LESSONS FROM THE PAST

Little did we know the importance of our question ahead of yesterday's market activity in which we quizzed, "What fate awaits the final trading day of the third quarter wonder?" But we did strike a chord in our daily musings.

Wednesday turned out to be a day full of intrigue. The final GDP report for the second quarter revealed less contraction than reported. No sooner had investors celebrated this welcome news did the market then have to face what appeared to be a fresh bout of manufacturing weakness in the mid-west region. The response was an immediate triple-digit dump in the value of the Dow industrials average. Another recession on the horizon? And yet so soon!

In addition the dollar spiked sharply higher as a bout of risk-aversion reared its head. "Gimme dollars!" screamed currency traders, "they're safe!!"

Before the day was out the stock market actually turned positive, albeit briefly and anyone bidding for dollars got as many as they wanted before the day was done with the dollar index reflecting an increased appetite for risk. The dollar continued to be the vogue carry-trade victim.

The Dow, the Nasdaq and the key S&P 500 indices all closed the third quarter with gains of around 15%, marking the best quarterly gain since 1998. Gains for tech-names during September helped lift the Nasdaq by 5.6% adding to evidence that we are right at that sweet spot for stocks where investors hold faith in the onset of a rejuvenation in the business cycle. That means its "safe" to buy stocks.

Some of that so-called logic has been one of the vignettes running through our Daily Jurojin over the last several weeks. As many of you already know, this free email is our way of sharing our thoughts with subscribers and those possibly interested in joining our stock and futures trading services. Recently we received an interesting question from a former subscriber. We thought we'd respond to some of the following observations.

Reader: I find that your attitude and commentary about markets to be less then straight forward.

Editor: Thank you dear reader for your compliment. But then again maybe it isn't a compliment after all. I'm just guessing that perhaps you're not satisfied, which is why your sign-off reads 'past subscriber.' But your curiosity keeps you listening to our daily preaching from the pulpit.

Let me elaborate. Our community or Secret Order of Jurojin is a small group of individuals each seasoned in trading and has learned many, many valuable lessons in the world of investing. Experience comes from the joys and profits the markets deliver and the financial success and freedom they afford. It's what our community does best. But dealing with bad luck, bad decisions and losses is an even more valuable lesson that these traders have worked through over their many years. Long in the tooth they are. Inexperienced they are not. Straight-forward? They have learned from experience that markets are far from straight-forward and the sign of a good trader is one that knows when to act and when to sit on his or her hands, as well as knowing when to admit defeat.

Reader: You write and act as though every thing in the markets is normal.

Editor: Recently, perhaps two months ago, we let slip what appeared to be an inoffensive comment when we said: "The worst appears to be over." Boy, did we get lambasted by some readers for that. But then again that was before the market added 25%. We're glad we stuck by our guns on that and for anyone who doubts our word, you should subscribe to our Global Resources Alert, launched in July to take advantage of precisely that view. See, as a trader, you have to act on your gut instincts, analyze the data and be prepared to change your mind when the conditions change. If you choose to be run over in the fast lane because you maintain that there probably won't be much traffic headed your way, your call. But it's not ours.  

Reader: How do you calculate El Presidente's plunge protection team's influence?

Editor: If you're referring to the legacy of a so-called Plunge Protection Team we can't add to that debate. For those uninitiated in the PPT, do a simple Google search to learn more about this conspiracy theory on how the U.S. government steps in to buy large amount of stock just at the darkest hour of the bear market. The recession has taught us that this is pure baloney - not that we didn't already know that much!

But to give our reader's comments a fair airing, the role of government in the recovery is massive. The amount of spending has reinstated confidence and got consumers buying cars and homes. Whether this lasts or not is not the issue. To the extent that credit and manufacturing markets are functioning at all after the financial excesses of the past years, is remarkable. We have no political allegiance but without this intervention by the government and the Fed, the global economy would be in tatters. We applaud the place the economy is at. If it fails to stick, then we'll know neither did enough.

Reader: Is it just me or are you avoiding the issue?  Past subscriber.

Editor: To round off this philosophical sojourn, we see precious little point in maintaining an inaccurate view. To trade in the wrong direction repeatedly on a point of principal is best left to those with deep pockets or to those trading other people's money. Rather, agility is the key. If we can identify solid grounds for the next down-leg in economic and therefore stock market activity, believe us, we'll be right on it. Until that point let's deal with the everyday facts and the collective response of investors, which as evidenced earlier in today's letter, is bullish!

Since it's the first day of the new month, our latest Global Resources Alert goes live online today for our members. If you have registered already, you'll receive valuable reports aimed at educating you on what we see for the markets ahead. Follow the link below to learn more. We don't think you'll be disappointed.

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The Supreme Council of the Secret Order of Jurojin

Tyche Research