Investors seem to have taken the past couple of years pretty well when considering the extent of the damage. Maybe it is some sort of denial phase. Many talk a good game, but while complaining about how horrible their losses have been it is almost as if they have been hypnotized by Bob Marley and inside they are still singing to themselves, "Don’t worry ‘bout a thing, every little stock is gonna be alright." Sadly, many of those little stocks that used to be big stocks are not going to be all right, they are going to be all gone!

Study the chart of the S&P 500 and notice the action since the rally stalled on 10/22, its first day of declines on higher volume than the preceding day. The next day saw a gain on a little less volume, and rather average at that. You’d prefer to see volume that makes it clear the institutions are loading up. On 10/24 the selling was a bit more intense, but notice how on the following session the volume dipped way below average. Again on 10/31 the volume spiked above average as the market suffered another decline. The only encouraging point is that not a lot of damage was done by all of this, as the SPX has stayed above its 50-day moving average line. For now, we can settle for some stability, so let’s not guess about what happens next, but watch it closely.

There needs to be a major change in what we are seeing in order for you to have much chance at making meaningful progress with your stocks. Fund managers’ sentiment is one thing, and data from Investors Intelligence shows that they’ve been turning less bearish and more bullish. However, their actions are influenced by the flow of dollars into and out of their pool of managed money. With that in mind let’s think about the data Maria Bartiromo of CNBC recently reported from Trimtabs.com. She said that despite $15 billion in US equity fund outflows during July-Sept., mutual funds were not big sellers of stocks. Instead, they used $11.4 billion of sidelined cash to satisfy share redeemers. If investors are shocked into pulling out more from their dwindling mutual fund balances, fund managers will have little choice in what to do next. They’ll have to call Lendingtree.com. Oh, you can probably guess I am only kidding!

10/29 - While doing my screening to compile the daily CANSLIM.net BreakOuts Report that afternoon I noticed TEVA setting up and looking very interesting. But then, who could miss it breaking to a new 52 week high (N) on just over twice-normal volume, closing the day at $71.05. Technically the stock was also breaking out of a sound base that was about 3 months in duration. A quick check of the company’s fundamentals showed that annual earnings (A) had been accelerating since 1998 and the quarterly earnings comparisons were consistently up about 40% on average each quarter (C). The stock was a leader in the Medical-Generic Drug group, a group leading the overall market (L). IBD had high ranks for the stock, as well. With 105.0 million shares in the public float the stock could really move up quickly (S), especially compared to something like, say GE with 9.9 billion shares.

The biggest question left at that point was the overall market (M). That day the major indices made a respectable push in the final hour and a half, but the sustainability of the present rally that started on October 10th was looking suspect based upon prior distribution days and weak volume behind any of the recent gains.  The late-day surge looked reassuring enough, since healthy markets often feature sessions that start off weaker but end strong.

On 10/30 the stock gapped open $2.44 higher and ended up trading almost 4 times normal volume to a high of $76.88. With that much volume you could be pretty sure it wasn’t Aunt Mary and Uncle Bob buying up that stock, it was professional money managers, mutual funds and intuitions (I).

What makes this story even better? TEVA first appeared on the CANSLIM.net BreakOuts Report on 10/21/02 after gapping up and trading almost twice normal volume. It closed at $67.80, with our notes saying "Watch for Breakout over $70. Same group as APPX that now is extended."

What to Look Out For
This newsletter is not all about how to do your buying. Take a look at Tenet Healthcare Corp. (NYSE:THC) for a few clues on how to know when it is time to sell a stock. Even when it looks great based on most of the CANSLIM criteria, pay attention to the group and technical action.

10/17 – THC showed a high volume reversal. HMOs were left out of CANSLIM.net’s "Stocks to Watch in This New Market" report (10/23) and we did so "specifically because the group has shown numerous reversals and signs of topping." Weakness in healthcare issues was noted in CANSLIM.net’s Market Commentary, which summarizes key developments in sectors that are standing out as particularly weak or strong. 10/24 marked its first close below the 50-day average. On 10/25 it got back over it, but volume was especially light.

10/31 it lost 26% as controversy began to swirl over accounting matters.

Uncertainty abounds. Are we going to war with Iraq? What will be the reaction in the market based on the upcoming elections? The FOMC meeting is approaching on November 6th, so is the Fed going to cut interest rates? Is the economy improving, or is all of this talk of a double dip recession justified?

The list of questions above mentions things that might have been wise to worry about before, but all of this uncertainty is factored into the market right now. Since it is already baked into the cake, these issues are really not much to be worrying about. The market hates uncertainty, but it does a beautiful job of pricing that uncertainty into all stocks. As each of these questions is answered in due time, it is likely to be good medicine for the market.

Attention All Source Capital Group Customers!
I’m here to help you reach your investment goals. Please do not interpret all of the how-to-do-it advice featured in this newsletter to mean that I have reverted my role at Source Capital Group exclusively to the role of being an order taker. I want you to know that you can still count on me to reach you directly when I see opportunities that I feel are truly compelling enough to get you involved. Meanwhile, this newsletter serves at the very least as a means for me to relay information on some of the more appropriate looking ideas I am presently tracking. Whenever you see something featured that looks particularly interesting to you, feel free to ask me about it and I will gladly tell you more. We can discuss a course of action that might involve buy-limit, buy-stop, sell-stop orders, or any number of possible combinations.

Most of you should know I’ve been a licensed stockbroker for over 15-years. While the past couple years have been rough, I am glad to have been able to preserve all that we have. This industry has changed a lot in just a short time, and in my view, most of the online brokerage rage seems to have been rather silly. Some firms bragged, "The mouse on your computer is the only thing between you and the market" as if instant access to market data and trading capabilities offered investors a great advantage! While clicking the buy button might have at first seemed thrilling to people, it has done tremendous harm to most of the people who tried it. Where these firms have done the general public a tremendous disservice is that they didn’t help or teach their customers how to be successful. They simply lured people in because most people are looking for a "bargain". Unfortunately, a lot of people have been financially wiped out while paying bargain fees, where they may have fared much better had they only been willing to spend a little more for some good advice.

It drives me crazy, but unfortunately many people still keep asking me the same question all the time - ‘What do you see that we can buy really cheap right now that looks good?’ The problem is, if the stock is really cheap it is never to be interpreted as a good sign. So, there is really no way I can answer that one. I’ll stand by what O’Neil says of the best winners. More often than not, they are the stocks that people look at and say, "It is too late."

The firm has a respectable annual and quarterly earnings growth track record and the stock gets very impressive ranks in IBD. However, it is still a largely undiscovered company with only 5.4 million shares outstanding and average daily volume of just about 10,000 shares. Management has ownership of 50% of the outstanding stock, which obviously keeps them motivated to protect and build shareholder value. And they’ve been doing a good job of it, with the recent breakout action taking the stock near historic highs.

Accompanying strength in the Medical-products sector is a nice reassurance that the group is in favor. Up/down volume ratio for the issue is 2.3, which is a sign that it is trading up on high volume days and seeing limited selling while not budging much on the down days. While the market figures out what it is doing, watch for this stock to maintain trading above its 50-day moving average line, and watch for any violation there as a red flag or sell signal.

26.3 million shares are outstanding, and only 8.4 million shares trade in the public float. Management holds a whopping 68% ownership interest. For the quarter ending September 30, 2002 versus the year earlier PEC Solutions’ sales revenues were up 83% to $52.8 million from $28.8 million, and earnings per share rose from $0.13 to $0.25. Ever wondered why a stock would gap up and sprint higher on heavy volume? (see gap 10/23/02) Announcing a quarterly report with a 92% earnings per share increase over the prior year helps most of the time.

It would be more ideal to own it near its May/August highs, and if it dips you’d expect support in the $28-$29 range. While its price appears to be gearing toward prior highs ($44), it has also come a long way in the past six weeks. Signs of heavy institutional accumulation are present, but for some reason Daily Graphs gave it a D sponsorship rating. A number of Computer-services issues are confirming strength in the group. Otherwise its high ranks and large percentage increases in sales revenues and earnings in the latest quarterly comparisons make it compelling.

Something can be learned from studying past experiences both good and bad. Below you will find follow-up commentary on ideas featured in the two previous issues of this newsletter. These remarks help to explain critical technical trading points or news events that occurred which had an obvious impact on the price action of these issues.

Nutraceutical Int’l Corp. (Nasdaq:NUTR) - For a low-priced and thinly traded issue, it seems that NUTR has been remarkably stable over the past two months. After the mid-August flurry of volume, note that volume has dried up a lot since. Lately it has been hugging its 50-day moving average line. These are encouraging signs that can be interpreted to mean that there are not a lot of enthusiastic sellers while the stock is holding its ground near the 52-week high of $8.85. That works to your advantage when and if buying demand picks up again and the stock breaks out. Any close above the 8/26 high close of $8.55 would be another buy signal, especially if volume spikes up above normal.

Hanger Orthopedic Group (NYSE:HGR) – Technical red flags have been raised by the action in this stock. First, it is worth noting the latest top on 10/18 has now created the look of "lower highs" on the chart. Then it broke below its upward trend line on above average volume on 10/28 with a close at $14.60 matching the prior low close (9/23) to the penny. Volume was very quiet on the gain of the 29th and the loss on the 30th, but it is worth noting the subtle difference of it closing at a new low close of $14.49. Then, on 10/31 it clearly flushed below that point on even higher volume. Of course, the stock is now near its 200-day line ($12.95) and would need to change its colors quickly and convincingly to make it worthy of consideration now.

Anteon International Corp (NYSE:ANT) - On 10/31 the company announced another quarterly report featuring strong (+69%) earnings growth over the year earlier period. Unfortunately, investors were rattled by comments accompanying the report that the government agencies it does business with are slow in paying. It was slammed below it’s 50-day moving average line on 1.1 million shares versus average daily volume near 180,000 shares, the highest down volume it has seen since it debuted in March ’01. This kind of damage will take time to heal, and at best be rather hard to overcome. It may be wisest to wait until the market shows more conviction, and then look for a technically stronger stock.

Cooper Companies (NYSE:COO) – After we featured Cooper it managed to make a fair amount of progress but the price action has certainly been choppy. Four of the five highest volume days in the past 7 weeks have been down days, while it is consolidating the gains from the July lows. The 50-day average line ($51.76) is in jeopardy if it sees much more pressure, while prior lows in the $50-51 range are also an important support point to keep an eye on. The weakness in HMOs threatens to cause damage to adjacent issues in the medical sector, but thus far it seems that makers of products and supplies like COO are still among the market’s better leadership candidates.

Last week I was visiting one of my favorite bookstores, Barnes & Noble. I decided to order an iced coffee and preview the business magazine section. After thirty minutes or so, I dug into the pages of Forbes magazine and took a closer look at their "200 Best Small Companies" article, which I first saw at my friend Lynn’s house. What I saw on page 258 of their October 28, 2002 issue was quite impressive.

I enjoyed the first paragraph, which mentions the fact that most analysts are inclined to follow big cap companies like GE, while only a handful will fish for small caps. But the section that amazed and shocked me the most was the third paragraph, subtitled "Get All The Numbers". In less than 120 words the reader is introduced to what I would call an "Investor’s Research Dot Com Maze". This unique paragraph offers investors seven dot coms they might use to extract the necessary information in order to perform their own analysis on stocks. Let me take you on a quick tour of their Dot Com Maze and then I will offer you an easier solution!

The paragraph advises you to do the following: Begin your search at Yahoo Finance, Tradingday.com and Forbes.com. For a variety of stories, visit the search engine Google.com. Don’t stop there you have plenty of time! Make sure you study carefully the company’s (10-Q) quarterly and (10-K) annual reports by visiting 10kwizard.com and also freeedgar.com! But hold on, there are two more to go! For $400 you may obtain independent opinions from Redchip.com, and for stocks that you should stay away from visit shortonvalue.com!

- Breaking into a new 52-week high on at least 150% better than average volume. The more volume on the up day the better.

- A leading stock in a leading group. Check in IBD or Investors.com for information on Industry group ranks and use the "Stock Check up".

- In a favorable market with at least 2 of the major averages (DOW, NASDAQ, S&P 500) above their 50 day moving average or in an upward trend with a good up day and a good follow through day. Also, check the CANSLIM.net Morning Market Cometary., if the number of new lows on the NYSE is below 30 then we are in a good market. If they are below 20 we have a strong market and it should be safe to enter a long position.

Current Quarterly Earnings - Look for 25% or greater increases compared to the year earlier. Research has proven there is a direct correlation between earnings and stock prices.

Annual Earnings - Find companies growing by 25% per year for the past 3-5 year period. New start-up companies sometimes sound like they’ve got potential, but you’re best off finding one with a track record of growing its earnings.

New products or services usually are what drive an earnings explosion. New management at a company often plays a role in making big changes. Most importantly, stocks that are making New Highs in price are usually doing well for a good reason. Look into them!

Supply & Demand. A small stock with only 30 million shares can move more quickly than a company with a gigantic supply of hundreds of millions or billions of shares. When a stock rises you might notice higher than normal volume, which is often a clue demand is substantial. A gap up happens when intense demand is present.

Leader, not a Laggard. You can tell a lot by the sector action. If stocks in the Medical-products group are showing disproportionate Leadership and outnumbering others on the new highs list, then you should focus on a high-ranked leader in that group. Even if it looks good, you are usually wise to avoid a stock in a group that is mostly getting beaten down.

Institutional sponsorship has a huge impact on share prices. When professional money managers, banks and mutual funds are acquiring the stock there is usually a positive outlook. Avoid issues with little or no institutional ownership, which is often the case in low priced issues under $10.00 per share.

Market Direction is always important to watch, and you should only buy stocks when the major indices are in a confirmed rally. When there is a bad breakdown in the market you should step out of the fray and consider taking a negligible loss or nailing down small profits. You can always re-enter the better stocks again when the overall current is working in your favor.