Red Flags or Green Flags

Hi, Friends,

So, are the warning flags out or is it clear ahead? Red flags flying or green flags with the all clear, pedal to the metal?

Unfortunately for most investors, it's hard to say.

But as I said last week, "the market action and talking heads' speculations are nothing more than background noise. And that's the terrific advantage of having a proven, non emotional trading plan in place that we can depend on in good times and bad."

And that's even more true today with all of the swirling cross currents we face.

How we're doing

The market rallied sharply last week, shaking off the Black Monday fears. But we did get stopped out of Hong Kong in the volatility. September Hong Kong trades made 8.6% while new positions in Oct. lost -4.8%. As the tables above indicate, both September and October trades continue to perform well.

However, in spite of last week's rally, change is in the air, and our indicators are flashing short term weakness. The action in Hong Kong, today's new stop loss points and next week's rebalance will reflect this rapidly changing environment.

Subscribers need to watch for your Stop Loss Update later today and have your stops in place before market open on Monday. The closer you are able to follow the system's entry and exit points, the more likely your chances of success.

The View from 35,000 Feet

A mixed bag to be sure. Here are some of the significant developments accompanying last week's rally:

Negative earnings growth so far for the S&P. With 218 companies reporting next week, this continued trend would result in first negative growth quarter in five years.

28 year high in gold hitting $787/oz.
Record low U.S. Dollar against the Euro.
Record high oil touching $92/bbl.
Home sales down 19% from one year ago
National Association of Homebuilders reports lowest index ever.
2 million home foreclosures forecast over next two years by Joint Economic Committee Chairman Senator Charles Schumer.

So, where did the fear go from last week, and why did it so swiftly depart? The answer, of course, lies with Benny and his Merry Band of Feds and their Halloween meeting this week.
The market has already priced in that it will be treat instead of trick and is planning on a 25 basis point rate cut in its candy bag. I wrote after last month's cut that more cuts would be coming and they will be, right or wrong, for the dollar and inflation.

The Week Ahead

Next week will have more than 200 companies reporting earnings with the possibility of the first negative earnings growth in five years.

We'll also see the October employment report on Wednesday and the 3rd Quarter GDP estimate.

And of course, the biggie is the two day Fed meeting ending Wednesday.

What It All Means

Cross currents and confusion. Volatility, too. And as I wrote last week, "a recession in 2008 is so politically unpalatable that we'll see plenty of Fed intervention in hopes of making the proverbial soft landing."

Interestingly, we'll be rebalancing the portolio right after the Fed meeting, so Thursday will be an important day.Sector Spotlight

The hot sectors this week were energy, commodities and gold with Real Estate, Financials and Home Construction being the bottom feeders.

Last Wednesday, I had elbow surgery for some "boomeritis" and I learned firsthand the truth in the old saying that "it's minor surgery unless it's on you."

My right arm looks like a bandged prop from a Frankenstein movie, and typing this report one handed has been a challenge. Definitely makes one appreciate full mobility.

Have a great weekend and Happy Halloween and be sure to watch for your stop loss update today and portfolio rebalance on Wednesday.

Your partner in prosperity,

John Nyaradi
Publisher
Wall Street Sector Selector
http://www.wall-street-sector-selector.com