There is plenty of advice flying around. The challenge lies in determining the outlook for the broad markets. Visibility is very cloudy and there are plenty of reasons. Slow to recessionary economic outlook, no bottom in housing, financials in disarray, Fed deciding on inflation fighting or growth promotion, earnings expectations are low, etc. The challenge is the list is so long that on any given day we can find plenty of reasons to sell. The last several trading days have shown the swings that occur from a lack of visibility. This leads me to the question of what should we do now?

Believe me if I had the answer to that question I would be on the next flight to the NYSE and trading my heart out! However, I do have a some suggestions. First, protect your money. With the recent volatility and lack of volume in the markets the best offense is a good defense. Keeping money out of harm’s way is the first priority. One of my primary rules of investing is you can make up for lost opportunities, but it’s a lot harder to make up for losses. So introduce yourself to the sector of cash.

Now let’s address some of the sectors in the news. Energy seems to one of those hot topics. If we look at IYE, iShare Oil and Gas ETF, there was a bounce last week to the upside as crude jumped nearly $6 per barrel. Since we have given most of the move back and we are testing the break above $42.50. It is worth watching to see if we can hold the break higher off support. The key is obviously the direction of crude. So far it seems content to hold support near the $110 mark. Be patient here don’t force trades or positions in the sector just because the consensus is oil has to go higher. That was the same consensus that said technology couldn’t drop 70% from the highs in 2000. While you’re watching this sector pay attention as well to the surrounding pieces. (NYSE: UNG) – Natural Gas, (NYSE: USO) – Crude Oil, (NYSE: UHN) – Heating Oil, and (NYSE: TAN) – Solar Energy.  

Small Cap is an index that showed leadership off the lows in July.  (NYSE: IJR), iShare S&P 600 Small Cap ETF, rose more than 12% off the July low. Over the last week it has given back 4% and is trying to maintain some level of support. Why the pullback? Breaking the index down, 12% is financials, 21% is industrials, and 8% is energy. That’s 40% of the weighting for the index and it has struggled during the last week. Thus, the drop in price. The key catalyst for the index is growth. If we don’t show some improved signs of growth looking forward  I would expect a break of support and a test of the July lows. However, if we find some signs of growth the index could break above the May high and continue the short term uptrend. For an update on the Small Cap Index visit our Sector Spotlight.

Remember the key to successful investing is having a disciplined strategy for building and managing your portfolio. Stay focused and be patient as the visibility clears.

Money Magazine has an undercover financial planner. They call him the "Mole." And the Mole dispenses generic investment advice through popular publications and well-traveled web sites (e.g., CNN.com). I haven't figured out why the individual needs to go "underground." Is it a marketing gimmick? Is it an effort to disassociate from the investment selections? It’s another occasion to post Thomas Lorimer’s print that reflects current conditions. Without a firm buyout/bailout of Lehman or any concrete rescue proposals for Freddie Mac and Fannie Mae, despite a successful debt sale, stocks quickly gave back all Friday’s gains and then some. So the financials induced cloud over the market from Thursday’s post dumped rain today on extraordinarily light late summer volume. Breadth was as poor as you might expect.

Oil has started to rise leading to plenty of comments concerning supply/demand and the oversold state of the sector. iShare Energy Index (NYSE: IYE) has bounced 6.3% the last two days and the futures are pointing higher today. The chart shows a break of the short term downtrend line and momentum is pointing higher. So is this the proverbial bounce everyone has been looking for? More than likely the answer is yes. However, there may be more at work here than just a bounce. Companies like XTO Energy (NYSE: XTO) are rumored buyout candidates showing some M&A activity could be on tap. It would only make since if the price of such companies have fallen 40% or more in some cases. Taking into account the discoveries in natural gas the values seem cheap looking longer term than next quarter.

While oil is the driving factor in how many of these companies are viewed natural gas, pipelines, etc. are part of the valuations going forward. Fundamentally speaking there is value here for the buyer who is willing to hold longer term. The big question is will the major oil companies like Chevron (NYSE: CVX), Devon (NYSE: DVN), Conoco (NYSE: COP) and Exxon (NYSE: XOM) start acquiring these type companies? Seems like the logical thing would be to acquire on the cheap companies that have proven wells along with new finds without the risk of exploring and drilling. It could be time to dig into the sectors stocks and start looking for value like XTO Energy (NYSE: XTO) and Chesapeake Energy (NYSE: CHK). Something worth watching as this develops further.

Tropical Storm Fay, for those of you in the dry area of the country, is sitting on top of Melbourne, FL. As coincidence would have it that is where our offices are located. So far we have had more than 11" of rain in the last 15 hours. That means flooding! If you have tuned into the weather channel or other news you have seen pictures of our lovely streets full of water. The good news is the storm has stopped moving and is expected to dump another 5-8" of rain. So needless to say we are working remotely from our homes to get data out between all the fun of the storm.

The projection was for some rain and wind as the storm passed to the west through the center of the state. However, the storm had a different opinion and the center passed over us and has now stalled providing us more rain than we ever asked or imagined. These projection by the weather forecasters are very similar to the analyst and of course people like me. We all spend our time studying and applying our trade to help others as well as ourselves manage money. But, when it is all said and done it is a hypothesis that will either be right or wrong. The key is being prepared for either event. Having lived in Florida my entire life, hurricane preparation is nothing new. The same should be true in building positions within our portfolio. You have heard me say it many times, before you take a position answer the three questions. How do I get in, how do I get out and where am I going. Simply put, entry, exit and target. This allows you to be prepared if your hypothesis doesn't work out.

A recent example of this was the downside in natural gas. Looking at (NYSE: UNG) you can see a nice uptrend in play, if you owned it you were on happy street. After hitting a high near the $64 mark the picture turned ugly. The storm warnings were for a small sell off and then a bounce. Of course it did not play out that way and if you didn't have a stop in place you had more damage than you should have. This goes back to my earlier point, entry, exit and target. The exit in this case could have been as simple as the 50 day moving average. Building a hypothesis is one thing, having a strategy for implementing it is another.

This is how the markets have been over the last 12 months. No matter what the expectations, they have either been worse, i.e. financials or they've been better than expected, i.e. retail. Either way, our best laid plans for our portfolio have been challenged along with our mindset towards managing our money. Be prepared, define your entry, exit and target prior to implementing your hypothesis.

In a bear market, history tells us that we might wish to seek dividend payers. Others believe one should be picking up value-oriented bargains. Still others become advocates of the mega-cap, super-sized corporations over economically sensitive small fries. Lately, though, the U.S. stock market has been defying many of the traditional ideas on savvy investing. Specifically, momentum and growth have been gaining fans with each passing week. Trading desks and hedge funds have plenty of cash on hand to pick each other's pockets. This is happened today in my opinion especially with financials which have become "trading" vehicles. After some days of decline it was time to squeeze whatever short sellers were bold enough to carry positions for more than a couple of days. Ongoing bad news from financials, oil and commodity price rebounds while consumer spending weakens put stocks back in their place. Bulls would suggest this is just part of a bottom building process while bears would suggest we're just at a resting point before beginning another leg lower. Me? My chief concern is a trading range environment where meaningful and durable trends don't exist. Every now and again, I enjoy shaking things up. For instance, there's a downloadable application for the iPhone called "Urban Spoon." You shake the iPhone and... using GPS navigation... Urban Spoon suggests a restaurant nearby. In the spirit of shaking up the blog format, then, I thought I'd do a bit of Q &A for exchange traded fund investing. For readers, e-mailers, radio show listeners, I've put together the following: Question #1: Since the economy is really bad, doesn't that mean that stock ETFs will be really bad? What's it take to be a member of the "in crowd"? The membership list is being both reduced [Countrywide and Bear Stearns] and expanded [FRE and FNM have been given temporary membership...sort of like pledging]. Anyway, they get to borrow money from you and me with ultra low interest rates of around 2%. They can exchange crappy mortgage securities as collateral for longer term loans. Who wouldn't want to trade for free with someone else picking up just the losers? Pretty cool, eh? Wanna join?