According to the Stock Trader's Almanac, October is known as a "jinx month" because of the crashes of 1929, 1987 and the 554 point drop in the DJIA on October 27, 1997. Well, it certainly didn't harm its reputation as a jinx month this year with catastrophic DJIA drops of over 100 points on four occasions, over 200 points on two occasions, over 300 points on three occasions, over 500 points on two occasions, over 600 points on one occasion and over 700 points on another occasion. But it also had several incredible up days. On October 13th, the DJIA soared 936.42 points and it also soared almost 900 points on October 28th.

The Mighty Dow is now completing its best week since 2001. Is this the October turn of the tide that has happened 11 times since WW II? If so, this October will also preserve its reputation of being a Bear Killer.

SHARING YOUR WISDOM.
I haven't written much about our User Groups lately, but we do have many wonderful User Groups throughout the country, including Alaska. We even have three groups in Canada and one in England. A new one is due to be formed in Australia. Several of these groups have been functioning for 10 years or more and new groups are being formed all the time. So what's the attraction?

As far as I can tell, people want to learn how to use VectorVest to make money in the stock market. Gee whiz, that's what our User Groups are all about. But where does one start? What does one do? Who does one call? No problem. Simply refer to the User Group section of these Views and find a User Group located near you. As a VectorVest subscriber, you're entitled to attend any Group anywhere, anytime. You don't have to call anyone. Just go to the meeting and see what's going on. Hopefully, you will find it to be both enjoyable and informative.

Had you been fortunate enough to attend Jim Mahoney's Lake Geneva, WI User Group last Saturday, you would have had a real treat. Jim is a long time VectorVest subscriber and a brilliant investor. Here's an unsolicited email of what Jim had to say about Saturday's meeting:

Hi Angel, Dr. D,

I just thought I would send you an email about our V. V. User Group Meeting this morning here in Lake Geneva, WI and you can share it with Dr. D.

After viewing the Home Page, I showed them a little technique that I use to view the Market Indexes. Thinking about why sometimes the 'newbies' didn't seem to understand, I suggested that they ask questions of themselves before they view the index charts in the Performance Graph Section.

Questions like: Is the Market Trending Upward or Downward? Which way is the VIX trending? Is the MTI below 1.00 or above 1.00? Is the BSR trending below 1.00 or above 1.00? Have either the MTI or BSR broken support or resistance? Once they prepared their mind by asking the above questions, they can now open the Performance Graph Charts and insert these symbols: SPX, DJX, IXIC, IWM, QQQQ and VIX. After determining that the five indexes were trending downward on 9-3-08, we then went to the VV Views and looked at the Strategy. Bingo. Now I had their undivided attention because I showed the results of the Ultra Short ETF's, MZZ, SCC, QID, TWM, SDS and DXD showing a return of 78% through 10-10.

I talked about the benefits of viewing ALL SECTOR CHART GRAPHS THREE TIMES A WEEK, IN DIFFERENT TIME FRAMES. I then showed them results of Sectors turning at precisely the time of the V V Calls or closely to it at turning points. From there I showed them some Industries within the Sectors and encouraged them to commit to learning as much as they could before the next meeting. Then I showed the results of doing it correctly. I also showed some ETF's to match the Sectors and the results.

I took them on a little journey showing opportunities within VectorVest on October 8-9-10-13 by first going the Sector Page, highlighting the DY column and highlighting Petroleum. Then before I moved on I said in the Petroleum Sector there 450 Stocks in a total of 10 Industries. One Industry where the treasures were found on the above dates is the Pipelines because the DY's are rich. Stocks like MMP, PAA, KMP, BPL and OKS allowed me to lock in double digit yields along with some quick gains. By now they are squirming in their seats will all kinds of questions. They are excited about the potential in Vector Vest.

I then went back and showed MTI charts and explanations of the Views around the turning Point bottoms along with the MTI of where we are now and "When will we know the bottom is in place conversation." We had a short discussion about why this Market is going to produce some amazing Profits within the next cycle up and they should prepare now to know what to do, how to do it and when to do it.

Around the close of the Meeting we discussed this week's comments and the Buffett Strategy and how you can find those types of stocks within VV. At closing I asked the attendees if they would commit to studying VectorVest like they never did before because they are the most fortunate people to come into VV at the bottom of the cycle. Many nodded their heads showing their intent. A couple of attendees came up and said it was the best $10 they ever spent. Hopefully we will see some follow through.

Today we had 26 enthusiastic people attend the Meeting. Some mentioned that they did not apply themselves to learning VV as they should have. Another long time user who I have known for quite a few years said, "Remember, the strength of the efforts are the measure of the results."

I don't care or wish to know what percent of the people that buy the trial actually buy the program, but I do have one suggestion. How about a 3-4 minute video like you find on U-tube, showing testimonials, graphs, results, testimonials where Users could go to upon purchase and see, hear and feel what it would be like to make 30% in a 2-3 month cycle. Would that help your closing ratio? I think it would. But then I am not always the sharpest nail in box.

What a wonderful program you have, Dr. D. VectorVest is doing an awesome job and what a vibrant, young dedicated group of employees VectorVest has. I am glad you came my way and I thank you for the gift of your friendship.

Jim.

Wow, what can I say, except thank you Jim for Sharing Your Wisdom.

Last week I introduced the subject of generating cash from your stock portfolio. Not only is that a worthy goal, but I've read that dividend paying stocks outperform the market by 1% to 1.5% per month during downturns. This sounds reasonable to me. Why would someone sell their dividend paying stocks if they could make 20% to 30% a year even in a bear market?

Let's see how this might be done. First of all, we need to find an acceptable dividend paying stock. We can do this by simply accessing Stock Viewer and sorting by YSG Desc. As of yesterday, Thursday, 09/04/08, Cal-Maine Food, CALM, was in the top spot. Although it now has an "S" rating and I wouldn't buy it at this time, I want to keep my eye on it because it's making a ton of money and has an excellent Dividend Safety, DS, rating of 87. So let's use it as an example.

CALM closed yesterday at $34.50 per share and is paying cash dividends at the rate of $2.06 for a yield of 5.97%. If I were to buy these shares on margin, the effective DY would be twice as high, i.e., 11.94%. Of course I would have to pay interest to my broker on the borrowed funds, but the interest expense is tax deductable. Although I'm already looking at a juicy return, how could I get more? I'd sell some out-of-the-money Covered Calls. Yahoo!Finance shows that CALM had its last ex-dividend date on July 28, 2008, so I'd assume that its next declaration will be made in late October. Therefore, I'd be selling the November 40 Covered Calls, which are currently trading at $1.75 per share.

Here's how this trade would work: I would buy 100 shares of CALM on margin for about $1,725.00, not counting commissions or interest and I would sell one CALM November 40 Call Option @ $1.75 per share. My account would be charged $1,725.00 for buying the stock and be credited $175.00 for selling the option. The net charge would $1,550.00 not counting commissions or interest. Around the middle of November, my account would receive a dividend credit of about $51.50. The total income from the sale of the Call Option and receipt of the dividend payment would be about $226.50. This would give me a quarterly return of 13.1%. If I could do this four times a year, my annualized rate of return would be 52.5%, not counting commissions and interest.

This sounds great, but there are several other things that can happen to this trade. For example, the stock's price could rise prior to the ex-dividend date and the stock could be called at $40.00 per share. Although I wouldn't get the $51.50 dividend payment, I'd make about $500 on the stock and get to keep the $175 option credit too. This is not a bad deal.

If, on the other hand, the stock's price fell, I'd have to make some decisions. I could hang on to the stock, collect the dividend and option premium, and repeat the process again the next quarter. But that's no fun. I usually buy back the Call Option at a much lower price than I sold it for; then get more income by selling another Call Option at a lower Strike Price. This technique invokes the risk of getting called out of your stock at a price lower than your purchase price, so I suggest that you practice it with only small amounts of money before using it with serious money.

Incidentally, did you know that most of the market's historical gains have come from dividends? Maybe you've heard that selling covered Calls was the most frequently used option trade. Both generate income. Put them together and you have the Cash Machine, Part II.

P.S. Terra Nitrogen, TNH, closed up $8.51 today and is up over $14.00 since I mentioned it last week.

When interest rates began dropping about 15 years ago, Grandma became dismayed over the puny interest rates she was offered on CDs. She depended upon interest income to live comfortably and needed to earn more than three percent on her money. So she asked me to suggest some safe stocks she could buy that paid juicy dividends.

Up to that point in time, I was totally focused on buying stocks for capital appreciation purposes only, but I agreed to help her. After thinking about her situation, I created the VectorVest Dividend Advisory. This service was designed to analyze, sort and rank stocks for dividend yield, safety and growth via the VectorVest Yield-Safety-Growth-Vector, YSG-Vector. When VectorVest ProGraphics was released in 1995, the VectorVest Dividend Advisory was included as part of the package. Unfortunately, this part of our service just doesn't get the attention it deserves.

You can make a lot of money on the stocks you own even if their prices don't go up. You just have to know how to do it. The first thing you need to do is pick good, dividend paying stocks. You can do this by accessing Stock Viewer and sorting by YSG-VECTOR, Desc. Note that as of Thursday night, Terra Nitrogen was the highest ranked stock. Wow, it's paying annual dividends at the rate of $14.52 per share with a yield of 12.08%. Great, but its Dividend Safety, DS, is only 45 on a scale of 0 to 99, and that's lower than I usually like to see. So what's next?

Cal-Maine Food, CALM. It's paying only $2.06 per share, but has a Dividend Yield, DY, of 5.10%. That's not bad and it has a DS of 87, which is very good. Now, how could you collect twice as much in dividend payments from this egg seller?

The easiest way to do this is to simply buy twice the number of shares. A lot of people don't know it, but they can double the number of shares they own by using a margin account. With a margin account, your broker will lend you the money to buy the additional shares of stock. Of course, he'll charge you interest on the loan, but that expense is tax deductable. Moreover, you don't have to buy the same stocks you already own. You can buy any stocks you wish. So why not buy stocks that pay higher dividend yields than the ones you already own? You might even be able to triple your dividend receipts. But hold on, there's more you can do to put those stocks to work for you.

Believe it or not, you can usually receive more money on a quarter-to-quarter basis by selling out-of-the money covered Calls than you can from receiving dividend payments. If you know how to trade options, try it. If you don't trade options, I'll try to explain this trade next week. If you buy dividend paying stocks on margin and sell out-of-the-money Covered Calls, you'll have a Cash Machine.