In my last report I talked quite a bit about the spike in fear as measured by the VIX, the meaningful capitulation and the orderly retracement of that capitulation. .. the technical action provided a place to begin dabbling in only the highest quality of companies.  That was last week.. Despite the improving technicals, admittedly I have become more cautious as a result of the events of the past week and the uncertainty of  the effectiveness of the announced rescue plan. 

My feeling right now is this – if you are in the market with money you absolutely can’t afford to lose or need the cash within a couple years, moving to 100% cash is your best best.  If you don’t mind taking on some risk and have longer time horizons then I do believe it’s not a bad time to dabble in high quality names. 

Nobody knows what will happen over the next few weeks.. my concern is that the improving technical picture of the market may be trumped by reports that the rescue plan is rather ineffective.  On the other hand, there is so much fear out there right now.  I was reading one headline today about the fear of the market crashing 30% in a few days.. I’ve been getting a few panicked emails from members, not to mention a sharp increase in companies trying to capitalize on the fear by highlighting the doom and gloom of the financial markets in order to sell a product.  It’s everywhere and that’s one ingredient for finding a bottom.

What I’m personally doing is holding onto a few core long positions but will be watching closely how the market reacts to the rescue plan in the coming days.  Remember that the implementation of a rescue plan has been priced in to some degree, so we have to be careful of a sell on the news situation.  One thing is for sure – if big sell volume comes into the market, once the rescue euphoria wears off, I will be unloading more of my long positions and increasing short exposure. 

I would imagine for most of you, it’s going to be best to just sit tight for a couple weeks, sleeping well knowing you’re sitting on cash.  If the market rallies 1000 points in the coming days, no sweat.. Opportunities are made up easier that losses.

I’ll have a look at the technicals of the market again next week. 

::: Model Portfolio :::

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

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::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Mortgage Investment: 49.30%
2. Dairy Products:  9.00%
3. Cigarettes: 2.35%
4. Application Software: 1.10%
5. Long Distance Carriers: .85%
6. Manufactured Housing: .75%
7. Integrated Oil & Gas:  .70%
8. Drug Manufacturers Major: .65%
9. Drug Manufacturers Other: .55%
10. Specialized Health Services: .50%

– Top 10 Worst Performing Industries For the Week –

1. Savings & Loans: -31.80%
2. Banks – SE: -19.20%
3. Agricultural Chemicals: -16.10%
4. Heavy Construction: -14.80%
5. Banks – SW: -14.60%
6. Meat Products: -13.95%
7. Major Airlines: -13.45%
8. Broadcasting Radio: -12.70%
9. Steel & Iron: -12.25%
10. Aluminum: -12.25%

– Top 5 Best Performing ETFs For the Week –

1. iShares Silver (SLV) 5.55% 
2. Asa Gold (ASA) 4.50%
3. US Oil Fund (USO) 4.35%
4. Herzfeld Caribbean (CUBA) 2.35%
5. iShares Commodities (GSG) 2.30%

– Worst 5 Performing ETF’s –

1. Market Vectors Coal (KOL) -14.90%
2. SPDR Metals & Mining (XME) -14.00%
3. Market Vectors Steel (SLX) -13.70%
4. Market Vectors Agribusiness (MOO) -12.50%
5. iShares Basic Materials (IYM) -11.65%

::: Upcoming Economic Reports (9/29/2008- 10/3/2008) :::

Monday:        Personal Income/Spending 
Tuesday:       Chicago PMI, Consumer Confidence
Wednesday:  Auto/Truck Sales, Construction Spending, ISM Index
Thursday:      Initial Claims, Factory Orders 
Friday:           Nonfarm Payrolls, Unemployment Rate

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

Monday: Cal Maine Foods (CALM)

Wednesday: Mosaic (MOS)