Futures are indicating another lower opening this morning.  I look for stocks to be on the defensive and eventually trade below Dow 10,000 once again.  The 50-day moving average on the Dow Jones is currently at 9620.  Of course, that average will move up daily due to the trend of the index.  As recent as October 2nd, the Dow bounced off the 50-day, so it can happen rapidly…

As investor’s, I think we would all like to see the markets pullback towards their respective 50-day moving averages.  And history tells us that they will.  However, we need to be patient and let the stocks come to us…

Let’s have a great day…

Since the start of the recession in December of 2007, the number of unemployed people has virtually doubled from 7.6 million to 15.1 million.

Now is not the time to be complacent.  This downward draft could last for a week or two.  I’ve been telling all of you to tighten up your stops and/or don’t be afraid to take some profits.  Of course your other options are to take positions in some of the bearish ETF’s.  Be sure you can assume the volatility of the leveraged bearish funds…

Looking at yesterday’s action there was no place to hide.  The carnage was deep and broad across all sectors.  That’s why I have about 40-50% cash in my client accounts.

Let’s see how today plays out.  You never know, you could get a reversal which would be construed as a positive.  We can only hope…

Have a great weekend…

The action over the past two days has been a little ominous.  On Monday and Tuesday we saw the market jump up right out of the gate.  But the gains faded into the close.  This often times is a precursor to a correction.  I would be very cautious on any new buys and would look to take some profits off the table.

This morning I searched through hundreds of stock charts and couldn’t find anything that looked ready to be bought.  This again could be a sign that things are changing.

As always, let’s have a great day…

Futures are indicating a drop of around 150 Dow points. Be sure to tighten all of your stops or take profits, as this move could last for a little while. I’ve been expecting a pullback for quite some time, but it now looks ready to come to fruition.

Due to market conditions, I did not add any new ideas to the focus list.  Please pay close attention to my stop levels on existing stocks.

Have a great day…

Stocks were up for the fourth straight week despite, climbing the wall of worry.  Many investment advisors, including myself, have been expecting a pullback off of these recent highs.  The major averages are well extended above their respective moving averages.  However, keep in mind, stocks and markets can stay extended for a period of time.

Today stock futures are indicating a lower opening on some profit taking.  I updated the entire focus list with new stop orders.  The list has performed extremely well and some profits should be taken.  I did add two new ideas to the list, but let’s see if the pullback turns into something more substantial.

As always let’s have a great day…

Also helping futures this morning is surprising profits from Motorola and Alcatel-Lucent. Motorola was expecting to show a loss of 4 cent a share, but instead came in with a slight profit of a penny.  Motorola has been struggling for years to beat analysts’ expectations, but finally did it.

Alcatel-Lucent surprised everybody by reporting their first profit since the two companies merged in 2006.  This merger was widely criticized when it was announced, as it was perceived as a merger of two losers.

For today the markets are expected to rally, however we’re still in over-bought territory.  I’m not sure if today’s rally can hold, but it certainly looks good this morning.  Dow component General Electric was also upgraded by Goldman Sachs to a Buy from neutral with a price target of $15…

Let’s have a great day…

It looks like the short-term momentum is clearly to the upside.  I’ve been playing it a little cautious, because I’m trying to protect my profits for this year.  But, we can start picking and choosing our entry points on quality stocks.

I’ve added a few new ideas to the focus list.  Although I’m still proceeding with caution, I can no longer ignore the markets action.  But in order to protect my profits, I’ll be very quick to sell in the event of any trouble…

As always, let’s have a great day…

Since hitting its recent high, the major averages are down around 6% and likely well on their way to a 10% correction.  The lack of substance behind this monster rally is starting to rear its ugly head.  There’s no doubt that the market was severely over-sold in March of this year and was due for a rally.  However, as usual the momentum swung the other way and stocks are no longer as cheap as they were.

Although stock futures are indicating a slightly higher opening, I suspect any early morning rally will be short lived.  If we do see a rally over the next day or so, I think it would be a good time to hedge your portfolio by using some of the bearish ETF’s such as the QID (Proshares Ultra Short QQQQ) and the FAZ (Direxion Financial Bear 3X).  These funds, along with an increased cash position will help with downside protection.  Also, I urge you to tighten your stops or even take profits if you have them.

As always, let’s have a great day…

1. Have a game plan

Having predetermined guidelines that recognize the potential for turbulent times can help prevent emotion from dictating your decisions. For example, you might take a core-andsatellite approach, combining the use of buy-and-hold principles for the bulk of your portfolio with tactical investing based on a shorter-term market outlook. You also can use diversification to try to offset the risks of certain holdings with those of others. Diversification may not ensure a profit or guarantee against a loss, but it can help you understand and balance your risk in advance. And if you’re an active investor, a trading discipline can help you stick to a long-term strategy. For example, you might determine in advance that you will take profits when a security or index rises by a certain percentage, and buy when it has fallen by a set percentage.

2. Know what you own and why you own it

When the market goes off the tracks, knowing why you originally made a specific investment can help you evaluate whether your reasons still hold, regardless of what the overall market is doing. Understanding how a specific holding fits in your portfolio also can help you consider whether a lower price might actually represent a buying opportunity. And if you don’t understand why a security is in your portfolio, find out. That knowledge can be important, especially if you’re considering replacing your current holding with another investment.

3. Remember that everything’s relative

Most of the variance in the returns of different portfolios can generally be attributed to their asset allocations. If you’ve got a well-diversified portfolio that includes multiple asset classes, it could be useful to compare its overall performance to relevant benchmarks. If you find that your investments are performing in line with those benchmarks, that realization might help you feel better about your overall strategy. Even a diversified portfolio is no guarantee that you won’t suffer losses, of course. But diversification means that just because the S&P 500 might have dropped 10% or 20% doesn’t necessarily mean your overall portfolio is down by the same amount.

4. Tell yourself that this too shall pass

The financial markets are historically cyclical. Even if you wish you had sold at what turned out to be a market peak, or regret having sat out a buying opportunity, you may well get another chance at some point. Even if you’re considering changes, a volatile market can be an inopportune time to turn your portfolio inside out. A well-thought-out asset allocation is still the basis of good investment planning.

5. Be willing to learn from your mistakes

Anyone can look good during bull markets; smart investors are produced by the inevitable rough patches. Even the best aren’t right all the time. If an earlier choice now seems rash, sometimes the best strategy is to take a tax loss, learn from the experience, and apply the lesson to future decisions. Expert help can prepare you and your portfolio to both weather and take advantage of the market’s ups and downs.

6. Consider playing defense

During volatile periods in the stock market, many investors reexamine their allocation to such defensive sectors as consumer staples or utilities (though like all stocks, those sectors involve their own risks, and are not necessarily immune from overall market movements). Dividends also can help cushion the impact of price swings. According to Standard and Poor’s, dividend income has represented roughly one-third of the monthly total return on the S&P 500 since 1926, ranging from a high of 53% during the 1940s to a low of 14% in the 1990s, when investors focused on growth.

7. Stay on course by continuing to save

Even if the value of your holdings fluctuates, regularly adding to an account designed for a long-term goal may cushion the emotional impact of market swings. If losses are offset even in part by new savings, your bottom-line number might not be quite so discouraging. If you’re using dollar-cost averaging– investing a specific amount regularly regardless of fluctuating price levels– you may be getting a bargain by buying when prices are down. However, dollarcost averaging can’t guarantee a profit or protect against a loss. Also, consider your ability to continue purchases through market slumps; systematic investing doesn’t work if you stop when prices are down.

8. Use cash to help manage your mindset

Cash can be the financial equivalent of taking deep breaths to relax. It can enhance your ability to make thoughtful decisions instead of impulsive ones. If you’ve established an appropriate asset allocation, you should have resources on hand to prevent having to sell stocks to meet ordinary expenses or, if you’ve used leverage, a margin call. Having a cash cushion coupled with a disciplined investing strategy can change your perspective on market volatility. Knowing that you’re positioned to take advantage of a downturn by picking up bargains may increase your ability to be patient.

9. Remember your road map

Solid asset allocation is the basis of sound investing. One of the reasons a diversified portfolio is so important is that strong performance of some investments may help offset poor performance by others. Even with an appropriate asset allocation, some parts of a portfolio may struggle at any given time. Timing the market can be challenging under the best of circumstances; wildly volatile markets can magnify the impact of making a wrong decision just as the market is about to move in an unexpected direction, either up or down. Make sure your asset allocation is appropriate before making drastic changes.

10. Look in the rear-view mirror

If you’re investing long-term, sometimes it helps to take a look back and see how far you’ve come. If your portfolio is down this year, it can be easy to forget any progress you may already have made over the years. Though past performance is no guarantee of future returns, of course, the stock market’s long-term direction has historically been up. With stocks, it’s important to remember that having an investing strategy is only half the battle; the other half is being able to stick to it. Even if you’re able to avoid losses by being out of the market, will you know when to get back in? If patience has helped you build a nest egg, it just might be useful now, too.

11. Take it easy

If you feel you need to make changes in your portfolio, there are ways to do so short of a total makeover. You could test the waters by redirecting a small percentage of one asset class into another. You could put any new money into investments you feel are well positioned for the future but leave the rest as is. You could set a stop-loss order to prevent an investment from falling below a certain level, or have an informal threshold below which you will not allow an investment to fall before selling. Even if you need or want to adjust your portfolio during a period of turmoil, those changes can–and probably should–happen in gradual steps. Taking gradual steps is one way to spread your risk over time as well as over a variety of asset classes.

For example, a crack in the wall can be (and should be) repaired with some simple plaster and touch-up paint. Though the feeling may not be conscious, it’s just as important that the buyer feel an overall desire to buy your home. Included in this report are several different ways you can make your home shine and sell for the best possible price.

Decorate with pictures and mirrors to add style to the home. Mirrors can provide a greater sense of space when properly placed. Touch up the frames and then place the mirrors around your home. Be careful not to overdo it with too many mirrors.

One of the biggest complaints heard from potential buyers that there isn’t enough closet space. Purchasing an inexpensive closet organizer and installing it in any or all of your closets can make all the difference. You can also try putting a rod across one corner of a bedroom for hanging clothes. The idea here is to be creative so that the “fake closet” looks as though it were part of the room.

Wallpaper is inexpensive, quick, and simple. The right wallpaper can brighten the room or hallway and bring it back to life. Make sure to choose something with a neutral design or pattern. Remember, you are trying to sell the home and move out.

Buyers are easily turned off by a nasty, dingy floor. Whether you have wax, wooden or tile floors, do whatever you can to make them shine again. For wax floors, either rent a floor machine or call a professional for an estimate and a description of what they will do to restore your floor. If you have carpeted floors, either steam clean them or have carpet samples available and explain to the buyers you will pay x amount for them to install the carpet of their choice.

Having houseplants is not only healthy for you but creates a feeling of warmth around them. Many indoor plants are far less expensive than you might imagine. Attractive ceramic or brass pots can add a designer flair to your home. Hanging plants such as Boston ferns are inexpensive, easy to care for and would go great in your new home when you move.

Give your bathroom a face-lift by adding a coat of fresh paint, some decorative moldings, tile grout, and maybe a new designer faucet and showerhead. Perhaps more important than anywhere else in the house, clean your bathrooms relentlessly.

However, these simple dress-up tips are nice for quick and easy improvements, but there are other factors that will also affect your home’s resale value. These have much more to do with the legality and contracts and inspections that are necessary when selling a home. Each and every one is just as important as the overall appearance of the home.

First of all, you must price your property correctly and at a competitive market value when you list it. The market is so competitive that even overpricing by a few thousand dollars can be the difference on selling or not. The problem with an overpriced home is that it can minimize the number of offers, lower the number of showings, lower agent response, limit financing, limit the number of qualified buyers, and net less money for the seller.

You must make your home available for showings. Top agents will not show homes that they must search high and low for the key and access – they do not have time to rush around town all day chasing down and dropping off house keys. If you will be home during a showing, then put on some soft music and take a walk when the potential buyers come through, letting the buyer be at ease and letting the real estate agent do his or her job. Selling your home quickly can be a benefit if you need to leave immediately, but can cost you thousands of dollars. A buyer sensing the seller is distressed will make a lower offer. This is why pricing correctly is important – you should know all there is to know about the market before listing and work hand in hand with your agent.

Disclosing property flaws is vital in selling your home for the most possible money. Get professional assistance for all levels, from disclosing the flaw to fixing it. If you are unaware of a problem or attempt to cover it you, you risk losing the sale and finding yourself in court.

Perhaps the most important aspect of selling your home is choosing the right REALTOR for you. Just like offers on the house, don’t take the first one through the door. Take the time get to know your real estate agent and make sure they are going to work in your best interests. Ask if they have a 30-DAY MARKETING PLAN they plan to implement to sell your home for the best possible price.

Choosing your Agent wisely. Any agent will show enthusiasm and will want to list your house for sale but choose your agent based upon

1. Experience at listing and marketing houses for sale.
2. Ability to use technology to market your house world wide to buyers 24/7.
3. Reviewing with you a comprehensive Marketing Analysis of home sales in your area.
4. Ability to offer a written detailed 30-DAY MARKETING PLAN that will get your house sold at the highest possible price.

Working with a full-time professional real estate agent is a must. Choose your agent by asking questions of him or her. Find out how knowledgeable they are about houses currently for sale in your price range and also of houses that have recently sold. Can your agent recommend a good lender that has the reputation of excellent customer service and low rates to assist your new buyer with financing? A good listing agent can get your house sold quickly at TOP DOLLAR and help you find a new home.

Know why you are selling and keep it to yourself. The reasons behind your decision to sell affect everything from setting a price to deciding how much time and money to invest in getting your home ready for sale. What is more important to you? The money you walk away with, the length of time your property is on the market, or a combination of both? Different goals will dictate different selling strategies. However, it is critical that you do not reveal your reasons to anyone else, because it could come back to haunt you at the negotiating table. When asked, simply explain that your housing needs have changed.

Be sure to do your homework before setting a price. Settling on an offering price should not be done lightly. In a hot seller’s market, should you set your asking price too low, be prepared to receive offers over and above your asking price. However, remember that pricing your house too high is very dangerous. The average homebuyer will view and compare dozens of homes on the Internet at the same time they are considering yours. This means that they have a basis of comparison, and if your home doesn’t compare favorably with others in the price range you have set, your home will sit on the market and prospective buyers will not take you seriously. The longer your home sits on the market, the more likely people will think that there is a problem with it.

Work with your agent to find out what homes in your own and similar neighborhoods have sold for in the past three to six months. Research what current homes on the market are listed at. It’s the same process that buyers will undertake when assessing the value of your home.

You may not be able to change your home’s location or floor plan, but you can do a great many things to improve its appearance. The look and feel of your home generates greater emotional response from prospective buyers than any other factor. Before showings, clean like you have never cleaned before. Scrub, scour, and otherwise make everything spotless. Fix everything, no matter how insignificant it may appear. Present your home to get the best possible reaction from those viewing it. Your home’s condition and how it shows will greatly affect your sales price and time on the market.

Allow buyers to imagine themselves living in your home. The decision to buy a home is based a high level of emotion. Prospective buyers are trying on your home the same way they would try on a new suit before buying it. If you follow them around pointing out improvements or making excuses for a lack of upkeep, you make it difficult for them to feel comfortable enough to imagine themselves as the new owners.

Make it simple for prospects to obtain information on your home. You would be surprised to know that some marketing tools that most agents use to sell house (such as traditional open houses) are generally not very effective. In fact, only about one percent of homes are sold at an open house.

Prospects calling for information on your home value their time as much as you do. The last thing they want to be subjected to is either a game of telephone tag with an agent or unwanted sales pitches. Make sure the ads your agent places for your home are attached to a 24-hour information hotline with a specific identification number for your home which gives prospects detailed information at all times. It has been proven that three to five times more buyers call for information on a home when they have access to a free-recorded message rather than talking with an agent directly. Remember, the more buyers you have competing for your home, the better. It will set up an auction-like atmosphere that puts you in the driver’s seat.

Ask your agent what he or she can find out about the buyers. In the negotiation process, your objective is to control the pace and direction of the sale. If you know the buyers’ motivations, whether they need to move quickly, and whether or not they have enough money to pay for the home, will give you the upper hand once negotiations begin.

Make sure that the contract is complete. For your part as a seller, you must be certain to disclose everything about the property. Smart sellers proactively go above and beyond legal requirements to disclose all known defects to their buyers in writing. If the buyer knows of a problem beforehand, they cannot come back to you with a lawsuit later on. Provide a detailed list and have the buyer sign for items that do not stay.

All terms, costs, and responsibilities have to be spelled out in the contract. Do not divert from this contract. For example, if the buyer requests to move in before the agreed upon date, you should say no. Once these terms are all in place, it is dangerous to deviate and could potentially lead to the collapse of the whole sale.

Finally, if you need to move out before you sell your home, steam clean the carpets, paint all the walls, and have a gardener water and maintain your lawn. Make sure that your agent markets it as being vacant, available for a quick close and immediate occupancy.

For example, Acme Company’s 401k plan allows employees to contribute part of their paycheck into the plan. Acme will match incrementally up to 3% of the employees contribution. If the employee contributes 3%, Acme will contribute 2% to the employee’s account. If the employee contributes 4%, the company will contribute 2.5%, and if the employee contributes 5% or more, the company will contribute 3%. The employer’s contributions are called matching contributions.

As you can see, if an employer provides matching contributions, the employee can increase the amount of money he receives from his employer above and beyond his salary. For example, if Joe makes $30,000 in 2007 and contributes 5%, Acme will contribute an additional 3%. As a result, Joe will receive $30,000 plus $900 additional money from Acme’s matching contributions. Joe’s total compensation will be $30,900, not $30,000, simply because he participates in Acme’s plan.
How does a 401k work?

Your employer withholds a certain amount of your paycheck and deposits that money, along with any matching contributions, into your 401k account. The money in the plan is invested in various financial instruments, such as mutual funds. The money stays in the account until you reach a certain age when it is legal to withdraw the money, or until you meet any of the several exceptions to the age rule. Since the money will be in the account over a period of years, this causes the account to earn money through compounding, so your account grows not only through your regular contributions made from your paycheck but also by earning interest or dividends.
How do I make contributions to a 401k?

You make a contributions through your employer. If you decide to participate in the plan, you will determine what percentage of your paycheck that you want to be deposited in your account, and your employer will withhold that amount from each paycheck you receive. The employer then deposits the withheld money into your account, along with any matching contributions, so contributions are made to your account each pay period.
Are there any limitations to making a contribution to a 401k?

Yes, there are limitations. You are limited by IRS rules and also by whatever rules your employer implements in his plan.

IRS Contribution Limitations

For 2007, the limit for contributions to defined contribution plans is the lesser of:

• 1. 100% of the participant’s compensation, or
  2. $45,000.¹

Employer Limitations

When your employer sets up his plan, he can place limitations on contributions. The plan can be set up so that employees can only contribute up to a certain percentage of their paychecks. A common example is the limitation on matching contributions the employer will provide.
What is a company match?

A company match is when employers agree to contribute certain amounts to your 401k in addition to your own contributions. Employers may decide to make a contribution above and beyond what you decide to contribute. This is one version of what is commonly known as profit-sharing since the company gives you additional compensation toward your retirement. Because you are part of the company and your work helps contribute to any profit the company makes, employers use matching contributions as a way to reward employees for their input to the company’s bottom line. This can also provide an incentive for employees to work harder in order for the company to make more money.
If my employer goes out of business before I retire and receive distributions from my 401k, what happens?

401k plans are covered by the Employee Retirement Income Security Act of 1974, or ERISA. Generally, if an employer goes out of business or becomes bankrupt, the employer’s creditors receive the employer’s assets to settle debts. However, ERISA protects your plan money from those creditors. The creditors generally cannot get any money from a 401k plan to settle debts of a bankrupt employer.²
When can I withdraw my money from a 401k?

You can withdraw your money at any time. However, if your withdrawal is an early distribution, you will have to pay an extra tax on the withdrawal.³
What is an early distribution?

An early distribution is any money taken out of your 401k before reaching age 59 ½. Early distributions are subject to a 10% tax penalty in addition to regular income taxes, so if you withdraw $5,000 when you are 45, you will have to pay $500 as a tax penalty. However, as discussed in the following question, there are some exceptions that allow you to withdraw money before age 59 ½ without owing the 10% penalty.⁴
Are there any other circumstances when I can withdraw my money before age 59 ½?

Yes, there are some exceptions to the age rule. You will not owe the 10% tax on an early withdrawal if the withdrawal is:

1. Made to a beneficiary after your death.

2. Made because the employee has a qualifying disability.

3. Made as part of a series of substantially equal periodic payments.

4. Made after separation from service if the separation occurred during or after the year when the employee reached age 55.

5. Made to an alternate payee under a qualified domestic relations order (QDRO).

6. Made to an employee for medical care.

7. Timely made to reduce excess contributions under a 401k plan.

8. Timely made to reduce excess employee or matching employer contributions (excess aggregate contributions).

9. Timely made to reduce excess elective deferrals.

10. Made because of an IRS levy on the plan.

11. Made a qualified reservist distribution.

How do you maintain a 401k?

You maintain your account by making contributions to it. You can only make contributions through your employer. The contributions are withheld from your paycheck, and any matching contributions from your employer are deposited into the plan by your employer.

If you leave the company, you can choose to leave your 401k as it is, or roll it over into a Traditional IRA.
If I quit my job where I was participating in a 401k plan, what happens?

The money you contributed to the 401k is always yours, regardless of how long you have worked for the employer. Generally, an employer requires that you work a certain number of years before you are vested, which simply means that you are legally entitled to the employer’s matching contributions. Therefore, depending on your employer’s rules, you may or may not be able to keep the employer’s matching contributions.

There are several things that you can do with your account after leaving your job. One is to leave the 401k in your employer’s plan until you decide what to do with it. You can even leave it there until you reach age 59 1/2 and can begin receiving distributions. However, your former employer may charge you fees for maintaining your 401k for you. Check the plan agreement for details about your former company’s specific rules.

Another thing you can do is rollover your 401k into a Traditional IRA. Contributions to Traditional IRA’s receive the same type of tax deferral treatment as contributions to 401k’s, so you may be able to rollover your money into a Traditional IRA and not owe additional taxes.⁵
What if I am laid off or fired?

Your options include any of the solutions discussed in the previous question. Despite being fired or laid off, the contributions that you made to your account are still your money, so you are legally entitled to all contributions that you made. However, depending on the rules of your plan, you may not be entitled to the employer matching contributions.
Can I start a 401k if I already have an IRA?

Yes, you absolutely can participate if you also have IRA’s, Traditional or Roth.
How does a 401k affect my federal income tax?

Contributions are considered “elective deferrals” of income, so you do not pay any federal income tax on them in the year you make the contribution. For example, John contributes $1,000 to his 401k in 2007, and his employer contributes $200. John’s salary for the year is $30,000. He will pay federal income taxes on $29,000 only, which is his salary minus his $1,000 contribution.

However, Uncle Sam will never let you get away completely tax-free. When you take distributions from your plan during retirement, you will pay federal income taxes on that money then. For example, if Susan is age 65 and receives a $10,000 distribution in 2007, she will owe taxes on the $10,000. However, when she contributed to the plan years ago, she did not have to pay any taxes on the money she contributed then.⁶
Do I have to withdraw money at a certain age?

Yes, you must start withdrawing money by April 1 of the year after:

1. You reach age 70 ½, or
2. You retire from the company maintaining the 401k plan.⁷

What happens to my 401k after I die?

You may designate beneficiaries who will inherit your account after your death.⁸
Why participate in a 401k? Why not just invest that money in mutual funds?

By participating, you receive tax benefits that you would not receive by investing your money in mutual funds on your own. The money you contribute is not subject to income tax. Therefore, you end up paying fewer taxes by participating in the plan than if you bought mutual funds on your own. For example, Joe works for ABC Company. He makes $30,000 and contributed $1,500 to his 401k. He will owe federal income taxes on $28,500 only, not on his full salary of $30,000. He gets to deduct the contributions from his income before calculating his taxes.

Another reason to participate is that in most plans, employers match a portion of your contributions, so it is as if your employer is giving you free money simply by participating! For example, Joe of ABC Company makes $30,000 in 2007 and contributes $1,500 of that salary to his 401k plan in 2007. ABC Company provides matching contributions of $1000, so Joe really makes $31,000 in 2007, not just his $30,000 base salary.
References

United States Internal Revenue Service, Publication 590, Individual Retirement Arrangements, “Traditional IRA’s”, http://www.irs.gov/publications/p590/ch01.html

United States Internal Revenue Service, Publication 560, Retirement Plans for Small Businesses, “Qualified Plans”, http://www.irs.gov/publications/p560/ch04.html

United States Internal Revenue Service, Publication 575, Pension and Annuity Income, “Survivors and Beneficiaries”, http://www.irs.gov/publications/p575/ar02.html#d0e4787