There's only one word to sum up Friday's stock market action: horrible.

I must admit that for the past couple of weeks I've adopted an increasingly cautious tone on stocks. My technical indicators just weren't acting right. I was suspicious of last Thursday's "wonder rally," and then Friday's 395-point breakdown on the Dow confirms that the problems are real.

Two news items, in particular, triggered Friday's sell-off, but the massive $10.48 per barrel spike in oil prices was actually the lesser of the evils. More troubling, in my judgment, was the steep jump in the unemployment rate to 5.5%. The jobless rate now stands a full percentage point above its year-ago level.

Since the early 1950s, an increase of 1% or more in the unemployment rate within the space of a year has always signaled a full-blown economic recession. We're probably in the midst of such a slump right now. Until we get a better fix on the ultimate depth and length of the recession, I'm advising my Profitable Investing subscribers to lean toward defense in their investment portfolio. Perhaps you should do the same. Keep ample cash on hand, trim your holdings of poorly performing stocks and take your sweet time with any new purchases.

I mentioned earlier that the unemployment news bothered me more than the oil spike. Reason: Eventually, I suspect, weakness in the U.S. economy will spread overseas, dampening demand for fuel even in fast-growing markets like China and India. Oil prices, in turn, will cool down, at least for a while.

If you own a lot of second-tier oil and gas producers, or a big stake in oilfield service companies, now is a good time to cut back. You should get a chance to build up your position again late this summer or in early fall.

Visit back often for more news and advice on the every-changing market and how it affects your investments.

In this troubled stock market environment, it seems we can't get through a day's trading without some kind of blowup from the financial sector. Take the Cleveland-based commercial bank, KeyCorp (KEY) for example.

This stock was once a member of my Profitable Investing portfolio. When my subscribers were first recommended it, KeyCorp had a fabulous record of 43 annual dividend increases in a row. Right through the deep recessions of 1970, 1974 and 1980-82; in the face of the 1987 stock market crash, the 1990 real estate collapse, the 1998 Asia panic and the post-2000 popping of the Internet bubble -- through it all, KEY steadily raised its payout, year after year.

And now, because of an adverse tax ruling by a federal court (which will cost the company $1.1 to $1.2 billion, net of taxes), that beautiful record has gone down the drain. KEY is slashing its dividend in half, to an annual rate of 75 cents per share.

I'm shocked, dismayed and -- to be perfectly honest with you -- more than a little angry. What kind of accountants and tax lawyers did KEY hire to vet the leveraged-lease transactions that caused this problem? This outfit was widely respected as a paragon of Midwestern conservatism. Why would top management dump that reputation into the trash can?

Still, at moments like this, it's important not to let emotions (even justifiable emotions of disgust and anger) carry us away. Last Thursday's dramatic drop in KeyCorp's share price was almost certainly an overreaction. By my calculations, KEY's book value -- after both the write-off and the capital-raising announced today -- amounts to just under $18 per share.

Currently I'm not advising that my subscribers buy any more shares of KEY, but at the same time, I do want them to hold on tight for a little while until we find the perfect time to get out. In the meantime I advise that all of you dabbling with the idea of entering, or re-entering a financial stock right now, do so with a large grain of caution. Keep this seemingly golden company KeyCorp in mind--you just never can tell when the bottom will fall out of a financial stock.

Visit back often for more news and advice on the ever-changing market and how it affects your investments.

Yesterday an event occurred that could ultimately help finally turn the frightening financial and consumer-discretionary bear market into a fun ride for the bulls.

For months, analysts (including myself) have been puzzled by the straight-up pattern in oil prices. We know that gasoline consumption in the USA is falling sharply, so how is it possible that prices at the pump have continued to rise at such a frenetic pace?

Forget the conspiracy theories and the fearmongering about "speculators." The main reason for the huge jump in prices is that fuel consumption in the emerging markets (especially India and China) is growing by leaps and bounds.

But wait a minute. Shouldn't sky-high prices curb those folks' appetite for oil, too?

Yes, in a world of true, honest pricing. However, the governments of India and China (as well as Mexico) have provided big subsidies to keep prices artificially low at the retail pump. In the past, Chinese drivers were paying about $2.40 a gallon for gasoline, a 40% discount to the retail price over here.

Then, on Thursday China announced an 18% increase in gasoline prices. I had expected the government to wait until after the Olympics, but apparently the cost of subsidies (now running at about $70 billion a year by my reckoning) forced the bureaucrats' hand.

Oil prices plunged $4.82 a barrel in New York as a result. If "that's all she wrote," the world will quickly forget the sudden change in China's gas pricing.

However, big trend shifts often start small. While I'm not predicting a crash in oil prices, demand in China and India (the latter boosted prices 10% a few weeks ago) may soon begin to cool.

If so, I could easily envision a 15%-20% drop in fuel prices here in the United States, enough to give consumer sentiment a lift. Retailers, transports, media and even our longsuffering banks would benefit.

In fact, several of my subscribers Profitable Investing portfolios could rise exponentially. I'm thinking about a anti-oil buy which just reported surprisingly good earnings this morning, despite an enormous past drag from fuel costs, in particular. Though, I assure you, this will not be the only stock we own which will see its share price rise in direct correlation to China's recent decision.

Visit back often for more news and advice on the ever-changing market and how it affects your investments.

Yeah, it's a mess. And sure, the stock market may face some additional bottom testing as the summer wears on. But we're due for a short-term relief rally soon.

Yesterday's major news story capped a month of increasingly gloomy reports. According to the Conference Board, which has been taking the economic pulse of American households since 1967, consumer confidence fell in June to a 16-year low, and its fifth-lowest monthly reading ever.

On the face of it, that kind of news seems unrelentingly grim. Truth is, however, pessimism has now deepened to the point where (short of another Great Depression) it can't get much bleaker. If sentiment on Main Street is about as bad as it ever becomes, the logical next step is for the consumer's mood to brighten a bit.

Of particular interest for investors, ultra-low readings on the consumer confidence poll typically occur close to important stock market bottoms. In fact, over the past 40 years, whenever consumer confidence has fallen to the nether regions it now inhabits, the Standard & Poor's 500 index has risen significantly in the next 12 months, usually more than 20%.

I repeat: I expect a bumpy ride most of this summer as the stock market continues to digest ugly headlines from the mortgage crisis, the energy spike, the GOP's political travails and so on. However, rallies will break up the decline -- and cushion it -- until the market has built a solid base for a much stronger bounce in late 2008 and then into 2009.

We're about ready for one such rally now. Short-term technical gauges show the market almost as oversold as it was at the March lows. Look for an interim bottom to form sometime in the next two or three sessions, followed by a rebound to the 1350 to 1365 area on the S&P by early to mid-July.

Speculators who want to play this snapback can buy the July S&P 500 calls with a strike price of 1325 (ticker symbol SXYGE). For best results, place a limit order with your broker to buy on a dip to $20 or less. Take profits 50% above your entry point, and stop any loss 50% below your entry.

Remember: Options trading is for aggressive players. Don't risk more than you can afford to lose.

Yesterday was an ugly day, driven by lots of ugly news. With the Dow down over 110 points already, today's not shaping up to be anything fantastic either. Ironically, though, the selling on Wall Street has now grown so intense that it could trigger a dramatic snapback any day now.
I'm certainly not making light of the factors that contributed to yesterday's 358-point Dow debacle. A $5 jump in the price of oil, for example, is nothing to laugh off -- not when it lifts us to a mind-blowing $139.64 a barrel (another new record, of course).

However, it seems we've arrived at the "pile on" stage in oil. What triggered today's spike was a statement by OPEC's president, Chakib Khelil, that crude could soar to between $150 and $170 this summer. Libya threw a log on the fire by adding that it might cut oil production.
In other words, people with a vested interest in higher prices are apparently trying to create a self-fulfilling prophecy by stampeding an already jittery market.

Oh sure, all we know about the "Wall of China" that supposedly separates the research and trading functions of the big Wall Street firms. But these guys and gals meet -- and talk -- in many informal contexts, over an after-work drink at McSorley's Old Ale House or over the backyard fence in the Hamptons. Word gets around.

Even if these actors are totally aboveboard in their motives, the fact that so many of them are piling on a trend that has already gone to such an extreme suggests that a reversal is imminent. Technically, stocks are now severely oversold from an intermediate-term (one to three months) point of view. Within weeks, perhaps days, we should start to see a bounce.