• The markets improved again today! Google, Inc. (GOOG $591.68) and U.S. retail sales data for September gave the market a strong nudge higher.  See below.
• The broader market is still bumping its head on the top of what has become a lateral range that has been characterized by turbulent up and down moves.  The market has come pretty far, pretty fast – so some more “backing and filling” would be not be out of the question.  See our SPY chart below.  Please click on it to make it bigger in a separate browser window.
• Economically, the world is FLAT.  This impacts us all significantly.  Don’t miss our bullet points about this, below.
• SMC holding Apple, Inc. (AAPL $422) may have finally put $404 in the rear-view mirror.  See below.
• We continue to like Alcoa, Inc. stock.  This one is still buy-able in our humble opinion.  See below.
• Netflix DID squeeze a bit higher, but hasn’t yet put the shorts “to flight”.  See below.
• Please click here to send us your feedback.  Let us know how we are doing – We are here to serve you. Support@Stockmarketcompanion.com

• Here is a video interview of a father and son using the Stock Market Companion successfully together – as a teaching and investing tool.
  

– Markets “At a Glance” –

(Please scroll down to the end of the report to see your favorite benchmarks – Dollar, Oil, Gold … closing prices and daily direction.)

– Market Trends –

*Summary of terms from Trader Vic II-Principles of Professional Speculation (pg. 140-141)
*_________* Represents a change in trend rating.

– Market Perspectives –

For your added perspective, we’ve included this chart of the broader market (Successful stock investors develop and start with a minds-eye view of the broader market and keep it clear) –

SMC SP-500 ETF Daily Chart

Please click on the chart to view it in a larger size.

– Today’s Highlights –

We’re going to talk about markets and stocks, but first we want to make sure that you all understand that when we say the world is “flat” that we aren’t suddenly crazy!  The world is “round” or more accurately – for those with a more scientific bent – the world is an “Oblate Spheroid”.  But from an economic boundaries standpoint, the world is “FLAT”- which for us means that the traditional geographical, political, economic, social / economic … etc … barriers that previously existed and defined the entire global economic environment have been dramatically changed and LOWERED.

Here is a list of some of the factors and influences (not in any particular order) that we believe have contributed to this incredible change that we have experienced over the past generation –

• Computer / communications technology (Moore’s law applied to semi-conductor industry).
• The commercialization and development of the Internet and open source software.
• Cheaper satellite transmission due to lower risk and lower costs of satellite production and launch.
• Lower risk and lower cost commercial jet travel.
• Global banking and financial institutions (with many disadvantages, too.  Imagine a village in Northern Italy buying investment derivatives from Goldman Sachs).
• Broadly accepted accounting standards (but not always followed).
• Increasing democratization (peaceful fall of the “Berlin Wall” separating Eastern and Western Europe; tolerance towards personal ownership rights in China…)
• Standardized shipping equipment (containers and container ships).
• Lower risks associated with ocean freight (protected shipping lanes).
• Trade agreements between 1st and 3rd world nations.
• Cheap and now almost free communication (Skype, for example).
• Global infrastructure improvements (electricity generation, harbors, airports, roads, highways…).
• Television.
• Near instantaneous send / receive communication.
• Accessibility to satellite communication and data.
• Global standards for quality (introduced by Mr. Deming and Mr. Juran).
• Brave citizenry prepared to oppose tyranny.
• Allied victory in WWII.
• Occasional, exceptional political leadership and bravery.

Each of the above items deserve individual study, and certainly more things belong on the list.  But the point is, the traditional boundaries that previously defined and restricted economic activity on the globe have either been removed entirely, or greatly lowered.

A great deal of this economic progress has taken place in the last 10 years, but for U.S. investors and citizens the last decade has been very difficult.  Here’s why –

• Investment practices MARKETED by mutual funds and other Wall Street firms served primarily Wall Street.  This is one of the reasons behind the current “Wall Street Protests”.  Stock market crashes have cut many investors investment holdings in almost half on two occasions, resulting in traditional mutual fund investments looking dreadful.  Some have recovered, others – like the once largest U.S. Mutual Fund – the Fidelity Magellan Fund – languish at approx. 1994 values today (NOT INCLUDING fees and taxes that have been paid out).
• Traditional approaches to real estate investment in suburban America has left approx. half of the mortgage holders today with mortgages on homes worth less than the mortgaged amount (negative equity).
• Credit card usage has increased household consumption (expenditures), while oppressive credit card interest rates sap net household income.
• Access to 2nd mortgages at momentary high housing values, allowed families to spend precious equity on consumer goods, while committing themselves to additional payments dependent on variable interest rates.
• Local access to high quality and now relatively cheap items made off-shore (many former luxury items)  has increased consumption and expenditures, while  – in many, but not all cases – diminishing domestic employment.
• Board and executive level corporate leadership have only given lip service to creating share holder value, while increasing executive pay and bonuses.
• Business leaders and homeowners completely ignored the risks of leverage.
• The rising tide of productivity gains from the WWII to the early 2000’s, stopped.

What this means is that – as investors, householders, and teachers of the next generation – we need to think completely differently about investing and how we apply all resources.  This means –

• Timing the market is essential.*
• Focusing resources on a few successful companies in growth mode, when the overall market is suitable for investing will continue to offer far greater yields than modelling the broader market.*
• Have basic routines in place that don’t take much time, but keep a close pulse on the market and investments.  (One of several purposes for the SMC 15Minute Market Update)
• Learn how to sell and take profits while they are there. *
• Teaching the next generation how to manage and invest money wisely. *
• Teaching the next generation frugality and to avoid “consumer” thinking.
• Learn how to find, see and take advantage of situations in the market that lead to strong returns.*
• Don’t spend on expensive college education if it doesn’t lead to a specific goal of employment or business building / income generation.  Steve Jobs’ 2005 commencement speech to Stanford University graduates specifically addresses this among other very insightful points (YouTube).
• Reconsider the benefits of early apprenticeship programs that lead to skills that can support a family and pride of workmanship.
• Beware the teachings of Wall Street about diversification that leads to continuous exposure to the risks of the marketplace, without the opportunity of strong gains.

* = Basic principles and continuous teaching at Stock Market Companion.

Strengthening the markets today were two primary items –

1. Retail sales data for September were good.  Most of this due to the transportation (read: car and truck sales) component.  Reuters article – U.S. Retail Sales
2. Google, Inc. (GOOG $591.68) reported excellent revenue and earnings last night after the close.  Reuters article.

• The markets were AGAIN divergent today, just as yesterday revealing further weakness in the technology sector while the broader market (S&P 500) and the DOW (DJ-30) held POSITIVE.
• Research in Motion (Ticker: RIMM $27.75) reported earnings last night that were a major disappointment.  We go through the details below.  The company received 2 broker upgrades going into earnings.  The stock then lost -21.45% from yesterday’s close into today.  We go through our steps in handling our brief investment in the stock this last week – AND WHY, below.
• Crude oil continued to descend today, reflecting a drop in value of the U.S. dollar – BUT also  concern of future demand as the global economy slows down.
• The S&P 500 is finding support at its 200 day exponential moving average.  If the broader market doesn’t find strength here and begins to sink further, the next near point of support is the low it plumbed during the recent nuclear crisis in Japan.  If it fails that point, then the intermediate term trend will be DOWN.
  
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