Special Report on the Market – On the Evening of the Key Upside Reversal Day – October 4, 2011

Dear Subscriber-Friend –

Today’s market closed VERY strongly into the close and volume was high.  It marks what may well be a Gap-Down, Key Upside Reversal Day, which acts as a pivot point for the entire market.  Here are the tell-tale characteristics of such a day –

1. The market gaps down at the open.  This often occurs after taking out key support areas.  Yesterday, the market wiped-out the strong support line from August 9^th, which generated a lot of fear last night and brought forth many sellers this morning – resulting in the gap down condition at the open.

2. The market attempts to rally quickly after the open, but often fails and many early intra-day buyers are forced out.

3. A higher low or a failed new low is achieved, from which the market catches itself and begins to work itself higher, gathering momentum and volume.  Today, the market put in a “higher-low” with an hour left for trade.

4. The market closes within very close proximity to the previous day’s close or significantly above it.  Today, the market closed strongly higher than yesterday’s close, on late-breaking news about possible progress in the sovereign debt problems in Europe.

Here are some observations about individual stocks and the market which are possibly significant –

1. Ford Motor Co. (F) completed union negotiations successfully yesterday.  September car sales were good for Ford, but GM and Chrysler had stronger percentage gains.  Ford’s share price closed again just above $10/share at $10.08.  A purchase on a modest pullback into the high $9’s or in the low to mid $10’s and a stop below today’s lows ($9.05) may make very good sense.

2. Apple, Inc. (AAPL) presented very strong product and sales information today related to their iMac’s, iPhones, and other products.  They introduced their iPhone 4S, with very innovative features, but no iPhone 5.  Apple notebooks and iPads out-sell ALL competitors.  The stock sold off hard but caught some buyers at recent lows at $354.24, closing strong.  We are in a bit of a wait and see mode yet here.

3. Freeport McMoran (FCX)  closed above $32 on strong volume.  We believe that yesterday’s news about strong automotive sales in the U.S. should bode well for raw material suppliers, like FCX – which have sold off hard over the last months.  A purchase in the $32 range or in an orderly intra-day pull back (with an order active in the $31 area) may make very good sense.  We squeezed off a +15% investment in FCX at $31.60, just a few minutes before the close.

4. Morgan Stanley (MS) closed higher after reaching extreme lows.  A purchase in an around here (low $14’s) may make good sense.  Personally, we like JP Morgan better in the finance space.  Ticker = JPM.

In over 25 years of stock investing, I have never seen the animosity that is currently building under the header “Wall-Street Protesters”.  If this gains steam, there may be some unpredictable consequences.  Right now, there doesn’t appear to be a clear outcome that they are targeting.  The market is perfectly capable of stair-stepping higher in the face of uncertainty and fear.  On the other hand, we may need to see a concrete solution on the Europe sovereign debt front or at least the strong expectation for one, before the market puts these recent lows behind it.  Today’s strong close was in expectation or hope of a possible solution involving the creation of a “bad bank” that isolates failed assets.  Not exactly great or strongly encouraging news – but market participants were grateful for at least some form of decisive action.

Gap-Down, Key Upside Reversal Days are often good for excellent returns over the intermediate term.

Your – Stock Market Companion

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