A New Bull Market Begins in Four Months
By Jeff Clark
July 24, 2008

It took a few months, and a little bit of begging, but I finally received some questions from readers. Here are a few worth sharing...

Dear Jeff: You keep reminding us stocks are in a bear market. But you hardly ever write about short selling. Isn't that a good strategy to use when stocks are falling?

Logically, that makes sense. But stocks don't trade on logic. They trade on emotion. And the best way to profit in any market is to recognize when stocks have hit an emotional extreme, then take the other side of the trade. So, in bear markets, the biggest profits actually come from buying stocks.

Look at what bank stocks have done since I highlighted the sector two weeks ago. Look at the huge gains in the airline sector after I wrote about it last month. Investors had given up on both of these sectors, and their emotional capitulation created terrific buy-side opportunities. If you timed the purchase right, then you're sitting on gains of over 50% in just a few weeks. You won't often find stocks that fall that much so quickly.

So if you want to make money in a bear market, look for stocks that have been given up for dead. Buy them when it feels like it's the stupidest, most ridiculous thing you can do. Then wait for the inevitable bounce.

But don't forget to sell. After all, it is a bear market.

Dear Jeff: You're bullish on silver but bearish on oil. Since both of those commodities tend to move together, how do you explain your contradictory views?

Silver and oil go together a lot like Tommy Lee and Pamela Anderson. They stick together for a while... but eventually, the relationship falls apart.

I'm short-term bearish on oil because the chart looks sick. Oil stocks, which usually lead the price of oil, have been falling over the past two months. And the "oil is going to $200" trade is a bit too crowded.

I'm bullish on silver because the folks in charge of the U.S. Treasury are absolute buffoons. They're willing to collapse the value of the dollar and destroy your purchasing power in exchange for bailing out the collective stupidity of corporate executives and borrowers who should have known better.

Owning silver and silver stocks is simply one way to hedge against the constant idiocy of our government officials.

Gold is a good hedge, too. But the silver trade seems less crowded.

Dear Jeff: Who do you think wins in November, Obama or McCain? And how will it affect the stock market?

It depends on the game. Obama is definitely a better basketball player than McCain. But McCain has the edge in bowling.

If you're asking me who I think will win the presidential election, well, the Las Vegas odds makers are better at picking winners for that sort of stuff. They give Obama a 65% chance of victory.

So unless Hillary can somehow find a way to highjack the Democratic nomination at the convention, or McCain can pull a few million votes out of his hat, it looks like Obama will be the next person to occupy the White House.

And the market is already anticipating that – which is why it's falling.

The market knows capital gains and dividend taxes are headed higher. The market knows windfall-profit taxes will take a bite out of oil companies. And the market knows defense spending will shrink.

The stock market is already factoring in these events. So stocks will continue to struggle between now and the election as investors fully discount this news.

After the election, however, when traditional Washington gridlock takes over and none of these policies are enacted – or they're so diluted it doesn't matter – then stocks should perform quite well.

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In fact, I think we'll see the birth of a new bull market in stocks once the election is out of the way.

And it won't matter who wins.

Best regards and good trading,

Jeff Clark

Editor's Note: Send me a question for my next "mailbag"