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The Correction is Here

By Stansberry Research Interview Series
Monday, September 25, 2006

It’s quiet... too quiet.
 
I don’t mean to rain on everyone’s parade, but September has been much too tame so far. There was a slight dip in the S&P 500 at the beginning of the month. But since that time, the market has been rising steadily.
 
And investors are getting complacent again.
 
Prior to the Fed’s decision to keep interest rates at current levels last Thursday, the Chicago Board of Options Volatility Index or VIX, was sliding back to historic lows. If you’re unfamiliar with the VIX, it’s used as a gauge for investor sentiment. As such, the lower the VIX is, the less worried investors are about the market’s future. And at the moment, investors aren’t very worried at all... which has got me worried.
 
 
 
However, the same day that the Fed maintained interest rates, the Federal Reserve Bank of Philadelphia issued a report revealing that regional manufacturing activity went negative for the first time since April 2003. In simple terms, the housing market slowdown looks to be spreading to other industries.
 
Considering that from 2001 to April 2005, 43% of all new private sector jobs were related to housing, it’s little surprise that a slowdown in that sector would affect the economy as a whole. However, it’s taken the average US investor too long to see the connection. I expect Joe Investor will really put two and two together over the next couple of weeks as the market plummets.
 
Yes, I believe the market correction is here. We should see the VIX rising to 14 or 16 while the S&P 500 drops to 1,300 or even lower to 1,260.
 
In the meantime, tighten your trailing stops. And expect a terrific buy opportunity to come some time in early to mid October.
 
Good trading,
 
Graham




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Market Notes
Stocks down on concerns that the housing slowdown extends to other sector.
 
Earnings Winners This Week: FedEx, Bed Bath & Beyond, Morgan Stanley.
 
Earnings Losers This Week: Nike, Boston Scientific, Munro Muffler Brake.
 
In The News: Hedge funds withdraw registrations with the SEC after a court ruling. Nike profits down after expensive promotions during the world cup don't follow through.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1223.12 -0.1% +10.6%
Oil 38.22 -0.2% -0.3%
Gold 139.11 +0.8% +22.3%
Silver 29.51 +3.2% +62.6%
US-Dollar 79.17 -1.3% +4.3%
Euro 1.33 -0.8% -10.4%
Volatility 18.02 +0.1% -15.2%
Gold Stocks 590.99 +1.6% +25.5%
10-Year Yield 2.94 -2.7% -15.5%

World ETFs
Symbol Price
Change
52-Wk
USA 122.76 -0.1% +10.6%
Canada 30.56 +0.2% +18.0%
Russia 21.98 +0.2% +17.2%
India 37.92 +0.2% +19.4%
Israel 16.76 +0.4% +10.4%
Japan 10.69 +0.5% +7.0%
Singapore 13.71 -0.2% +18.1%
Taiwan 14.92 +1.0% +20.2%
S. Korea 57.19 -0.2% +21.5%
S. Africa 72.26 +0.5% +29.7%
China 43.84 -1.3% -3.3%
Lat.America 53.21 +0.1% +9.2%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.74 +0.1% +20.2%
Big Pharma 63.99 -0.2% -3.2%
Internet 72.58 +0.7% +25.0%
Semis 16.18 -0.3% +26.4%
Utilities 31.19 -0.3% +1.8%
Defense 18.47 -0.3% +8.9%
Nanotech 10.08 +0.5% +1.3%
Alt. Energy 10.24 +1.6% -2.0%
Water 18.62 +0.7% +13.8%
Insurance 16.08 -0.4% +19.0%
Biotech 20.56 +0.1% +26.6%
Retail 19.59 -0.6% +26.6%
Software 24.65 -0.6% +22.7%
Big Tech 53.85 0.0% +22.1%
Construction 13.20 +0.8% +14.8%
Media 13.73 +0.7% +24.7%
Consumer Svcs 67.38 0.0% +23.4%
Financials 55.01 -0.1% +5.7%
Health Care 63.90 -0.6% +1.2%
Industrials 63.51 -0.1% +19.3%
Basic Mat 74.64 +0.4% +27.8%
Real Estate 55.35 +0.1% +21.8%
Transportation 91.39 -0.4% +23.9%
Telecom 22.65 +0.3% +16.8%