Stocks trade on three things:

1. Fundamentals (earnings)
2. Technical (charts)
3. Market psychology (fear and greed)

The massive deleveraging of financial firms and market repricing is hopefully nearing an end. Let's hope today is "capitulation". In the stock market, capitulation is associated with "giving up" any previous gains in stock price as investors sell equities in an effort to get out of the market and into less risky investments. True capitulation involves extremely high volume and sharp declines. It usually is indicated by panic selling.

After capitulation selling, it is thought that there are great bargains to be had. The belief is that everyone who wants to get out of a stock, for any reason (including forced selling due to margin calls), has sold. The price should then, theoretically, reverse or bounce off the lows. In other words, some investors believe that true capitulation is the sign of a bottom.

Here's the good news. On average, earnings have been good. You can go to CNBC's website and look at the earnings surprises. They have been overwhelmingly positive. However, companies are starting to guide that next quarter's outlook is not looking so rosy. Based on the economic data available to us today, we do not see a slow down lasting a long time.

We have low interest rates, low inflation, and relatively low unemployment. Now, we are starting to see improvement in the credit markets. Policy actions are just starting to come on-line with more to come. The Fed should act very decisively next week when its commercial paper market facility kicks in. The Federal Reserve announced back on October 7th that it was creating a special purpose vehicle to purchase 90-day commercial paper directly from eligible issuers. This creates liquidity for big US companies.

A few years from now, investors sitting on cash, will look back on these days as the greatest lost opportunity. Over the long haul, long-term stocks have done better than any other asset class. While this may not be the absolute bottom, equities are on sale, and today, they may be heading for the "clearance rack".

We still advise you to stay the course. If you have cash on the sidelines, you may want to consider making some buys.

Please advise us promptly if there are ever any changes in your financial situation or investment objectives. Feel free to give us a call if you want to discuss anything further.