The Stock Trader's Almanac

[Stock]

Almanac Investor Alert
October Still Frightful 10/25/2007

Weekly Changes

DOW 13671.92 -217.04 -1.56%
S&P500 1514.40 -25.68 -1.67%
NASDAQ 2750.86 -48.45 -1.73%


Well, apparently after nine years of glory Wall Street still fears October. Or more likely, the month’s proximity at the height of earnings season in the beginning of the fourth quarter places it in harms way. Several disappointing earnings results and a week of worrisome economic readings inspired a nasty memoriam on the 20th anniversary of the ’87 Crash.

Last Friday was the worst day since the pummeling on August 9, and on a percentage basis the third worst day of 2007 for the Dow, fourth worst for the S&P 500 and second for NASDAQ behind the February 27 drop. Last Friday’s decline palled in comparison to Black Monday 1987 and the market seems to have stabilized this week. However, the recent pullback has pushed the Dow and S&P below their 50-day moving averages; but not NASDAQ. This is an indicator we are watching closely.

Our bullish call in the October issue and the MACD Buy Signal alert on October 4 both contained words of caution. The housing recession, financial sector earnings and slowing economic readings continue to plague the market. We may look back on current levels as a great buy point but, prudence should be implemented and stop losses heeded.

Two of our ETF positions did close below our stop losses and were closed out of the portfolio: ProShares Ultra Financials (UYG ) and ProShares Ultra Semiconductors (USD) both are currently below our stop loss levels and we will reconsider them as conditions warrant. Freegold Ventures (ITF.TO) has not yet traded at or below our C$1.45 Buy Limit. We continue to recommend patience with ITF. The two non-seasonal ETF recommendations did hit our buy limits and have been added to the portfolio: Market Vectors Nuclear Energy (NLR), Buy Limit $41.50, and PowerShares Dynamic Media (PBS), Buy Limit 16.50.

The rally remains intact but, we are concerned about the elevated level of bullish sentiment. Investors Intelligence bullish % was recently at the euphoric level of 62%, though it just fell back to 56.5%--still high. Volatility is high and the averages are under pressure but are showing support at the aforementioned 50-day moving averages. If this support holds, the rally should resume.

Once again the end of October finds itself at a potential market inflection point. The FOMC meets next on Halloween and they may deliver a trick or a treat. A 25bp cut is baked into the cake; another 50bp cut may rally the market or it may spook it. Inflationary pressures have abated somewhat as gauged by the CPI and PPI, both dubious figures, but $90+ oil and $770+ gold cannot be denied. No cut would send shivers down the collective spine of traders and investors alike. We do give Mr. Bernanke all the credit he is due. His handling of the credit crunch has been nothing short of masterful. He has gained the confidence Wall St. and Main St. and there is a lot to be said for that. But dwellers on both Streets can be a fickle bunch.

STANDARD TRADING GUIDELINES!
BUY LIMITS ARE GOOD TILL CANCELLED.
ALL STOPS EFFECTIVE ONLY WHEN THE STOCK CLOSES BELOW THE STOP PRICE.
ALWAYS SELL HALF ON A DOUBLE.


Please Trade Carefully.
Jeffrey A. Hirsch, Editor
J. Taylor Brown, Director of Research

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