by the end of the week because it hasn’t closed below that level on a weekly basis during the correction of 2008.

That wraps it up for now.. please continue to be careful out there.  Don’t be afraid to put a bit of skin into the game now on the long side, but by no means take excessive risk!  That means smaller positions, fewer positions and absolutely no margin!  I’d even advocate sticking to ETFs for the time being, which carry considerably less risk than an individual stock.

::: Model Portfolio :::

** This section will now appear as a separate report about every other Wednesday. 

The Self Investors Model Portolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2% and is more than 10% ahead of the S&P in a very difficult 2008.  This is a REAL portfolio with position sizing and features annualized returns of 24%.

Would you like to receive buy and sell alerts in the Model Portfolio within minutes (NEW! now get them via instant messaging in near real time) of each transaction?  You can receive these along with ALL of the tracking tools and video reports with the very popular Gold membership.  Don’t delay, get started today and join me for many more highly profitable months here at SelfInvestors.com.

::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Mortgage Investment: 42.00%
2. Silver:  29.70%
3. Gold: 23.80%
4. Banks – SE: 21.20%
5. Semis – Memory Chips: 19.45%
6. Nonmetallic Mineral Mining: 14.75%
7. Oil & Gas Drilling & Exploration:  11.95%
8. Toy & Hobby Stores: 11.70%
9. Pollution & Treatment Controls: 10.80%
10. Music & Video Stores: 10.65%

– Top 10 Worst Performing Industries For the Week –

1. Processing Systems & Products: -13.15%
2. General Entertainment: -9.30%
3. Health Care Plans: -9.10%
4. Packaging & Containers: -8.60%
5. Printed Circuit Boards: -8.40%
6. Data Storage Devices: -8.30%
7. Electronic Stores: -7.70%
8. Dairy Products: -7.60%
9. Publishing – Books: -6.65%
10. Office Supplies: -6.60%

– Top 5 Best Performing ETFs For the Week –

1. Central Fund of Canada (CEF) 29.00% 
2. Market Vectors Gold Miners (GDX) 25.30%
3. iShares Silver (SLV) 21.90%
4. PowerShares Precious Metals (DBP) 17.10%
5. Asa Gold (ASA) 16.60%

– Worst 5 Performing ETF’s –

1. Chile Fund (CH) -6.70%
2. HLDRS Retail (RTH) -5.95%
3. iShares US Healthcare (IHF) -4.50%
4. iShares US Consumer (IYC) -4.40%
5. SPDR Select Consumer (XLP) -4.35%

::: Upcoming Economic Reports (9/22/2008- 9/26/2008) :::

Monday:        None
Tuesday:       None
Wednesday:  Existing Home Sales, Crude Inventories
Thursday:      Durable Orders, Initial Claims, New Home Sales
Friday:           GDP (final)

::: Earnings I’m Watching This Week :::

Tuesday: FactSet (FDS), Lennar (LEN)

Wednesday: Copart (CPRT), Nike (NKE)

Thursday: Accenture (ACN), Chattem (CHTT), CRA International (CRAI), Research In Motion (RIMM)

Friday: KB Home (KBH)