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I bought eight different stocks yesterday but they are not my typical purchases.  My indicators improved enough last week to justify purchases on market weakness but my normal screening system is not coming up with new ideas at this point.  Therefore I created a new screen that picks out companies with very strong financial positions that pay a good dividend.  These stocks will be reviewed monthly and sold if they no longer appear on the screen. 

I am optimistic that the market has finally entered a bottoming area.  There will still be volatility and possible testing but I believe purchases should be made on weakness.  I still have a substantial cash position but will be trying to put it to use over the next couple of months depending on what the market gives me to work with.

The recent rally has convinced many pundits that we have put in a good bottom  and, as I discussed last week, that's the best we can hope for.  It is still too early to celebrate, though.  I continue to be disturbed by the lack of selling and short selling by odd lot investors and also by the tendancy of the put/call ratios to decline precipitously whenever there are a couple days of strength.

My screening system is not picking up any new ideas at this point and it will require more basing before the potential new market leaders can be identified.  Therefore, I am continuing to hold a very high cash position.

So far, all we have seen is a relief rally in many of the stocks that got hit the worst in the market decline.  I find it very hard to believe that financials and commodity oriented stocks will be leaders in the next bull market - but we shall see.

I remain very disappointed in the failure of my indicators to reach extreme levels.  Certainly, given the speed and severity of the decline, sentiment measures comparable to major market bottoms are to be expected before the market can put in a solid bottom.  I believe the best that we can hope for is a period of basing where more and more investors get discouraged and give up.

I previously had purchased SPY in order to hold my cash position to lower levels when the market was acting better.  My reasoning was that, because I was already well ahead of the market, I could afford to simply ride along with the S & P 500 since I couldn't find other worthwhile stocks to buy.  That was a mistake.  First, while I am doing quite a bit better than the market, I still don't like losing money and, second, my screening system was telling me something by not identifying new opportunities to buy.  I should have listened.  Today, I took my losses in SPY.  I might repurchase SPY or another market based ETF if I get the extreme readings I am looking for in my indicators.  Otherwise, I will wait for my screening system to identify new opportunities.

As the market crashed last week, my indicators were improving but, given the extent of the market carnage, I don't think they reached levels that were extreme enough to call a bottom.  I definitely think the worst is over but I am hoping that a period of base building that could last a few months will now unfold leading to a new bull market next year.

The biggest uncertainty now is the outcome of the elections that are now just a few weeks away.  I am hoping that, regardless of who wins, they will see that now is not the time to raise taxes, erect trade barriers, meddle even more in the free market or go on a spending spree.

I am continuing to look for individual stocks that have good potential but my market approach will probably not be in favor until the market regains its footing and new leadership can be identified.

I must be a genius - everything I have sold recently has gone down.  Let's not confuse brains with luck.  Just as is the case when people take credit for making money in a bull market, it's very easy to look good when selling into this market. 

What is really happening in my own portfolio is that I am simply being forced to sell as many of my holdings decline past the 20% loss level.  As a matter of risk control, when one of my holdings declines by 20% or more and stays at that level for a few days, I feel that I have to admit I made a mistake and sell the position.  I might end up buying the stock back later but that decision will be made with a clear frame of reference.  After all, a decision to hold a stock is really a decision to buy because there are always alternatives.

My indicators are improving but are not yet at the extreme levels I demand before buying into this market in a major way.  I am perfectly willing to buy individual stocks that look attractive according to my screening system.  However, almost no stocks meet my criteria right now because I want to buy strong stocks and there aren't too many of those to pick from.

I'm appalled and distressed by what is happening in the markets and in the political arena.  The following comment that I credit to Alan Abelson pretty much describes the situation in Washington:  It's a battle of wits between unarmed opponents. 

After increasing 30% or so in a couple of weeks, I sold 1/2 of my position today because the stock now seems fairly valued.

I'm using BIL for some of my cash so that I can include at least some of my cash holdings in the performance calculations at Covestor.  Hopefully, they will figure out how to include cash in the performance calculations in the future.  Obviously, in this nasty market, cash is a comfortable place to be.

I am experimenting with posting this chart which I consider an important market indicator currently.  The S & P 500 is shown in the upper portion of the chart and the difference between bearish money flows and bullish money flows in the Rydex family of funds is shown in the bottom portion. 

This indicator has done a good job of forecasting the market recently.  When flows into the bearish funds were very high as in mid 2006, a good buying opportunity was presented.  Early in 2008, though, the flows were heavily into the bullish funds, a signal to move to the cautious side of the market.  Currently, the indicator is neutral but trending lower.  It has never turned bullish since the market top.  This indicator, combined with others essentially saying the same thing, means to me that it is too early to adopt a bullish stance.  While I am willing to buy attractive individual stocks, I am also very willing to hold cash if those new ideas are hard to come by, as is the situation currently.

I sold 1/2 of my position today because, at current price levels, I feel this stock is fairly valued.

I sold 1/2 of my position today because, at current price levels, I feel the stock is fairly valued.