Jack and Jill went up the hill to fetch a bucket of ?money. Money? They are continuing to fill their bucket with stocks without any consideration to the value of these equities. They are not worried at all as they are buying ?safe? mutual funds.

Everyone knows mutual funds are safe. Jack and Jill know they don?t know how to pick good stocks so they leave that to the fund manager. He is an expert.

When you look at the long term record of 99% of the mutual funds you will see that expertise has been sadly lacking. I hate to remind you of the 2000 to 2003 period, but I must. In fact I must tell you it is going to happen again. Now you want to know when?.and so do I.

And that is the problem with almost every fund manager. As long as the market is going up they can?t do much damage to your account, but when it rolls over and heads down they have no idea how to invest when a bear market is in progress. Not a single one of them will acknowledge that cash is a position.

Cash is a position? They are in shock. Of course they are. If brokerage customers put their money in a money market account while the market is falling it means they do not make any commission at all and if they recommend this to their customers the brokerage manager will fire them because he won?t make any money either. ?Keep your customers fully invested or I?ll show you the door? is the manager?s comment.

You must learn when to sell. Any fool can buy, but it is the wise man who knows when to sell. To see the condition of the overall market one of the best indicators is the SP500 Index. Your broker compares everything he does with the SP500 because it is a broad base of 500 stocks that are widely traded.

The finest indicator is the SP500 Index. Draw a 40-week chart of the closing prices. If you don?t know how ask your broker. He will tell you. Write it down and save it. It is very simple. Have him set up a 40-week Simple Moving Average to appear on that chart. Look at 5 years worth of prices. Immediately you will see that if you are in the market while the 40-week MA is going up you are making money and if you are out of all your positions while the index average is going down you will not lose money. It doesn?t get any easier that that.

Jack and Jill can fill their pail as the market is going up and need not spill their accumulation while they walk confidently down the hill holding their bucket full of cash not equities.

Al Thomas’ book, If It Doesn’t Go Up, Don’t Buy It! has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know.

Copyright 2005

A long time reader wrote in asking if you get more bang for the buck buying an out of the money option, or a deep in the money option on a stock that makes a big move. Interestingly the answer isn’t perfectly cut and dry. Let’s look.

If you buy an in the money option, that option will indeed track the movement of the underlying stock more closely than an at the money option. The Delta or measure of value is much higher, so when the stock moves, the option tends to move also.

If you buy an out of the money option, the stock can actually rise a bit, and yet your option could actually fall. How? When an option is out of the money, the entire value of the option is simply based on time. For instance, lets say the XYZ company is trading at 50 bucks a share. The September 60 dollar call options are 75 cents. That 75 cents is all time value considering the fact that XYZ is still ten dollars shy of the strike price.

So, it’s quite likely that XYZ could move up to 52 dollars a share, which is a two dollar move, and yet the September call option falls to 50 cents. Why? We have come closer to the expiration day, and some of the time value has eroded.

In a deep in the money option, a 2 dollar stock move could be as high as a 1.95 move in the option. So, looking at it like that, standard theory says that deep in the money options will move more on a big stock move and for the most part you can consider that to be true. But there is always the exception, and if you look at percent returns, that’s where things really get screwy.

Let’s say you bought September 25 dollar calls on XYZ. You paid 29.00 for them, considering that XYZ is 50.00 a share, you are already 25 bucks in the money and they are charging a 4 dollar premium over that for time. Now, XYZ announces that it’s cured cancer and runs to 90 dollars a share. Your call option is going to soar. At very minimum it’s going to be worth 65 dollars, and more likely over 70. So, you’re return is quite nice right? Right. In fact you’ve made somewhere north of 124%.

But, lets say you had those XYZ out of the money 60 dollar calls for just 75 cents. If XYZ ran to 90 those calls would be worth a minimum of 30 bucks, if not 35 ( depending on how much time was left) Now look at the percent return. It’s 3,900 percent.

So, here’s the deal. For the most part, deep in the money options will reward you more frequently and with more gains than at the money or out of the money options. But, in those rare events where a home run gets hit, an out of the money options bought for pennies will far outperform any in the money options.

You’re better off buying deep in the money and using smart trading strategies. But occasionally it’s a lot of fun to be able to say I made 2000 percent on my latest trade! Think about it.

The Stocks2Watch? newsletter has been published since 1998.

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The cyclical bull market, which began in March 2003 (or October 2002 by some estimates), within the structural bear market, that began in March 2000, was fueled by monetary policy. The FOMC began an easing cycle in January 2001 when it lowered the Fed Funds Rate from 6.50% to 6%. The FOMC continued to lower the Fed Funds Rate, until it reached 1% in June 2003, and kept there for a year. In June 2004, a tightening cycle began. The Fed Funds Rate reached 5.25% in June 2006 (to neutral from accommodative), and then the FOMC paused in August for the first time in over two years. Consequently, there has been a great deal of speculation that the tightening cycle is over (a restrictive stance won’t be taken) and perhaps an easing cycle will begin in 2007.

Below is a daily chart of NYSI (red line and right scale) and SPX (black line and left scale). NYSI made lower highs, while SPX made higher highs over the cyclical bull market. Currently, NYSI is near the top of the downtrend line, which indicates SPX is near an intermediate-term top, although NYSI pinpoints lows better than highs. Below the price chart is the NYMO 50-day MA, which is at a level similar to recent SPX intermediate-term tops. However, sentiment indicators, including the CPC 50-day MA (above price chart), which fell from an all-time high, and AAII and ISEE (not shown) show a great deal of pessimism, which is SPX bullish. It seems, almost everyone is expecting SPX to fall.

So, monetary policy and intermediate-term technical indicators are market bearish, while sentiment indicators are market bullish. Also, mid-September through much of October is historically the weakest market period. Consequently, there are major mixed signals. Nonetheless, the intermediate-term uptrend will turn into a downtrend at some point before the end of the year, if it hasn’t turned already. Given December and January are bullish months, there may be an intermediate-term downtrend in September through November. However, sentiment indicators suggest an SPX trading range, although a quick rise to 1,350 and/or a capitulation below 1,200 shouldn’t be ruled out. Unfortunately, there’s little clarity at this point.

Free chart available at http://www.peaktrader.com Forum Index Market Forecast category.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.

With the advent of the modern Internet it has never been easier to find the best life insurance policy to fit your needs. Online you can investigate dozens of different companies and even get free quotes without ever leaving the comfort of your own home or have to talk to a sales person.

Even with all of this information available right at your fingertips you still need to use some common sense and have a little bit of knowledge to find the best solution for your unique situations. The information below should help prepare you for finding the insurance policy that best fits your needs.

The very first decision you will need to make is to decide if which type of insurance will best fit your needs. The two most common types of insurance available today are whole life insurance and term life insurance.

Whole life insurance, just as the name implies will remain in affect for your entire life. Provided that you continue to pay your premiums or that the policy has enough cash value to sustain itself. Whole life insurance will almost always cost more for the same amount of coverage than term life insurance. There is a cash value aspect associated with whole life policies. The cost of the monthly payment in excess of the actual amount required to cover the actual cost of the monthly premium is invested.

Since whole life premiums will have a cash value under certain circumstance it can be possible to take a loan out against the value of the policy. You need to keep in mind though that if you take a loan out not only will you be losing any potential interest that you could be gaining with that money you could also incur tax liabilities. You might also have to pay taxes if the value of the policy is higher than the premium.

Term life insurance is only in affect for a set period of time, this time period is known as the contract period. You will find that the premiums for term life insurance will be significantly cheaper than the premiums on a whole life policy for the same amount of coverage.

A term policy will never have any cash value, it is worth the amount of the coverage if the insured person dies during the contract period. If the contract expires with out the policy being exercised then there is no value and no benefit is paid out.

Term life insurance is often used by people with families to cover the expenses of raising children if one of the parents were to die unexpectedly. It is purchased to cover the time period when the children are still dependent on their parents for financial support. For many people after their children are grown and independent they find that the level of coverage they need to carry is reduced.

Once you have determined which type of insurance is most suitable for your situation the next question is to determine how much coverage to purchase. Coverage amount will be discussed in the next issue of this series.

Get your free Term Life Insurance Quote at http://www.term-life-4u.com