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07/25/2007

Soaring then diving, jumping then dipping. That's about the best way to describe this market over the past week or so. Just last Thursday the Dow eclipsed the 14,000 mark, setting yet another record high in a recent bevy of new all-time highs.

All of that changed on Tuesday when we witnessed the Dow crumble 226 points for its worst one-day point and percentage loss since March. The big culprit that took stocks down was the warning from mortgage lender, Countrywide Financial, which said that the subprime mortgage woes are now spreading beyond just the subprime sector (more on housing shortly).

Tuesday's knock back in the major averages has now pushed stocks down to about where they were trading in mid-May. That's about eight weeks of virtually no real upside, despite a string of record-setting Dow and S&P 500 performances.

What this tells me is that this rally is getting real tired. Try as it may, the market is having a tough time sustaining the value that it held just two months ago, and that speaks volumes for the future of this bull's health.

In the above chart of the S&P 500 SPDR (SPY), we see that despite the numerous highs, stocks have still not sustained the level that they were at since May. I think that the real key support level here on SPY is $149. If we break below this support level, there is a good chance SPY will continue declining below its 200-day moving average (red line).

Another way to measure the potential future decline in this market is to look at small-cap stocks. Below we have a chart of the Russell 2000 iShares (IWM), and ETF which measure the small-cap stock segment of the market.

As you can see, IWM just plunged below its short-term 50-day moving average (blue line) and is now on its way toward its longer-term 200-day moving average. Small-cap issues have been amongst the leading segments in this bull market, and if this slide in small-cap equities continues, it could mean a lot more trouble ahead for stocks.

My advice to anyone holding stocks right now is to be very, very careful. Make sure you have your stop losses set on all your holdings so that you can protect your gains and so that you don't see your winning evaporate into the ether.

Remember that when it comes to investing, protecting profits and protecting principal should be two of your biggest priorities.

REAL ESTATE REALITIES

Today we received data from the National Association of Realtors on sales of existing homes. It came as no surprise to me that there was a 3.8% decline in existing home sales for June. That's the slowest rate of new home sales in more than four years.

The lower-than-expected existing home sales data came right after we saw data from the Mortgage Bankers Association showing mortgage applications fell for the first time in four weeks to a five-month low.

I say add these two pieces of data to the veritable plethora of inclement housing news over the past year or so, and you start to get the feeling that the housing sector woes are really going to kick into high gear very soon.

As I mentioned earlier, the chief reason the stock market got hammered Tuesday was because of the warning from Countrywide Financial. The nation's biggest mortgage lender said that the number of subprime loan defaults is growing, and that the subprime mortgage meltdown has begun to spread to prime-rate loans, with even credit-worthy borrowers starting to fall behind on their mortgage payments.

Countrywide attributed a big drop in its quarterly profits to a spike in delinquencies among prime borrowers of "second-lien loans," including home equity loans and home equity lines of credit. These loans were often piggybacked onto first mortgages to help finance low- or no-down home purchases. They were also taken out by prime borrowers to help pay high housing bills or to buy toys like cars, boats, vacations, etc.

As you may know, I have been warning about this housing bubble for a long time now, and frankly I am surprised it has taken this long to start hitting mortgage stocks. If we see this trend continue -- and I surely think we will -- the pain amongst lenders, home builders, real estate stocks and financial stocks will get more intense.

When this happens I say watch out stock market. The carnage is liable to be horrific, as is the carnage in the real estate market.

The good news is that when both real estate prices and equity prices come back down to rational levels, the smart investor will be in the catbird's seat looking at a tasty buying opportunity in both real estate and stocks.

When that happens, you had better be ready to pounce.

CREATING PASSIVE INCOME SEMINAR NOW AVAILABLE ONLINE

Didn't get a chance to make it out to sunny Southern California for my Creating Passive Income seminar?

Well, don't fret. Now you can download the entire seminar online.

You too, can listen to one of the most important seminars to your wealth that you will ever see.

In this unique workshop event Josh Lewis -- my mortgage and real estate expert -- and I team up to show you the keys to creating the passive income you need to create the life of your dreams.

You will discover:

For more on how to download this seminar right now, simply go here.

BLOGS AWAY 8

Most of you probably already know that I am no longer broadcasting a daily radio show. But that doesn't mean I no longer have much to say about the markets and all matters financial. In fact, I now record a special message to Alert readers each week on my new, free audio blog.

To listen to this week's audio blog, simply click here

$100 OIL?

Could oil hit $100 a barrel? Of course, many of us think that $100 oil is inevitable, but many top energy sector analysts who once thought it would take years for us to reach the $100 mark are now predicting that lofty price may be reached very, very soon.

With oil prices now comfortably in the $70-$75 range, the top energy minds at Goldman Sachs think that the $100 point may be only a few months away. According to a recent Bloomberg article, Goldman commodities analyst Jeffrey Currie thinks $95-$100 crude is likely this year unless OPEC unexpectedly increases production.

Another analyst, Jeff Rubin at CIBC World Markets, predicts $100 a barrel as soon as next year. John Kilduff, an analyst with futures broker Man Financial Inc. said, "We're only a headline of significance away from $100 oil." The article in Bloomberg went on to say that higher oil prices will result in a big increase in revenue for energy producers like Exxon Mobil Corp. and other major oil companies.

All of this chatter over $100 of oil is music to our ears, as subscribers to both my High Monthly Income and Successful Investing advisory services continue collecting big profits from exchange-traded funds and Canadian oil trusts, whose value tends to move higher along with the increased cost of crude oil.

Of course, nobody knows for sure if the price of crude will continue pushing higher at its current pace, but what we do know for sure is that we keep making money in sectors directly connected with oil.

If you want to find out more about how to ride the geyser of higher crude oil prices, I invite you to check out both my High Monthly Income and Successful Investing services to see if they are right for you.

Click here to learn more about High Monthly Income

Click here to learn more about Successful Investing

DOUG VERSUS THE DOCTOR

I was recently challenged by a listener to my radio show -- we'll call him "The Doctor," as he is indeed a physician by profession -- regarding my views on annuities. The Doctor said that he would not recommend universal life policies to his worst enemies under any circumstances, as it was his conclusion that these products only benefit the salespeople pushing the products.

Well, my retort here is that people should stick to their specialties. I wouldn't presume to give The Doctor medical advice, and I don't think he should be giving financial advice. Now I don't want to seem harsh here, but there is simply no way to get around the lunacy of advocating high-fee, high-commission investment choices that likely include the unthinking strategy of buy-and-hold management.

Also, The Doctor said that I shouldn't be recommending VULs policies to everyone. Here I agree. In fact, I never recommend VULs to everyone. I only recommend VULs to those who 1) need more life insurance, 2) have maxed-out all of their other retirement account options and 3) want a tax-free income stream.

To put it in The Doctor's vernacular; if you don't fit the above diagnosis, then a VUL is not the right prescription for you.

One thing that everyone has got to realize is that understanding annuities requires experience and knowledge. I want all of my Alert subscribers to know all of their options before making decisions. If I can help you with your annuity questions, please just pop me an e-mail and let me know.

If you would like to get your FREE annuity coaching session with Doug Fabian, simply send an e-mail here.

A RUSH TO WISDOM

"If you choose not to decide, you still have made a choice."

—Rush, Freewill

It's not often that you find great wisdom in rock music lyrics, but in the case of Canadian trio Rush, their 30-plus year body of work is replete with choice lyrical gems extolling the virtues of reason, reality and strength of will.

The next time you are faced with a tough decision in life, remember that if you choose not to decide, well, you still have made a choice.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.

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