Hi folks. Happy Wednesday. While I wasn't originally planning on doing the core piece of today's newsletter today, after bringing it up to you in yesterday's newsletter, I figured there was no point in unnecessarily leaving you hanging ... especially after the market tanked. What I'm talking about is the comment I made near the end of the rant about Blodget's bearish thesis, letting you know we're still bullish on stocks for the long haul... as in the next couple of years. Today, I'm going to tell you explicitly why we're still bullish. Oh, we're also going to name some of our biggest worries about the economy right now. Remember, we told you we make a point of looking at every piece of data that we can if it might affect stock values, and constantly assess them with an unbiased eye. It's just that right now, we see more bullish clues than bearish ones. After we paint the bigger picture, we'll do our usual short-term analysis of where the market's likely to head next. The Bullish Case Just so you know, the criteria we're getting ready to show you to make the bullish case aren't even close to being everything we look at. They're just the most relevant and most telling right now. In no particular order... 1. At the end of the day, industrial activity is still in an uptrend. On occasion we talk about the industrial productivity index and the capacity utilization data the Fed puts out once a month, but we rarely take a step back and show you just how strong the correlation between productivity and the market is. We should though. As you can instantly see on our chart, whenever industrial activity index is rising, so is the market. Conversely, whenever the industrial productivity index is falling, so too is the market. While similar economic data sets sort of do the same, we've yet to find any other with such a strong correlation. No, it's not a leading indicator, but it's not a lagging indicator either. It's pretty well synchronized with the market. More important right now, industrial activity is on the rise, and that bodes well for the long-term market. 2. Earnings are rising, and are projected to continue rising through 2015. Standard and Poor's says earnings growth should be 12.3% this year, and 14.0% next year. It's conceivable that the world's most prolific economy and company-analytics firm could be wrong. It's just not likely. And, should their outlooks prove too optimistic, they can be adjusted later. For the time being though, we can only use the data we have, and the data we have says earnings are on pace to grow for a couple more years, even if profit margins start to thin. (What Blodget didn't mention is that 2013's average profit margins of were a multi-year record of 9.6%, so even if they do contract, margins could still be pretty darn high by long-term standards. For perspective, in 2006, the S&P 500's average operating margins were 9.2%, and were 9.1% in 2011. We probably should reel margins in a bit.) 3. Corporate America is sitting on a ridiculous, record-breaking amount of cash... $2.8 trillion, to be precise. That's almost two years worth of publicly-traded U.S. companies' net income. Sooner or later, that money's going to get put to use. This is admittedly the most contentious idea of the three. The counter-argument is that corporations are hoarding cash because they don't know what the future holds, particularly on the political front. Worst-case scenarios rarely come to fruition, however. Most of the time, the outcome of political impasses and market risks tend to fall into the "mundane" category, and are quickly forgotten when they turn out to be unremarkable. Between that reality and the likelihood that investors will eventually clamor for companies to do something with that money, we can see corporate spending ramping up in the foreseeable future. The Bearish Case None of that is to imply the market is infallible here. There are two valid reasons to be concerned, even if they're not yet reasons to dump your stocks and head for the hills. 1. One of those worries is the fact that the number of stocks hitting new 52-week highs has been falling since mid-2013, even though the market itself has been hitting new 52-week highs for a while. It's a suspicious lack of participation. 2. QE is going away. Whether or not it was actually needed to prop the economy up is debatable. What can't be disputed is the fact that investors believed the Federal Reverse's stimulus plan was good for the market, and as long as investors believed it was fueling the rally, they were willing to buy stocks as a result. Once QE goes away, or even just shrinks to meaningless levels, traders may lose their confidence in the market and let stocks tumble whether they should or not. That dip could start a death spiral. There are a couple of other red flags, but nothing we think is dire enough to mention... even if the media is making a mountain out of those molehills. Regardless, from our point of view the economy and the market still have more going for them than working against them. Ergo, we remain long-term bulls. Now, there was a reason I went ahead and had this discussion with you today, and yes, it has everything to do with the way stocks got bashed on Wednesday. Keep It In Perspective Remember way back in May of last year when we explained how there are three overlapping trends going on for a stock or the market at any given time? There's the long-term trend, the intermediate-term trend, and the short-term trend. Sometimes they're all lined up, and sometimes they aren't. Your job as a trader/investor is to get a grip on the direction of all three trends at the point in time you're ready to place a trade. I'm not going to blather on about it, because I'm willing to bet all of you understand the premise. If you want to know more, just revisit that edition by going here. Great, but what's that got to do with anything now? In simplest terms, our bullish case discussed above is our opinion on the long-term market. The pullback that stocks may have started today is only the beginning of a short-term move. Oh, today's drubbing stinks for those of you who were in bullish/long swing trades. For your true long-term money though, not only is this dip going to be irrelevant, it may even be an opportunity. First and foremost, yes, the NASDAQ Composite closed under Monday's close of 4226. That was our proverbial last straw we discussed yesterday regarding the NASDAQ. Though the VXN started the day a little lower, it looks like the VXN also pushed up and off its key moving average lines to further entrench itself into an uptrend. That's not going to help the bulls at all. Throw in the fact that there was plenty of volume behind today's selloff, and it's tough to make any kind of bullish case for the composite in the near-term. What hasn't happened yet is the S&P 500's break under its key floors. And, I'm still not entirely convinced it will. I'll just say that with the NASDAQ's bearish follow-through today, the S&P 500's odds of an implosion - a move under its key support level at 1840 - were just raised to about 65%. The million dollar question is, do we need to wait for the S&P 500 to break under its floors before turning officially bearish? Answer: I think we do need to wait. There are still a few ways the market could salvage itself via the Dow or the S&P 500, and I'd rather show up to the right party a little late than show up early to the wrong party. In other words, there will be plenty of downside left to tap into even if we wait for the S&P 500 to break under 1840. Consider it something of an insurance policy. If you want to know how the market's weakness on Wednesday impacted our open positions, the answer is, about like you'd expect... some up, some down. None of them are in any real trouble though, since we had plenty of wiggle room for all of them. The only one that's even close to being concerning is Genesco (GCO), which broke under its 20-day moving average line today. Even so, this Seeking Alpha article posted Wednesday afternoon makes some very valid points about Genesco's foreseeable future. We're willing to give it time to bear fruit. Remember, we got into GCO with a long-term mindset, and we're still nowhere near any reasonable stop-out levels. Speaking of, let's place our mental stop on Genesco at $72.00. Here's where the portfolio stands as of Wednesday. Looking for more, and better, stock trading ideas? The recent stats of the SmallCap Network Elite Opportunity newsletter have been pretty darn impressive. Since the beginning of the year, the EO's cumulative pick return on closed out ideas is 133%, and yes, that includes the losers. Sure, some of those ideas that were closed out for a profit this year were ideas actually opened last year. Still, it's not bad, all things considered. Even if you just took the ideas they've added since the beginning of the year that have already been closed out, the cumulative return is 46% .... and that doesn't even include the trades that are still open. If my math is correct, the sum total return of those nine open positions is a stunning 110% Folks, it doesn't get much better than that, and it's a heck of a lot better than I've been doing for you recently. Better still, the new trade the Elite Opportunity added today is still affordable for newcomers. If you want to see what it is or check out the newsletter's other trades, here's how, or cut and paste this link:https://www.smallcapnetwork.com/?vmpd_ckstr[click_track]=Newsletter&vmpd_ckstr_redirect=/pages/SCNEO/v1/