What a surprise - stocks are sinking today. It's only the ninth day out of the last ten we've seen losses (which officially qualifies as an epidemic). Granted, much of today's weakness is stemming from the fact we're right in front of a three-day weekend, which is just one more day than most folks care to go without being able to sell a stock. That's not to say we wouldn't be in the red today if it were a Tuesday. It's just to point out that the looming weekend is a little extra incentive to shed.  On that note, however, I have to wonder if stocks are now falling simply because they're falling, and if valuation considerations have gone out the window. It happens far more than most investors may recognize.  The thing is, that 'follow-the-crowd' mentality is usually short-lived, and often results in a snapback once the market catches its collective mistake. And to be clear, that's what I think the last few days have been... an errant move. Where I differ from the majority, however, is that I have a specific and quantifiable reason for the now-bullish opinion.  After we stir that pot, be sure to check out the picks and articles from the community pages. Sirius XM (SIRI), Nanometrics (NANO), and Rostock Ventures (ROSV) are some of the stocks in focus, while the U.S. dollar gets a look as well.  The activity is really picking for the community site. Be sure to join - for free - today to become a participant and benefit from all of its collective wisdom.    The Fear Ebb Before the Greed Flow I'm not going to try and convince you of anything. I'm only going to share the data with you, and let you decide for yourself. The only thing I'll add is a reality check that will hopefully cut through the market's current mental clutter (fear) and put things in a perspective you may not have considered yet.  Let me start with the bottom line first - stocks are as cheap as they have been in years..... literally.  On a trailing-twelve-month basis, the operating (non-GAAP) P/E ratio for the S&P 500 now stands at 13.1. Moreover, since their return to profitability in the first quarter of 2009, the S&P 500's stocks have increased earnings from one quarter to the next four straight times now, and Q2-2010 is expected to easily come in as the fifth-straight quarterly improvement. The nearby chart tells the near-term tale, but click here for the long-term view.  So what's the problem? Why has the SPX tumbled 8.7% since June 18th, and more than 16% since April 23rd? In simplest terms, the market doesn't expect there to be a sixth-straight improvement in quarterly earnings. [I'll warn you now though, I'm going to retract and redefine that idea below.] Why would the earnings spigot be turned off now? Take your pick of reasons.... Greece, unemployment, financial reform (or lack thereof), oil spilling into the Gulf of Mexico, Spain's debt crisis, a rising (or not) yuan, worries of tax hikes, and several other reasons/excuses have been used as selling prompts.  On the surface the logic makes sense - those things are all bad (they cost money or stifle commerce), so by extension they must be bad for the market.  Look below the surface though; start asking questions of degrees and severity. I won't deny that there are plenty of pitfalls out there right now... potential threats to earnings. On the flipside, the total real threat these pitfalls pose to earnings is dwarfed by the still-growing opportunity built on real demand from consumers and businesses alike. You just don't hear about that growth because it doesn't make for good television. 'Good' television is rooted in scandal, disaster, and misfortune, at the expense of a complete look at the world and what's going on in it. No wonder we so easily jump to bearish conclusions, even when it's not merited.  That's my long way of saying fear and momentum have taken hold of the market again. Traders are selling first and asking questions later, if they ask them at all.  Once the dust settles though, and the world realizes that the Euro zone isn't going to declare bankruptcy, that financial stocks will find a way around tepid reform, and that a rising yuan offers as many pros as cons, then the fear will dissipate; the downward momentum will follow that lead. Then, the market will start to reassess the sudden plunge in valuations, and realize what I mentioned above.... that stocks are a cheap as they have been in years, and are more likely than not to keep hitting those rising earnings targets.  So, the question you have to ask of yourself and answer honestly is, do you really think corporations are going to start doing worse - turn in lower earnings - beginning in the third quarter?  And I don't mean 'could they?' - I mean do you really have a specific set of legitimate, quantifiable reasons for an expectation of falling earnings? That's fine if you do. Most investors don't, however, citing only a gut feeling when asked. Funny thing though... the media can create a lot of gut feelings, including misguided ones.  Personally, I see the potential numbers behind all the economic problems. I still see bigger upside numbers though, including hitting those rising earnings targets over the next six quarters.  Between now and then, don't let the noise rattle you. Indeed, we may see more downside ahead until we hit a good technical bottom. It's got next to nothing to do with valuations though. Give it time - the proper valuations will materialize eventually.  And on something of a side note (though related), this ebb and flow between fear and greed is the same pattern we've seen over and over for decades now.  For instance, the bulls were running wild in March, and the bears took the reigns in May. Stocks were a 'must have' last September, and stocks were completely radioactive in January. Even in March of 2008 - well into the recession - equities were in an upswing, only to be countered in June of 2008 by a panic pullback. (Key difference between than and now - earnings were falling and expected to keep falling then.) It's simply a big chess match, spurred by the pundits who chase trends, and propagated by the media looking to sell advertising.  The key to winning the game is just being able to recognize the bigger picture (which most can't), and to understand where you are in that fear/greed cycle. We're in a fear mode now, but a greed-based turn is around the corner.  Helping you get more out of the market,  James Brumley  Editor - Small Cap Network Newsletter    From the Community - Top Commentary -  Advance Notice - Looks at HLXW, ROSV, and IVFH It's been subtle so far, but the bullish drizzle could soon turn into a storm for Rostock Ventures Corp. (OTC:ROSV). That's how James Brumley sees it anyway, pointing out how ROSV along with a couple of other OTC stocks have seen inordinate accumulation recently.  Restaurants; Some Are Trying to Stay Alive, While Others Are Spreading Like Wild Fires Victoria Sanchez says it like it is for some of the restaurant industry's big names, pointing out what's working, what's not, and what it will take for some of these names to grow. You'll likely end up hungry for a couple of these stocks.  Three Stocks Reposition Themselves: PWER, MERC, NANO Dennis Askew is digging Nanometrics Incorporated (NASDAQ:NANO) - an ancillary technology play that's quietly capitalizing on technology's revival. Nanometrics Inc. makes equipment used in the manufacturing of semiconductors, solar panels, and storage drives.  Sirius XM Radio's Following the Market (SIRI) Hank Morrison points out that the recent pullback from Sirius XM Radio Inc. (NASDAQ:SIRI) has taken the chart under the important $1.00 mark. Whether it deserves to be there or not, however, is more a matter of the market's broad trend, and ever-changing investor perception. Here's the bottom line.  Picks of All Shapes & Sizes - Reviews of PG, AEGY, and SWHC Smith & Wesson Holding Corporation (NASDAQ:SWHC) was walking on eggshells yesterday, but successfully navigated to a level that keeps it right on the brink of a breakout. Here's what to look for.  - Featured Blog Post -  Note on The U.S. Dollar : Max Rose is looking at the sawbuck in a bullish light. Here's why.  - Latest Picks -  Blizzard on a Pogo Stick (ATVI) - Activision Blizzard, Inc. (Nasdaq:ATVI) (short) Customer Loyalty is Starbucks #1 Friend - Starbucks Corp. (Nasdaq:SBUX) (long) Buy Long QQQQ -PowerShares QQQ (Nasdaq:QQQQ) (long) .        We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Email the Editor If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC  4653 Carmel Mtn Rd  Suite 308 #402  San Diego, CA 92130   Share the SCN Newsletter If you find the Small Cap Network Newsletter informative and profitable, please forward our newsletter alert service to like-minded friends and associates who share similar market interests.   Ensure Newsletter Delivery To ensure newsletter delivery, you can add any additional email addresses you may have to the Small Cap Network Member List. Receiving the Small Cap Network Newsletter in multiple locations is the best way of making sure you don't miss the next investing or trading opportunity! For web based email addresses, the Small Cap Network recommends @yahoo.com or @aol.com for timely and reliable email newsletter delivery.   Change Your Subscription Settings