Hardly a day goes by that I don't hear a discussion or read an article about "the" forthcoming double-dip recession and today was no exception. The market tanked on more bad economic news and every self-appointed expert on the history of the Depression alleges to see striking similarities with today's political, economic and financial conditions. That may be so, but I do not believe a double-dip recession is likely to happen.

Yes, the economy is slowing down and even the Federal Reserve has lowered its forecast of economic growth. Unemployment is still near 10%, the housing market is still weak, retail sales have slipped for two consecutive months and consumer sentiment is sinking fast. But inflation is benign, interest rates are extraordinarily low and corporate earnings are rising. This combination of factors is bullish, very bullish, for stock prices.

Supporters of the double-dip theory can talk all they want about government debt, slowing consumer spending, the oil spill, LeBron James or whatever. It doesn't drive the economy like inflation, interest rates and earnings do. So why is the economy slowing?

The economy is slowing because small business owners are not spending money and creating jobs as they have done in the past. They are concerned about the political turmoil within the country and uncertain of the future. Those who need the money to grow, can't get it. Those who can get the money, don't want it. Those who have it, won't spend it. The traditional effect low inflation and interest rates have on stimulating the economy will be inhibited until government policies become more business friendly. So where do we go from here?

It is my contention that regardless of government policies, a double-dip recession will not occur as long as inflation remains benign, interest rates stay low and corporate earnings continue to rise. The Fed has repeatedly said it will keep interest rates low as long as it takes to keep the economy growing. That's great, but it may not be possible. They can control interest rates, but they cannot control inflation.

If inflation turns into deflation, the economy will shrink. If inflation takes off, the Fed will be forced into raising interest rates. When that happens, a double-dip recession is a virtual certainty. So it all depends upon what inflation does. It's The Wildcard.

MOVING TO THE SIDELINES.
I hate to say this, but it appears that we have gotten caught within the jaws of another Wicked Wedge. What does this mean and what to do now? Mr. Bryan Barnes, Consultant and Instructor, will explain what it all means and what to do now. So visit the VectorVest University to see this week's insightful "Strategy of the Week" presentation: "Moving to the Sidelines."

This market is starting to remind me of late 2008, early 2009. The VIX is high and our Market Timing Indicators are low. But we're not near the sorry state that existed back then by a long shot. For example, the VIX hit an incredible high of $80.86 on November 20, 2008 and it hit a high of "only" $45.79 on May 20, 2010 when the Mighty Dow dropped 376 points.

But we know from long experience that when the Buy/Sell Ratio, BSR, goes below 0.20, the market is drastically oversold and it's time to be looking for an explosive rebound in stock prices. Indeed, the BSR closed at 0.12 on May 20th and the market rebounded to the extent that the Color Guard signaled a green light in the Price column on June 3rd. Admittedly, this rebound was only a teeny bounce compared to the 30-day rally which followed the November 20, 2008 selloff, but it has significance in that it failed to develop into a sustainable upturn as did the November 2008 rally. In both cases, the market moved to lower lows. In 2009, the final low occurred on March 9, 2009 and in the current instance, the Price of the VectorVest Composite hit an intraday low of $22.69 per share on Tuesday, June 8th. Will this be the ultimate low for this downturn?

It could be, but don't bet the farm. The good news is that the June 8th intraday low of $22.69 was two cents higher than the previous intraday low of $22.67 hit on May 25th. The bad news is that the BSR closed at 0.13 on May 25th and 0.11 on June 8th. I would have liked to seen it close above 0.13, but there's still more good news. The market has hit higher intraday highs and higher intraday lows each day since Tuesday, June 8th.

The best news is that the Futures took a real shot this morning due to a poor Retail Sales report, but recovered quickly on a better-than-expected Consumer Sentiment report. This shows that bargain hunters are alive and well. But they aren't as greedy as they should be. Upside volume has been weak and leads me to label the June 8th low as a Tentative Bottom.

TAMING THE TIGER WITH BEAR CALL CREDIT SPREADS.
Due to the extreme volatility we were experiencing in late 2008, we made a series of presentations with the theme of "Taming the Tiger," i.e., coping with volatility. The way to do this, we said, was to execute low-risk trades by hedging your bets. On 12/05/08, for example, we illustrated how to protect yourself by hedging your short stock positions by buying out-of-the-money Call Options. We then followed up with more presentations incorporating this theme. Now is the time to re-visit this low risk approach to making money. To see how it's done, visit the VectorVest University to see Mr. Glenn Tompkins, who, incidentally gave our first Taming the Tiger presentation, give this week's outstanding "Strategy of the Week" presentation, "Taming the Tiger with Bear Call Credit Spreads."

CNBC has made a living by asking controversial questions; then lining up so called experts with opposing views to debate the answers. More often than not, this little game gives off more heat than light. Take today's question, "Where is the market headed, Dow 9,000 or 11,000?," for example. It was inspired by a guest who appeared yesterday and said the market is going to go down, and the Dow is going to plunge to 5,000. Well, this is pretty scary stuff, so why not milk it?

Now guessing the market's direction is very interesting stuff, so I listened closely as Ms. Erin Burnett, Co-Anchor of Squawk on the Street, asked two guest money managers if the Dow could possibly fall to 5,000. The first expert said, "Of course, anything is possible, but he wasn't in the 5,000 camp." Nevertheless, he would not commit to where the Dow is headed. The second expert babbled something to the effect that his firm wasn't interested in short-term volatility and that investors should be using a 20-year time horizon to assess the market. He was implying, of course, that the market always goes higher over a 20-year time span. When Ms. Burnett pointed out to him, however, that the NASDAQ is still down 50% from its March 2000 high, he went off on another incomprehensible tangent. So where is the market heading?

I don't know, of course, but I do believe that Europe's bailout package which triggered Monday's explosive rally did not solve any problems. Moreover, it's naive to believe that the cause of May 6th's "Flash Crash" is unknown. Given these beliefs I am biased to the side of caution. Moreover, my old friend, who I wrote about last week and have come to trust and depend upon, is still in the C/Dn mode and is telling me that this week's bounce in stock prices is about to be toast. With the tools I have available with VectorVest, I really don't need to watch CNBC's Guessing Game.

A CALL TO USE COVERED CALLS.
As we continue to teach the Retirement Seminar, I have become more convinced that knowing how to sell Covered Calls is an essential part of insuring that you will meet your retirement goals and objectives. I didn't always look at selling Covered Calls this way. Years ago, I used to think it was just a good way to reduce risk and still achieve very acceptable rates of return. Now I see it as a sure-fire way of generating a steady stream of income. I have written many essays about Covered Calls over the years and we have made numerous "Strategy of the Week" presentations on the subject.

This week, Mr. Glenn Tompkins, Manager of Educational Services, will collect, organize and bring all this information together for us so that we may learn from it and enhance our investment performance. So join Mr. Tompkins at the VectorVest University to learn how you can reduce risk and generate considerable cash by answering "A Call to Use Covered Calls."

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, "A Tale of Two Cities"
English Novelist (1812 - 1870)

The present is so like that period past, I have an uneasy feeling in my bones. I've never seen a greater disparity of views on what our country should do and where the financial markets are heading. There are those who believe we are all going to hell, while many believe our glory days still lie ahead.

Alas, matters political are beyond the scope of this essay, so let's take the stock market for example. Yesterday, I had just finished watching a video in which the speaker made an extremely strong case for the onset high inflation and rapidly rising interest rates due to our profligate spending, when I saw Mr. Ken Heebner on CNBC speaking enthusiastically about the great bull market that lies ahead. Now I know that there will not be a great bull market if inflation and interest rates run wild. I also know that Mr. Heebner is a great investor, so he could be right. But I take what he says with a grain of salt because he is always bullish and he was bullish throughout the recent crash.

To add to the confusion, yesterday's Wall Street Journal ran a front page article entitled, "Evidence Mounts of Strong Recovery," but yesterday's Jobless Claims report didn't suggest that a strong recovery is on the way. Moreover, Fed Chairman, Ben Bernanke, was reported in the Journal to express an "optimistic but cautious" view of the economy and pointed to a "sharp and dispersed slowdown in inflation." That means he's not confident of a strong recovery and he'll not raise the Fed Funds rate soon.

Finally, I received an unsolicited email from a newsletter writer who has been predicting a market crash for over a year now. He promised to not send anymore warnings until the crash finally occurs. Is today's 126 point drop in the Mighty Dow the start of the predicted crash or are we about to embark on another leg of this great bull market?

I'll take my clues from the Color Guard rather than ponder over A Dickensian Rhapsody.

ATTENTION GOLD BUGS.
You may want to re-visit Ms. Angel Clark's excellent 12/31/09 "Strategy of the Week" presentation, "The Midas Touch." I look at it regularly and it appears to be close to giving a buy signal. As of 04/15/10, the Mining(Gold\Silver) Industry Group has an RT of 1.05 with an RT Rank of 176, so it's still early in this up move if it blossoms.

TGIF: WHEN TO WIN BIG THE EASY WAY.
On February 26, 2010, we introduced you to a "Strategy of the Week" called "Winning Big the Easy Way." It showed how one could trade the 5-Day Derby Winners from Friday-to-Friday and make big profits. The results were so impressive that our users wanted to learn more about the strategy. So we gave another presentation on March 5, 2010 which provided detailed, step-by-step, instructions on how to conduct the strategy. A week later, we gave a third presentation in which we illustrated how one might implement the Strategy on days other than Friday. Since then we have tested the Strategy in detail to see how it performed on each day of the week. You will be surprised by the results we obtained. So join Mr. Todd Shaffer, Manager of Research, at the VectorVest University to see this week's startling "Strategy of the Week" presentation: "TGIF: When to Win Big the Easy Way."