You are probably familiar with the Pareto Principle, also known as the 80/20 Rule. It states that 80 percent of your results will come from 20 percent of your efforts. And this applies to investing as well as most other endeavors. For instance, 80 percent of your gains will likely come from 20 percent of your investments.

I also believe it applies to what I do in the investment world: short-term trading. I trade options and futures, but I don’t use all of my money for this. My wife and I have 80 percent of our investment money in long-term assets. She handles those investments while I get to play with the other 20 percent in the short-term.

How you diversify your portfolio also goes hand in hand with the 80/20 Rule. You should not have all your money in one stock, one investment vehicle, one market, or being handled by one firm. Look at how many people put all their money with Bernie Madoff and lost it.

[Ed. Note: Investment expert Rick Pendergraft and 8 of his colleagues will be revealing their top investment strategies this June. Find out how you can learn their secrets to making a fortune in today's market right here.]

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So far, 2009 is starting off much like 2008 ended: not good for the market. But I remain bullish about the year as a whole.

If you are a long-term investor, you have an incredible opportunity to pick up some stocks that are trading well below where they were at the beginning of 2008. Granted, some – if not most – stocks deserve to be down where they are. They were way over-priced this time last year, and now they are priced accurately.

However, some stocks have gone down for no other reason than “guilt by association.” These are the ones you want to be to adding to your long-term portfolio.

I am talking about companies like Tupperware (TUP) and IBM that are trading at a 30-40 percent discount from where they were one year ago. This despite the fact that their earnings have not declined nearly as much as their stock prices have.

Look for companies with a strong return on equity ratios. Look for companies whose stock price has dropped sharply, but whose sales and revenues have not declined or have not declined as sharply as the stock.

[Ed. Note: The S&P 500 is down 36% from January of last year... the Nasdaq has dropped 763 points in the same time... and the Dow is still hovering around 8,000 points. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Thank goodness it is 2009! The fourth quarter of 2008 was crazy for the market. The wild swings and incredible volatility were maddening. Most investors don’t want to be reminded of how bad it was, but it was apparent in their monthly statements. The good news is that it is over.

But there is a lesson to be learned from every rough patch. One of the lessons I learned from the crazy market of fourth-quarter 2008 has to do with the elasticity of indicators.

Here’s what I mean by “elasticity.” A number of indicators – including most of the overbought/oversold indicators – are calculated based on the most recent trading activity. In the fourth quarter, these indicators were stretched out like an elastic waistband, thanks to big moves in both directions.

The Relative Strength Index, for example, uses volume and price change in its calculations. When a stock goes up 4 or 5 percent two days in a row – and then drops 4 or 5 percent the next day – the RSI is getting stretched out. When the market calms down and that same stock is moving less than 1 percent per day, the overbought and oversold levels are harder to reach because the RSI is stretched out from the 4 and 5 percent moves. As a result, you get fewer trading signals from this indicator.

With the market settling down a little, the overbought/oversold indicators are starting to look normal again.

If you use these indicators in making your trading decisions, they probably lost some of their usefulness in the fourth quarter. Now that they are moving back to a more normal state, they should become more useful.

I personally cut back on my trading because I wasn’t getting enough signals from the indicators I use. Now that the calendar has rolled over to January, I am starting to see more opportunities.

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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I have been beating the bullish drum rather loudly of late, because I think 2009 will be a good year for the stock market. I’m convinced that the bearish sentiment that has been holding the market down is about to end. I have expressed this view several times in the pages of Early to Rise as well as in Investor’s Daily Edge. 

I need to make one thing clear, though. While I think the overall market will be higher over the next 12 months, that doesn’t mean I think you can buy any old stock and make money this year. There are still potential landmines out there, and you will want to do your homework.

For instance, I think the homebuilder stocks are ready for an incredible turnaround. But rather than picking one company, I’ve recommended the Spyder Select Homebuilders ETF (XHB). This gives you instant diversification with a number of homebuilders, without company-specific risk. 

One sector that’s still filled with problems is the financial sector… so I’m shying away. While the financials are benefiting from injections of capital from the Fed, how many skeletons are still in the closet?

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]  

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This morning, one of my co-workers asked me, “What turns around first – the economy or the job market?” My answer: “The economy usually turns first. Employment is a lagging indicator, because companies need to see an increase in demand for their products before they see the need to start increasing their payrolls.”

The stock market tends to lead the economy. It heads lower before the economy does, and it tends to start heading higher before the economy recovers. So if you have your investment portfolio on the sidelines, you shouldn’t wait for the economy to turn higher before you start investing.

My advice is to start getting your money back into the market now. If you wait until the employment picture turns around, you will be late to the game.

[Ed. Note: The market may not look so hot right now. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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I was back in my old stomping grounds of Indiana and Ohio over the weekend. I was there for pleasure, but I ended up with some useful information from a friend.

My friend Dave owns his own title company. As you can imagine, he has been struggling to stay afloat, with the housing market being so bad over the last two years. But what I learned from him is very encouraging. Dave said his business has increased 300 percent this month over last month and over last December.

It seems the huge drop in mortgage rates is finally creating some activity. The skeptics will say, “Sure. The refi business must be going crazy.” But Dave said his purchase activity has jumped as well. This suggests to me that people who have been interested in buying a home were just holding out until mortgage rates hit new lows.

I have been bullish on the housing sector since mid-November. On November 10, during an appearance on Fox Business News, I recommended the Spyder Select Homebuilders ETF (XHB) – and hearing Dave’s news makes me even more bullish on the XHB. You might consider it to jumpstart your investments this year.

[Ed. Note: You may be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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The November employment report showed that 533,000 jobs vanished from the U.S. economy for the month. This, along with a revision to October’s numbers, brings the total number of jobs lost this year to 1.8 million – making it the worst employment report since December 1974.

In December ‘74, the economy showed job losses of 602,000. And that month also marked the end of the bear market that had gripped the U.S. for two years. From December ‘74 through June ‘75, the Dow rose an incredible 42 percent.

Could we be looking at a replay – where things look the bleakest right before a turnaround?

The market is certainly due for a bounce, and the oversold levels are where they were in ‘74, so the similarities go further than just the employment numbers.

If the next six months play out like things did in ‘74-’75, where would it take the market? The Dow would jump from where it is now to approximately 11,800.

So how do you bet on history repeating itself? The best way is to use limited capital with options – and if you are going to stick with the comparison, you want to buy calls in the AMEX Diamonds Trust.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. Knowing the personalities of the stocks you control could keep you ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Believe it or not, stocks have personalities.

They can be happy, sad/depressed, manic, or plodding. Happy stocks go up almost every day, regardless of market conditions. Sad or depressed stocks go down almost every day, regardless of market conditions. Manic stocks? We could call these “Jim Cramer” stocks, because they are as volatile as the CNBC commentator. They bounce wildly from day to day. And we could call plodding stocks “Eeyore” stocks. They slog along without drawing any attention, just hoping someone will notice them. For the most part, these stocks grind sideways.

Knowing the personality of a stock will determine how you want to trade it. You want to own happy stocks… short depressed stocks… buy options on the manic stocks… and sell options against the plodding ones.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. Knowing the personalities of the stocks you control could keep you ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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This past May, I wrote an article for ETR detailing how much money was being taken from the economy by $4 gas. Now that gas has dropped back to $2 a gallon (and even less in some places), could this spur an economic recovery? 

Let’s look at the math from that May article.

According to the Bureau of Transportation statistics, there were 135,399,945 licensed automobiles in the United States as of 2003. If the average driver burns 50 gallons of gas per month, this means 6.8 billion gallons are being consumed each month in this country.

When gas was at $4 a gallon, Americans were spending over $27 billion on gas per month. Now, with gas back down to $2 a gallon, that amount drops in half – to $13.5 billion spent on gas each month. 

Thanks to the sharp drop in gas prices, $13.5 billion per month have been freed up for Americans to spend on things other than gas. This amounts to $162 billion per year. 

With expectations for the holiday shopping season so low, the dramatic drop in gas prices could be the piece of good news the market has been waiting for.

[Ed. Note: You may want to be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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The huge gains in the market in the week leading up to Thanksgiving reminded me that there is such a thing as panic buying. Mostly, we hear about panic selling – but panic buying is just as dangerous for investors.

What is panic buying? Panic buying occurs when there has been a prolonged down period in the market and everyone is expecting a bounce. Investors dive in headfirst for fear of missing the next rally. Because stocks get overheated in a very short period of time, the sentiment shifts too quickly and short-term traders look at this as an opportunity to take gains or to take smaller losses.

My advice: Don’t get caught up in panic buying. The next rally likely won’t start with a bang, but more of a whimper. When the selling is exhausted, the market will start a slow methodical climb that could last for months, or even years. Trying to time your entry perfectly is nearly impossible. If you are a long-term investor, there are deals to be had right now, but you don’t have to dive in. Wade into the water.

[Ed. Note: Nervously following the crowd is never a good thing. You need to stay calm and think logically. And that's exactly what market analyst Rick Pendergraft wants to help you do. Learn how he can help you get 12 triple-digit winners in 2009.]

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When the market is behaving badly and all the Johnny-Come-Lately stocks are getting beaten down, the best thing you can do is go with a tried-and-true company. And there aren’t many companies that are more tried-and-true than AT&T.

The biggest domestic telecom is an attractive play right now. The company may not be super-exciting, but with a long-term growth rate of 6.74 percent and return on equity of 12.16 percent, slow and steady will win the race.

AT&T has pulled back with the rest of the market, but the stock found support near 22, just as it did in ‘05. The best part about this pullback is that the stock is now yielding 5.6 percent and the dividend looks safe. Though many companies are cutting their dividends, it looks like T will hold steady.

With safety being a major concern right now, AT&T is as safe as they come. Sometimes it is better to bet on the tortoise than it is to bet on the hare.

[Ed. Note: The market may not look so hot right now. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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One question keeps coming up when I talk to my friends and family these days: “How will I know when it is safe to get back into the market?” There is one indicator that I am watching closely right now that I think will provide the answer: the mutual fund inflows and outflows.

Since late July, only one week has seen money flowing into equity mutual funds. All other weeks have seen outflows. The institutional money may be what everyone keeps an eye on, but individual investors control more money than most people think. Through retirement plans, more and more individuals have been invested in mutual funds, and right now these people are fleeing the market in droves.

My advice is to watch those mutual fund numbers. Once you see the outflows slow down, it will be safe to start buying stocks again. I wouldn’t wait for the inflows to start ramping up, though. When it comes to timing the market, the herd is usually late to the party.

[Ed. Note: You may want to be cautious with your investments right now... but you have to be ready to take action when the moment strikes. There are going to be some incredible opportunities out there, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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“Tom” said something that reinforced my belief that a bottom to this bear market is near. And it was music to a contrarian’s ear. What he said was: “The tone of our phone calls has completely changed. The emotion in the calls we get isn’t greed anymore, it is fear.”

Who is Tom? He works on a sales team that sells financial products, and he talks to investors all day long.

The old saying that the market likes to climb a wall of worry is going to come into play over the coming months. If the amount of fear in the market is any indication, that wall has reached new heights and the climb could be long and steady.

Because the climb will be long and steady, there is no need to dive head first into the market right now, but it is certainly time to start dipping your toe back in the water and scooping up extremely undervalued stocks. Two of my favorites are Chattem (CHTT) and AT&T (T). Both should do extremely well over the next year, regardless of what the rest of the market is doing. Even better, when the market starts going up, they will climb that wall along with it.

[Ed. Note: The market may not look so hot right now. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Over the last six months or so, trading volume has been much higher than historical averages. Investors are uneasy, and they are moving their money around – in and out of sectors and/or changing asset allocations.

There is one group of companies that benefits from this.

Yesterday, I was speaking with a friend of mine who works within the financial industry, on the advertising side of the business. And something Tom said hit home with me: With companies cutting back on advertising, parts of his business are down – but online brokers are going strong.

Online brokers get commissions whether investors are buying or selling – and given the volatility in the market, we know there is a lot of buying and selling going on.

The two online brokers that jump out at me are TD Ameritrade (AMTD) and Charles Schwab (SCHW). Their stocks have dropped with all the other brokerage firms, but it is a case of guilt by association. These two companies don’t have exposure to the mortgage market and they aren’t involved in proprietary trading, so they aren’t looking at the losses the big full-service brokers are being hit with.

AMTD and SCHW should do well when the market settles down and starts heading higher. In the interim, they are still getting those commissions as investors move in and out of the market. Adding either of these two companies to your long-term portfolio should pay off.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. You just need to be ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.] 

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In golf, when you are putting in the wind, you have to widen your stance.

In volatile markets, this rule can be adapted to apply to trading as well. It may seem like strange advice, but in times of extreme volatility, you need to widen your stop-loss points. Most people think you have to do the opposite and tighten them.

Let me explain: When the market is swinging back and forth wildly, movement within a day can knock you out of a position. Then, when the market swings back in the direction you were counting on, you will have been stopped out… and missed the gains you should have had.

It’s frustrating when a trade goes against you. But it is even more frustrating when you are in a trade, get stopped out, and then the trade turns around.

Take my advice and loosen up your stops a little. You still need to set stop-loss points, but when the market is volatile, you want your stops to be nearly impossible to reach within normal market activity. What constitutes “normal” activity keeps changing. What seems normal now would have been considered insane just a few months ago.

[Ed. Note: The market may be volatile, but it still offers plenty of ways to profit. Loosening up your stop-loss points could keep you ready to tackle opportunities as soon as they present themselves. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of these chances to prosper. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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When you hear investment people talk about the big three, they are usually talking about GM, Ford, and Chrysler. But what about the other big three?

As children, most of us dreamed of having three things when we grew up: a nice house, a nice car, and a nice job. Right now, the outlook for this big three is about as optimistic as the outlook for GM, Ford, and Chrysler.

Over the past year, home values have dropped sharply, auto sales have sunk like a rock, and unemployment has gone through the roof. Before the U.S. economy can turn around, at least one of these markets is going to have to turn higher.

Now that October payroll numbers have been released, it isn’t looking like it’s going to be the job market. October auto sales were just as dismal. The one area that is showing some improvement is housing.

Three recent reports – the August Pending Homes Sales Report, the September Existing Home Sales, and the September New Home Sales – were all slightly better than expected. While the housing market still has a long way to go, the sector could be forming a base.

If you are looking to add to your long-term stock holdings, the Spyders Home Builders ETF (XHB) could be a good buy at this time. Housing may not start shooting up as it did in the early part of this decade, but the homebuilders have reduced their inventory drastically and they look ready to start a nice slow path to the upside.

[Ed. Note: The market may not look so hot right now. But you should be ready to take action when the moment strikes. Some incredible opportunities are headed your way, and market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take advantage of them. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Senator Obama wasn’t the only winner on election night. Certain investment sectors won as well, including alternative energy.

Senator Obama pledged to spend $150 billion on alternative energy during his campaign, and wind energy is an area of interest. With the current financial crisis, he might not be able to devote that much to alternative energy right away – but over the next four years, you can bet government money will be directed at wind and solar energy companies.

One company that I like is Otter Tail (OTTR). Otter Tail has dropped over the last year with the rest of the energy sector, but it stands to be one of the winners in the wind energy lottery. The company is not only producing wind energy, it sells wind towers. It also pays a nice dividend of 5.6 percent.

Wind stocks are not going to shoot straight up over the next few months, but over the next two or three years they will benefit from President Obama’s plans. Adding Otter Tail to your portfolio will allow you to benefit as efforts are made for America to move away from fossil fuels.

[Ed. Note: Making smart choices now will pay off in the long run. And that's what investment analyst Rick Pendergraft aims to do with his KISS program - teach you how to make the best, smartest choices when it comes to where you put your money. Learn more about how Rick can help you spot incredible investment opportunities the minute they arise.]

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I couldn’t believe my ears. It was the night after the election and I’d invited a friend over for dinner. I thought he might be upset about the election results, but, surprisingly, he wasn’t.

You see, “Chris” is a regional sales manager for one of the biggest pharmaceutical companies in the world. His area covers four states, including Florida. And it turns out that inside the pharma industry, they aren’t worried about Obama overhauling the healthcare system.

Here’s how Chris explained it to me: If pharmaceutical companies are limited on what they can charge for prescription medicines, the demand for these drugs will actually increase. People who needed the medicine but could not afford it will now be able to. So the decline in price will be made up by an increase in units sold.

While I wouldn’t rush out and buy shares in every pharmaceutical company out there, I also wouldn’t rush to sell shares I owned either. If you are looking to add a drug company to your portfolio, AstraZeneca (AZN) and Cephalon (CEPH) both have solid balance sheets and improving price action.

[Ed. Note: You may not know what the market will do under Obama's presidency. But there are plenty of opportunities to profit - and you need to be ready when the moment to prosper arrives. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take to make money in any market condition. Get the details here.]

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You may be concerned about the stock market now that Barack Obama has won the election. Some people believe that Republicans are better for Wall Street than Democrats are. But history shows that the market has actually performed better under Democrat presidents.

As bad as things have been, I expect the economy to bounce back in the second half of 2009 – and not because of the outcome of the election. Sure, there are certain sectors that will benefit from Obama’s victory (biotechnology and alternative energy in particular). But the overall market is primed for a short-term rally. I say short-term, because there is a lot of resistance for the market to take out before the bear market can be declared dead.

The budget deficit, the ailing job market, and a broken financial system are going to be tough to overcome. The new president and Congress will have their work cut out for them.

[Ed. Note: No matter what the market does in the coming months, you can still find opportunities to profit. Market analyst Rick Pendergraft has developed an easy-to-use trading program that delivers very nice gains at steady intervals - close to once a week. It helps you use the market's fluctuations to your advantage, so that the economy doesn't affect your earnings one bit. Learn more here.]

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On a recent business trip to Atlanta, I was able to spend time with another seasoned trader. You will be hearing his name in the coming months – but for now, we will just call him T.G. He and I were discussing the present craziness in the market. And we shared with each other the actions we take when things get like this.

The CBOE Volatility Index (VIX) was hitting all-time highs at the time, so our discussion turned to this indicator. The VIX measures volatility in the market by looking at the pricing of S&P options in the front two months (the next two calendar months). A high VIX means the market is more volatile. A low VIX means the market is not so volatile.

I have been watching the VIX for a long time, and have used it to profit from time to time. Usually, I do that by taking advantage of large moves in one direction or the other to make contrarian plays on the overall market. But I learned a new way to use the VIX from T.G. - as a trade allocation tool.

For example, from July ‘07 through July ‘08, the VIX traded in a range between 20 and 35, for the most part. When the VIX recently jumped to over 50, T.G. knew he could cut his trade allocation in half. Because the volatility had doubled, he could get the same amount on his gains with half as much money committed to the trade. Therefore, if he normally put $10,000 into each trade, he could now cut that to $5,000 in each trade with the same monetary targets.

So if the VIX is low and the average movement in a day is only 1-2 percent, he can expect to make approximately $150-$200 per day on the $10,000 trade. If the VIX is high and the daily moves are 3-4 percent per day, he can expect to make $150-$200 on the $5,000 trade.

In a volatile period, it is better to have less money at risk and more cash on the sidelines. The method that T.G. explained to me is certainly worth considering as a way to lower your allocation without lowering your reward.

[Ed. Note: With the market's crazy fluctuations, it's more important than ever to keep your investing strategies simple. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take to make money in any market condition. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Unusual markets call for unusual thinking. What do I mean by that? Over the course of the last few weeks, the market has been more volatile than at any time in my experience. With emotional trading at a peak, the moves in the indices have been incredible.

Because of the volatility, trading tools that I normally use are not as reliable… the timeframes I normally look at are not as reliable… correlations between investments are out of whack.

Let me explain.

Under normal circumstances, I look at daily charts for trade opportunities. Because of the extreme volatility of late, I am applying the same indicators I always use, only now I am using them on hourly charts.

For example, for the longest time I observed how the futures markets led the ETFs (exchange-traded funds). When the S&P futures and Nasdaq futures would get overbought or oversold, the Spyders and the QQQQ would then move in the opposite direction. However, over the last few weeks the futures have been so volatile it was hard to know when to pull the trigger on a trade. And it now appears that the relationship has reversed a little, and the ETFs are leading the futures.

It can be frustrating. But the market is not going to change for you, so you had better change to cope with the market you are in. You don’t have to change your ideologies, you just can’t be rigid in your approach to making trades and making money.

[Ed. Note: With the market's crazy fluctuations, it's more important than ever to keep your investing strategies simple. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take to make money in any market. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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Trading volume can be used as an indicator of changes in the market. Volume can tell you if a trend is likely to continue… or if it has run its course.

During the week of October 6-10, we saw several things we had never seen before. For one thing, the volume on the New York Stock Exchange reached 11 billion shares in a single day. A new record. Plus, the Spyders – the ETF that tracks the S&P 500 – saw over 800 million shares trade in a single day, and the weekly volume for the Spyders reached an incredible three billion shares. Those were both records.

You might also note that the week of October 6-10 saw the worst drop in the history of the U.S. stock market. That huge drop, coupled with the record volume, could indicate a capitulation point for the market – when everyone gives up and sells their stock. The second week of October could have been just that, the surrender of the bulls.

I would not recommend diving headfirst back into the market. There are going to be numerous layers of resistance to cut through. This market is best played cautiously. Lower your allocations and keep some cash on the sidelines. If, indeed, this turns out to be a bottom and a new bull market starts from here, there will be plenty of time to get back in.

[Ed. Note: With the market's crazy fluctuations, it's more important than ever to keep your investing strategies simple. Market analyst Rick Pendergraft has put together an educational program that lays out the simple steps you need to take to make money in any market condition. Not only do you get three months of Rick's best recommendations, you also learn how to make good investment choices yourself. Get the details here.]

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The House of Representatives voted against the $700 billion bailout plan for the financial sector. The bailout was very unpopular on Main Street because too many viewed the bill as a bailout of Wall Street.

Unfortunately, the bill was more than that. It had become a bailout for the U.S. economy. The credit markets have become so tight that it is virtually impossible for businesses and consumers alike to conduct business.

Instead of working on solutions to the problem, the politicians are too busy trying to keep their jobs and pointing fingers.

While I didn’t think the bailout was going to solve all our economic problems immediately, I did see an approval as something that would bring about some sense of order.

Now what? Obviously the market isn’t going to fix itself – so where do we go from here? That is a good question. Only time will tell, but Sir Isaac Newton probably got it right with his first law of motion: An object in motion will stay in motion and an object at rest will stay at rest unless acted on by an unbalanced force.

At this point, the market is in motion… and that movement is on the downswing. The bailout could have been the opposing force to halt the downward motion, but now we will never know. This economic slowdown is far from over. ETR readers have been advised many times about ways to protect against the downside or even profit from it.

If you insist on investing in stocks at this time, discount retailers like Costco and Dollar Tree have decent-looking charts. Two others that jump out are consumer staples Pepsi and McDonald’s.

[Ed. Note: Keep your money safe during these shaky times by making smart investment choices. Companies with strong fundamentals are best equipped to withstand major market changes. But don't be afraid of fluctuations in the market. These movements can offer you the perfect opportunity to profit. Learn more with investment expert Rick Pendergraft's KISS System.]

A few months ago, my wife and I celebrated our 15th anniversary. Over the years, I have tried to stick to the traditional gifts for anniversaries. For year 15, that means crystal.

I had decided that I would get her a crystal vase and fill it with 15 roses, one for each year of tolerating me. I went to a local store and found a vase I liked as soon as I walked in the door. But rather than settling for the first one I came across, I wanted to look at some others.

I saw a second vase that I liked, and I went to pull it off the shelf to look at it more closely. Little did I know that this vase was in two parts, a top and a base. When I slid the vase forward, the base part fell and headed for the ground. I reacted by sticking out my foot and letting the base (a very heavy base) land safely on my foot. Whew, no shattered crystal! What a relief. However, now my big toe hurt like hell.

As I put the vase back on the shelf, I looked at the price. Only $50. I had just risked getting a broken toe to save a $50 vase? What was I thinking?

What does this have to do with investing?

The financial sector is like that falling crystal vase. It is very fragile and falling toward a very hard floor. Investing in financial stocks right now would be similar to what I did that day… with three possible outcomes: it hits the floor and shatters, it lands on your foot and breaks your toe, or you get lucky and no damage is done.

Three possible outcomes. Two of them are bad and the other requires luck. This is not the way I invest. And it shouldn’t be the way you do it either.

[Ed. Note: Keep your money safe during these shaky times by making smart investment choices. Companies with strong fundamentals are best equipped to withstand major market changes. But don't be afraid of fluctuations in the market. These movements can offer you the perfect opportunity to profit. Learn more with investment expert Rick Pendergraft's KISS System.]

The stock market is always driven by news. A better-than-expected economic report sends the market higher. An earnings warning from a big blue-chip company sends the market lower.

The current market environment is exceptionally vulnerable to news. One day the market is up 300 points as the government bails out Fannie Mae and Freddie Mac, the next day it is down 300 points because of some dire employment numbers.

If you are a long-term investor, my advice is to ignore most of the news unless it directly affects a stock in your portfolio. If you are a short-term trader, take profits quickly and cut losses just as quickly. Have your targets to take profits and stick with them – and have your stop-loss points and stick with them as well.

The market is not a place for emotion. Now, more than ever, knowing this is critical to your success as a trader.

[Ed. Note: Seems like every other day there's some big economic scare ready to trample your portfolio. But if you keep your emotions out of it, as investment expert Rick Pendergraft recommends, you'll be able to make solid decisions that keep your investments safe. Rick has created a surprisingly simple system that can help you make the best choices when it comes to your money. Get the details here.]

I’ve cautioned you before about settling for the common shares of troubled companies. Why? Because if the company goes under, bondholders and preferred shareholders get paid before the common shareholders get a penny.

As I’ve said, this pecking order isn’t a concern most of the time. But when major companies like Fannie Mae (FNM) and Freddie Mac (FRE) are facing disaster, you should sit up and take notice. While it didn’t take a genius to see that FNM and FRE were on the brink of being taken over by the Feds, I hope you heeded my warning.

As it turns out, the overall market rallied sharply after the Feds announced that they would take control of the two mortgage giants on September 8. The announcement created a sense of confidence, or at least it removed some doubt about the economy. But FNM and FRE both dropped over 85 percent as a result of the news. Their preferred shares took a similar hit.

FNM and FRE bondholders look like the winners in this case, while the stockholders (common and preferred) will be the big losers.

To keep your money safe, always do your homework before you invest.

[Ed. Note: Making smart investment choices is the best way to protect your money. Companies with strong fundamentals are best equipped to withstand major market changes. But don't be afraid of small fluctuations in the market. These movements can offer you the perfect opportunity to profit. Learn more with investment expert Rick Pendergraft's KISS System.]

While meteorologists were plotting Hurricane Gustav’s course, uncertainty about exactly where it would go and how strong it would be drove the price of oil up $7. When the storm ripped through the Gulf of Mexico with minimal damage to vulnerable oil platforms, oil dropped over $9 a barrel the next trading day. The old saying “Buy on the rumor, sell on the news” certainly held true in this instance.

With dramatic swings like these, the average investor should not be playing in this game. It takes experience and discipline to make money consistently in this kind of market.

My advice to the average investor is to steer clear of the oil market, especially for the rest of hurricane season. But if you feel that you have to play it, I encourage you to do so on a small scale and with only a small portion of your portfolio.

[Ed. Note: One major key to making money? Steer clear of investments you don't understand. Investment expert Rick Pendergraft can show you a simple system that will help you determine which ones are right for you... and which are best avoided. Get the details here.]