No ratings

We're three weeks away from what many believe to be the single most important election in recent history. The markets have cautiously pulled back in anticipation of what appears to a heated battle for the most highly coveted political position in the world. After last night's debate, everyone seems to have even more conviction for their preference as to who will be put in office. Do the markets really care? At first glance one would think no, however, if you peel apart the indicators, there's something glaring going on underneath it all that's putting these markets in a very critical position for something very big to happen... very soon.

No ratings

With the third quarter earnings expectations bar being set much lower now and economic data coming in a little stronger than in previous months, we're experiencing the bounce across the major indexes we mentioned and were anticipating yesterday. The NASDAQ found short-term support off of the levels we pointed out in yesterday's edition and just as we suspected, the bounce has been pretty fierce so far this morning. Good for the overall picture no doubt, however, one good day does not reverse the recent trend, but it sure does help the cause.

No ratings

Hope you had a nice weekend. Seems like we're getting an extended summer here in the Southland. Actually, it was too hot and too dry. Everyone's walking around sneezing and allergy meds seem to be a more popular purchase than Halloween candy right now. Speaking of Halloween, the indexes have investors spooked right now, but let's see if it's really warranted. In an effort to give investors something to cheer about today, U.S. retail sales rose in September as Americans bought more cars and gasoline, while a gauge of consumer spending pointed to stronger-than-expected economic growth in the third quarter. Retail sales increased 1.1 percent, the Commerce Department said on Monday, beating expectations after an upwardly revised 1.2 percent rise in August. Retail sales outside of autos, gasoline and building materials -- a barometer of consumer spending known as core retail sales -- rose 0.9 percent last month.

There's been a consistent undertone of late pointing to economic improvement here at home, and it couldn't come soon enough. Here's why...

All of the major indexes have pulled back over the last three weeks with the NASDAQ 100 (^NDX) being the weakest of the bunch. That makes sense since the NASDAQ was the market leader ever since this long-term rally got legs back in the Spring of '09. As goes tech, so goes the rest of the market for the most part. That's been the theme pretty much all along. While the S&P and the DOW have experienced modest pullbacks, the NASDAQ Composite and the ^NDX have managed to retrace almost a perfect 3/8 of their complete moves that began with the summer low back in June. The recent move lower has been pretty fierce with not much relief in the process, so it probably feels much uglier than it has really been so far. We've anticipated where the markets are trading at right now, but to be honest, we really didn't think it would happen this quickly. So the big question now is, where to from hear?

No ratings

This morning, jobless claims saw their lowest levels in four and a half years, all while Wall Street Analysts are running around cutting third quarter guidance as if we're preparing for the worst numbers we've seen in years. I've got a few comments on this, as well as providing you with an interesting paradox that appears to be taking place right now.

As for the economy and jobs, it's important to remember corporate America found a sweet spot to improve their bottom lines over the couple of years by actually cutting jobs and focusing on establishing better internal efficiencies, because there was no way their improving bottom lines could be attributed to higher consumer demand and a strengthening economy. If you've been reading our newsletter for a while, then you know we've been saying for a long time large corporations would eventually run out of rabbits to pull from out of their hats, and that this upcoming third quarter could be the quarter that reveals nowhere else to turn but an improving economy and an increase in consumer demand.

In other words, going into 2008, our country was in a state of gluttony, productivity was low and everything was just too easy, which included borrowing. Then, reality hit center stage and all of a sudden everyone had to work hard and work smart to stay above water. Yes, that's a very broad and general statement, but I think you get the idea. Now here we are. If we can get a thriving economy, we can see another strong leg up in corporate earnings now that we've learned our lesson about efficiencies and productivity. If we can't get the economy on the mend, there's no place for corporate America to turn. We've already tapped the whole global growth opportunity thing. It almost appears we're forced to do everything now the way we've should have been doing it all along.

No ratings

One of our SmallCap Network picks made the top ten biggest NASDAQ gainers list yesterday, Reed's Inc. (REED), which popped for another 7.2% gain bringing our total gain to 46% since we suggested the idea back on August 15^th. Not bad. Based on the last few weeks of major index activity, I'd say that's pretty darn good. We mentioned three weeks ago if shares of REED could break above a resistance level of $7.16, we could be off to the races again. Yesterday, the stock broke above the $7.16 level in the face of a horrible market and today it's being nicely rewarded with more follow through.

What's interesting is the move came on no news, which is far more compelling to me than an obvious move on favorable news. Why? In small cap cases such as REED, it often means you've got some large shareholders, whether it's funds or insiders who aren't willing to part with shares. Based on recent data, the stock has an insider holdings percentage of over 40%, which when compared to most small caps is extremely high. That tells us management is confident about what they're doing. When you've got large players in a stock not willing to part with much of their position, it often creates a perfect supply and demand storm for the stock. The Company is set to report third quarter numbers on November 13^th, so there's plenty of room for the stock to move up from here going into their earning's numbers.

From a technical perspective, what happened yesterday could be a nice prelude of things to come. If you have a look at the monthly chart, the stock spent August and September testing a complete 5/8 retracement from its all-time high to its all-time low. Twice it tested the $7.16 level and failed. Yesterday, three times a charm. Shares of REED broke above that $7.16 level and is being well rewarded this morning currently trading at $7.71 as I type. I suspect if large holders continue to be patient, the stock could test its all-time high of just under $11 before it's all said and done. That would represent over 100% gains from our initial entry.