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October 26, 2008, Sunday Evening TradeStocksAmerica

The stock market will be heavily influenced by several factors this week: the Federal Open Market Committee (FOMC) meets Tuesday and decides for any changes in interest rates, most mutual funds have their accounting year end this Friday on October 31^st and the Presidential election will occur in 9 days from now.

Even if the FOMC lowers rates, it is doubtful lower interest rates will have much effect on the stock market prices, even if it is a 0.5% reduction. The accounting year end for the mutual funds will be adding a lot of volatility with no incentive for mutual funds to buy stocks long. This is what is called tax loss selling basically means that some stocks can be sold at a loss to offset the gain in other stocks. It isn’t clear though, what stocks may have given investors profits this year. In addition to tax loss selling that is anticipated this week, the rate of redemptions are fast and furious by retail investors as well as margin calls on stock brokerage accounts.

As far as the election coming on November 4^th, my guess is that the stock market is pricing in that Obama will win and if McCain-Palin pull off a victory, this surprise could be the catalyst to trigger a buying spree in stocks that hopefully could last more than one day. The election may be closer than expected so that could add some more drama and volatility for stocks.

For these reasons the stock market will have heavy selling pressure this week and high volatility, so intraday trades will likely be the most profitable. There is so much uncertainty and the stock market does not like uncertainty but I am not convinced we will see a deep selloff either. I am still favoring that the Dow and S&P 500 hit its low on October 10^th and the market doesn’t go below but if it does go below that 7800 level on the Dow30, we could have accelerated selling.

The Asian markets are down sharply tonight with Hong Kong down 13.8% tonight alone, Japan down 6.3% (23 year low), Europe down 5% and the US S&P futures indicating a Dow30 opening of -250 points

Light Sweet Crude Oil prices dropped 5.4% on Friday to close at $64.15 per barrel which is the May 31, 2007 price level.

Here is a list of companies that are some of the most profitable stocks in the world. These are some of the highest quality companies in the world and this is a buy list when you feel the time is right to buy long. The assumption is that these stocks will be some of the first to rebound when stocks start getting purchased. It is kind of like when some favorite stocks that you have always wanted to buy but now they are on sale. Keep adding to this list of your own choices of highest quality stocks that have the best financial data like profits, P/E, growth rate, etc.

BP, British Petroleum

COP, ConocoPhillips

CVX, Chevron

WMT, Wal-Mart Stores

PG, Procter & Gamble

IBM, IBM

BRKB, Berkshire Hathaway Class B shares, lower priced than Class A shares.

GSK, GlaxoSmithKline (major drug manufacturer)

BAC, Bank of America

PEP, Pepsi-cola

GOOG, Google

AAPL, Apple Computer

APA, Apache Energy

A review of stocks that were intermediate term stock picks from the week of October 17^th.

The 4 ag-chemical stocks (MON, MOS, AGU, POT) that I track broke down to a lower low except for MON, Monsanto.

The energy stocks still look good on the chart; NBL, APA, EOG, COG but the low priced HLX has really broken down.

The coal, steel, and copper stocks have also had new lows and are finding new lows. (FCL, ACI, CNX, MEE, TCK, FCX, SCHN, X, AKS, CLF, MT).

The insurance stocks PRU, HIG and MET look promising as they have re-tested the October 10^th low and are rebounding upward at the moment. Two of the four technical indicators that I look for are supporting a long position strategy.

The tech stocks AAPL, Apple Computer still look good; IBM has broken down to new lows.

The only stocks that are up this last month are the Ultrashort ETF’s on sectors like housing, banking, mid-cap, small-cap, Russell 2000, and various indices. These would NOT be good purchases at this point. DO NOT BUY THESE at this time! These are for education purposes only. SRS, SMN, EEV, SDK, SJL, SKK, SFP, REW, SKF and all short ETFs.

For the day traders, let the market open and look for a move downward in the first hour or two and look for a rebound using the 3 minute 1 day charts. I’ve been working with RIMM, AAPL, XTO, MON, APA, MOS, PRU, CME, CNQ, as intraday trades because the volatility has been so high, the trading volume is high and the spread is small between the bid and ask stock price.

The extreme panic days of capitulation have not resulted in buying sustaining more than 2 days and that buying rebound was met with more intense selling as redemptions have overwhelmed the buyers. We are getting indications that the sellers are getting exhausted and more and more indications of a reversal to the upside is likely. But we have more headwinds this week as noted at the top of this report.

Even though stocks continue to drop, short selling at this point in the stock market would be a very low probability chance of success. This is the time to be buying or building a list of stocks to buy long. The list above is just a very small sample of the many stocks that are at incredible values to buy and hold. The longer time horizon you have to hold, the better the odds are that you will make money on them.

I know it has been discouraging this last week especially because many stocks broke below the previous lows and are like falling knives. We are seeing unprecedented selling but we should start seeing some meaningful buying with substantial moves up sometime next week. Don’t get too depressed because you will be unable to recognize opportunity when it appears.

Have a great day and I’ll talk to you tomorrow.

Mitch King

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