Last week I said that I expect this rally to go right into January. I based that statement on my faith in "The Presidential" cycle. It is an extremely powerful phenomenon and has produced magnificent results over many years. Yet, I wonder. The current president in office appears unable to help stimulate the economy and create jobs. That's what the Presidential cycle is all about. So will it work this time?

I think so, but not to worry. There is another powerful force to consider: corporate earnings. Bull markets exist as long as corporate earnings are rising. This vital information is shown in the VectorVest "Truth Chart," which was first described in my essay of March 21, 2003 and expanded upon in my essay of March 28, 2003. Happily, the current direction of corporate earnings, as shown in the "Climate" section of these Views, is up. So what's to worry about?

Just read the news. It seems like the economy is going to hell in a hand basket. The U.S. dollar is falling like a rock. Home re-sales are miserable. Foreclosures are sky-rocketing. Consumers are gloomy. Auto sales are weak. Retail sales are slowing down. Murders and robberies are on the rise, and Santa may not show up this year. So there's plenty to worry about.

Forget about all that stuff and concentrate on what's important: corporate earnings, inflation and interest rates. These are the critical factors to deal with, and the news is good, very good. Our current Investment Climate report, shown below, says that earnings are trending higher, and inflation and interest rates are trending lower. That's as good as it gets.

Yes, I know the bull-run has lasted a long time and a number of smart guys, including Sir Dr. Alan Greenspan, are saying a recession that would end the bull market is quite likely. Sure, that's possible, so I'm taking it one day at a time. As long as corporate earnings are rising, I'll be OK. I watch corporate earnings. They're the key, The Bottom Line.

P.S. If you are not familiar with our Investment Climate Indicators, please be aware that anything above 1.00 is favorable, anything below 1.00 is unfavorable. For example: Interest yields on 10-Year AAA Corporate Bonds have been going up. That's bad for stock prices, so its indicator is below 1.00. S&P Earnings are rising. That's good for stock prices. So its trend indicator is above 1.00. When it goes below 1.00, the Bull market will be over. Fortunately, it moves quite slowly.

While I am not in the forecasting business, I have faith in the Presidential Cycle and I have gone on record many times, having said so. For example, I cited this phenomenon in my essays of 12/30/05 and 12/29/06 in which I discussed "The Year Ahead" for the stock market.

In my 12/29/06 essay, I elaborated on my comments of 12/30/05 in which I said "the first two years of a President's term usually are not good for stock prices, but the last two years usually are outstanding." This meant that one should have logically expected above average stock market performance in 2007 and 2008, the last two years of President Bush's term in office. In my book, "Stocks, Strategies & Common Sense," I quoted Mr. Richard Stoken who said, "The really juicy part of the election cycle is the fifteen month period beginning in early October, two years before the election, and lasting until early January of the election year." This meant that the "really juicy period" started in October 2006 and would end in January 2008.

So I had no trouble saying that 2007 would end with a rally even though I thought it would have a correction beforehand. Now, here we are in September 2007, the market is in rally mode and we still have four "really juicy" months left to go in the election cycle. Do I still expect prices to rally right into January 2008? Yes, of course I do. That's fine, but what about the weak dollar, the credit crunch, high oil prices, weak home sales, tapped-out consumers, job lay-offs and whatever?

Forget about it. When interest rates go down and earnings go up, stock prices go up. Am I sure about that? Yes, I am, but there are no guarantees. It really doesn't matter, anyway. VectorVest will guide us in the right direction, whatever stock prices do. In any event, it's nice to have a bullish outlook on Where The Market's Heading.

It is virtually certain that Dr. Bernanke and his jolly band of Governors will vote to lower the Fed Funds rate next Tuesday. Of course we all know that the crybabies on Wall Street have been begging for such a move for weeks now. But that's not why the Fed feels it must make the move. Dr. Bernanke has made it clear that it is not the Fed's job to rescue wealthy investors who made risky bets on the housing market and other financial products, but he will step forward if the general economy is affected.

One would think that the pathetic jobs report released last week was all the evidence he needs to lower rates and not appear to be the lapdog of the Wall Street crybabies. But several of his Fed Governors apparently don't think so. They seem to believe the economy will weather the ravages of the housing slump, the credit crunch, the slow-down in auto sales, the inability of consumers to tap home equity loans, and the debilitating affect of high oil prices. This view doesn't surprise me. The Fed is loath to lower interest rates because it may further decrease the value of the dollar and foster inflation.

I have said on numerous occasions that the Fed always waits to lower rates until it is too late to avoid a recession. So the question is whether the economy is headed for a recession even if the Fed does lower rates next Tuesday. Treasury Secretary Henry Paulson doesn't think so. He believes the U.S. economy is strong enough to overcome all of the problems cited above. He's a pretty smart guy. But is he telling us the truth? Either way, Dr. Bernanke still has a chance of maneuvering the economy to a soft landing, but he must be bold.

If the Fed cuts rates 50 basis points on Tuesday, stock prices will rally sharply, like they did in 1998, Dr. Bernanke will have won the day and improved his chances of avoiding a recession. If he lowers rates only 25 basis points, investors will be disappointed, and stock prices will move lower. If for some reason the Fed decides not to lower rates, stock prices will fall sharply, the economy will be jeopardized and this Bull market is over. Mark Tuesday, September 18, 2007 on your calendar. It will be A Crucial Day of Decision.

When I designed VectorVest almost thirty years ago, I believed that investors should buy good stocks and hold them as long as possible. So I created an exit criteria which weighed heavily on fundamentals so that high RV, high RS stocks would hardly ever get a sell signal. In other words, high RV, high RS stocks such as KO, MCD and MO would be sold only upon deterioration of their fundamentals.

That approach was naïve. I knew that individual investors like me heard business news reports only after the stock's price had gone up or down big time. So I had to leave the ivory tower and base my exit criteria on Price. With a Price based Stop, I could decide ahead of time when to close my positions and be proactive instead of reactive. That's one of the things I like most about trading stocks: I have considerable input in controlling my potential losses.

OK, so how would I do that? I could use a simple 10% stop loss and have done so for a number of years. But, I thought, every stock is different and should be handled accordingly. So I finally decided to use a 13-week, non-linear, moving average of closing Price, adjusted for RV and RS. In this way, I would be in sync with the quarterly earnings reporting cycle and I could still tune the Stop-Price to favor stocks with good fundamentals. Even with this inspired design concept, a lot of our subscribers question the usefulness of VectorVest's Stop-Prices. I'm not going to debate the subject now, but I only ask that you read my essays of January 17, 2003 and April 21, 2006.

Truth be known, VectorVest's Stop-Prices are best suited for investors who are interested in holding stocks for the longer-term. They were not designed for active traders who should be using tighter stops. For example, we use 5% stops in managing our Model Portfolio. Regardless of how you select your exit prices, it's essential that you always have an exit Price in mind. In fact, you should know your exit Price even before you buy a stock. Without such a discipline, your trading process will be Fatally Flawed.

P.S. I consider any newsletter, service or stock guru who makes stock recommendations without corresponding exit strategies to also be Fatally Flawed.