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Trippon’s Market Commentary for the Week Ahead

I realize it's Halloween today but on a serious note, many of us are wondering why the stock market has been more of a trick than treat to our investment holdings this year. After dropping roughly 25% from its value on the first of July, the US stock market indexes have rallied for the past three weeks straight on the hope that Europe would avoid full blown economic collapse.

Yes a collapse in the European currency and banking system was, and still remains, a very real possibility.

The announcement last week that the EU countries had agreed to write down 50% of the value of Greek Treasury bonds confirmed that at least some positive action to deal with this crisis in Europe is occurring. This, at least for the time being, has injected a shot of adrenaline to the stock indexes around the world including here in the U.S.

As you will see below, these events may result in many of your portfolios requiring adjustment.

Of course, the problems in Greece are not even close to being solved. One clear of the clearest indications of that all is not "baklava and ouzo" in the land of the Acropolis, is that the budget deficit in Greece continues to increase at an alarming rate (it is up roughly 15% year to date over 2010.) The other problem is that Italy, Spain, Portugal, and Ireland all also have problems paying for their federal programs and Treasury bonds.

My view on the situation has been that when the financial markets have a serious risk of a major default, that serious caution is in order. Most of us agree that it is better to exercise restraint and caution than to risk massive personal investment losses. But doing so when the markets have rallied the last 3 weeks is pretty tough.

So the million dollar question is... What's Next?

The market action last week indicates that investors around the world want to rush back into stocks. This is a reversal to the market trends of the entire 3rd quarter of 2011. This means that a number of the investments you may have held in your portfolios over the past 3 months, particularly some of the most defensive holdings, will need to be exited.

The most typical thing to expect next is the market will be entering a several week phase that professional traders call "consolidation." Consolidation is a fancy way of saying "stocks almost never just go straight up."

As a practical matter it means that there is no reason to "panic sell" when exiting any defensive positions such as inverse funds in your portfolios. The type of movement we have seen in the past 3 weeks will generally be followed by several pull backs to test recent support levels. Translated into English... this means that it is more likely than not that the gains of the past three weeks will fade a bit as the market pulls back to confirm that a bottoming in the market from the rough patch we experienced in the third quarter has occurred.

So as a practical matter, at this point two adjustments will be considered in most portfolios.

First, if you have defensive investment positions, such as inverse funds you may want to unwind (SELL) those holdings as consolidation occurs. If you are holding any inverse or defensive positions that are not currently profitable, the consolidation process will generally provide an opportunity to sell those holdings at a profit as long as you do not panic sell.

Second, you will want to consider beginning to accumulate those types of stocks that will most benefit from the classic rotation process that occurs during bottoming cycles. If we are now, as it appears likely, beginning the completion of this bottoming process, the time to identify the new holdings and begin adding them to your portfolios is NOW.

As always, I will be working to make sure we do everything possible to identify risk and take advantage of market gains. This is precisely why our premium newsletters - Dividend Genius, China Stock Digest, and ETF Profit Report, are so helpful. These resources give the specifics on what our research says you should be buying or selling TODAY.

The market is likely to remain volatile for the rest of the year. By remaining vigilant we will make the best of these challenging times.

In the meantime I remain...

Committed to your Global Profits,

Jim Trippon
Chief Investment Analyst

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Global Profits Alert (GPA) is published by Trippon Financial Research, Inc. a financial media organization with offices in the United States, Hong Kong and Mainland China. GPA is written by Jim Trippon in conjunction with George Wolff, Sunny Wang, Todd Shriber, Kelley Damiani and J. Daryl Thompson.

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