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"I have noticed over the years the difficulty some people have in cutting losses, admitting an error,and moving on. I am rather frequently---and on occasion, quite spectacularly---wrong. However, if we expect to be wrong, then there should be no ego tied up in admitting the error, honoring the stop loss, selling the loser---and preserving your capital." Barry L. Ritholtz (CEO, Fusion IQ,The Big Picture blog; born 1961)

Before commenting on Mr. Ritholtz's comment, let me begin by stating that the prospects for an exceptionally good 4th quarter for stocks looks very bright.

It's hard to know how the stock market will do from day-to-day, but all the right factors are aligned to lift stock prices significantly higher in the last 2 months of 2012. One of those factors is that there's still hundreds of billions of dollars, yen, euros and yuan still on the sidelines waiting to invest.

Not all stocks will bring exceptional results, but later I'll be discussing examples of ones that look very promising without having to accept undue risks.

The quote from Mr. Ritholtz is a reminder to us all not to let our ego or our emotions get in the way of our trading and investing. Like politics, we get too invested in "being right" and forget how important humility and tolerance truly are. We can't let fear or greed control how or whether we invest.

As we begin the month of November we are confronted by two powerful realities. The most important election in 4 years will occur on Tuesday the 6th here in the U.S, and, it's a presidential election.

From a historical perspective, November is the start of the best 6 months for stock investing. In years when there's a presidential election, November ranks as the #1 month for positive stock performance (source: The Stock Trader's Almanac).

Now is a great time to get rid of our losing trades, admit our errors (including any irrational fears about buying the shares of great companies) and pledge to be a more disciplined investor. That's one of the reasons I recently started using a service called TradeStops.

This handy and powerful tool is designed to alert me promptly when my stock positions have hit my predetermined trailing stop loss levels and affords me an effective exit strategy without the stock exchanges or the market-makers knowing about it until I've entered my order to sell ... after receiving the alert.

It also empowers me to receive alerts when the stocks I want to buy have hit at or near the "buy-limit" price that I'm patiently waiting for. Speaking of the stocks I want to buy or have purchased recently, I'd like to invite you to consider a few candidates which may be going "on sale" after the election results are in next week.

Many of my regular readers know that one of my favorite technical indicators is the Relative Strength Indicator (RSI). I've applied the RSI in the chart below to the SPDR ETF (NYSEARCA:SPY) that tracks the movement of the S&P 500.


(Click to enlarge)

The RSI is a momentum oscillator that compares the strength of gains against the strength of losses over a given period. RSI always ranges between 0 and 100.

Values below 30 and above 70 are typically taken as oversold and overbought respectively. A strengthening RSI indicates that gains are tending to dominate losses. Once the RSI climbs above 70, however, the sustainability of the gains is called into question.

As you can see from the chart above, the SPY and the S&P 500 haven't seen a clearly oversold condition since mid-May to early June 2012. Not even super-hurricane Sandy could depress the stock market averages enough to create another excellent buying opportunity for stocks.

Don't be discouraged however. The multi-billion dollar reconstruction and recovery program that is just beginning as well as the Federal Reserve's unlimited QE3 program appears to be keeping a "floor" under the major stock indices.

One of two scenarios are about to unfold. The election, especially with an Obama win, may be a confirmation that the government's "save-the-day" mega-bucks infusion into the U.S. economy will continue. This may spark a brief "relief" rally.

With a Romney victory there may be a lot of confusion and uncertainty on Wall Street as to how this upset victory may delay or obstruct the twin bail-out efforts of the Federal Government and The Federal Reserve Bank. Either way volatility may be on tap for next week.

So in the next couple of days you might want to begin nibbling on the best-in-breed stocks and keep some cash on the sideline to buy more if the post-election reaction involves what I call "the last step downward" of the market correction that began in mid-October. Then at some point the famous "Santa Claus rally" will kick in and it'll be onward and upward.

Here are Some Good Stocks for a Presidential Election Quarter

The first one may surprise you. It's Abbott Labs (ABT) which is not only a great company with a 3.1% dividend, but its a company that will do for it's shareholders what ConocoPhillips (NYSE:COP), Kraft Foods and Marathon Oil (NYSE:MRO) did for its shareholders. ABT will divide itself into two companies and give shareholders shares of both.

If you haven't read the details about the upcoming split up of the company (medical devices and pharmaceuticals) and the strong execution of the company's management led by CEO Miles White, I encourage you to read the report on Abbott's website.

The upside potential for investors is greater than the sum of ABT's parts, as it was for Kraft, COP and MRO. Suffice it to say with its pipeline of drugs including ones that may cure diseases like hepatitis C, the future earnings and operating margin (22% as of the last quarter) for Abbott looks quite rosy.

Another potentially lucrative stock investment is Eaton Corp.(NYSE:ETN) which rallied another 5% Thursday, closing at $49.59. This industrial titan operates as a diversified power management company worldwide.

They'll soon be completing their acquisition of Cooper Industries (CBE) which manufactures and sells electrical components and tools in the United States and internationally. Both companies will be major participants in the reconstruction and rebuild of the areas of the east coast damaged by Sandy.

The takeover of CBE will be accretive to Eaton's earnings, and even at the current share price they are selling at only 10 times their own forward earnings and at an estimated forward PE of 9 if we include CBE. At $49-per-share the yield to price is 3.1%. At $47 the yield is 3.23%.

Another super-mover on Thursday (up 4%) is Emerson Electric (NYSE:EMR), which has also risen sharply in the wake of Sandy's onslaught. At a price of $48, EMR has a yield-to-price of 3.33% and would be selling at a forward (1 year) PE of around 14.

EMR will report its quarterly earnings on election day, November 6th. Those interested may have a chance to buy well below Thursday's closing price of $50.38. The intra-day low on Oct.24th of $47.17 is not out of the question as a realistic buy-limit price.

For growth-at-a-reasonable price I'd also include Apple semiconductor supplier Broadcom (NASDAQ:BRCM). It looks inexpensively priced selling at 11 times forward earnings with a PEG ratio of less than one.

I'd also have us consider regional bank KeyCorp (NYSE:KEY) which reported its earnings last week and it was one of the most positive earnings reports in its industry. If you wait and buy shares at $8.40 or below your yield-to-price will be at least 2.4%.

CEO Beth Mooney reportedly owns close to 403,000 shares of KEY and insider Henry Meyer has more than 939,000 shares. The Vanguard Group owns almost 6% of the outstanding shares. Rumor has it that KEY may soon be a takeover target, but that is yet unconfirmed.

I'm also accumulating shares of Coca-Cola (NYSE:KO) and have written an article on why it's "The Real Thing" as a stock investment. When shares drop below $37 I'll be buying more and reinvesting the dividends.

For those looking for a solid international energy stock let me toss Royal Dutch Shell (NYSE:RDS.A) into the ring. It has the highest dividend payout of all the major integrated energy companies, and in its latest quarterly earnings conference call today (Nov.1st) it reported results that weren't as good as the same quarter last year, but good enough.

Shell's CFO-Executive director put it this way, "...we're making good progress against the medium-term targets we set out at the start of this year. And as communicated earlier, we are delivering on the strategic milestones." If you can buy shares at $68 your dividend yield-to-price would be nearly 4.3%.

The Wall Street Journal reported after Shell's earnings report that Shell "...is planning to bolster its profits by converting natural gas into road fuels like diesel, which it can sell at much higher prices".

Clean Energy (NASDAQ:CLNE), is a promising company that does its utmost to provide natural gas as an alternative fuel for vehicle fleets in the United States and Canada. It steps into the earnings confessional on Monday, Nov.5th. CLNE has a great story and potential, but I'd stay away from it for the time being.

If it disappoints on earnings and/or guidance we could see the shares break below its 52-week low of $11, and there isn't much support below that level.

Expectations for this quarter in comparison to the prior-year's quarter are relatively subdued. The average analyst estimates predict CLNE revenues will grow 3.0% and EPS will remain in the red. It doesn't have any positive earnings and it won't have any for the foreseeable future. The average EPS estimate is a negative 18 cents.

CLNE attracts a lot of speculation and trading, with average daily volume of over 1 million shares. The chart below shows its RSI to have cratered along with the share price. Speculators may be tempted, but I'd wait for more details from the earnings report and conference call.


(Click to enlarge)

Source: After The Election Buy These Stocks And Watch Clean Energy