In reviewing my essay, "The Year Ahead," which I wrote at the end of 2007, I said, "I don't think 2008 is going to be all that good for stock prices." I also asked, "Where's the spark going to come from to push stock prices higher?"

In addressing this question, I noted that, "Even though 2008 is the fourth year of the election cycle and fourth years have been very good years for stock prices, I'm not expecting much for next year. President Bush is a lame duck president and has very little ability to influence much of anything in a positive way." Indeed, when President Bush and the Republican Party lost their clout as political leaders in the 2006 mid-term elections, a free-for-all emerged among politicians of both parties to curry voter's favor by spending big bucks. With stock prices crashing and the economy going down the tube, a $152 billion bipartisan stimulus package was slapped together and quickly signed into law by President Bush on February 13, 2008. Payments of up to $600 for singles and $1,200 for married couples were scheduled to go out to 130 million taxpayers in April and May. While this wasn't an earth shattering event, it set the stage for the only Confirmed Up signal we received in 2008. This rally went from April 3rd to June 11th.

On several occasions, astounding actions by Federal Reserve Chairman Ben Bernanke to boost the economy and Treasury Secretary Henry Paulson to salvage our financial system ignited explosive rallies, but they were short-lived. Moreover, the Price of the VectorVest Composite rallied from its October 27th low as it became clear that Mr. Obama was extending his lead for the presidency. It peaked on November 4th, the day Mr. Obama was elected. This was significant because it suggested that investors were placing their bets that Mr. Obama would be the better leader.

Although the Price of the V V C subsequently hit a lower low on November 20th, it began to rally again when President-elect Obama, who now has the bully pulpit, declared that deficits weren't important at this time and he would spend whatever it took to get the economy going again. Messrs. Bernanke and Paulson have also taken up the "whatever it takes" mantle. Not to be forgotten, President Bush instructed Mr. Paulson to use $17 billion of Troubled Asset Relief Program, TARP, funds to bail out GM and Chrysler and another $6 billion to save GMAC. So how does all this affect 2009?

It tells me that we will see some incredible market rallies in 2009. When Mr. Obama is inaugurated, it will be reported as though our savior has arrived. Whatever he says and does will be greeted with awe and stock prices will soar. Mr. Obama wrote a book called "The Audacity of Hope: Thoughts on Reclaiming the American Dream." Whether you agree with it or not, this is what investors want in 2009: A Year of Hope.

In writing this essay last year, I pretty well bet the farm that the power of the Presidential Election Cycle would make 2007 a "very good, but not spectacular" year for the stock market. Well, 2007 definitely was not a spectacular year for stock prices and there's some doubt that it was even very good. It wasn't as good as I had hoped for, but it still gave us a lot of opportunities to make good profits and that's what really counts. So what about 2008?

In a nutshell, I don't think 2008 is going to be all that good for stock prices. The market has been acting tired for several months now and the general perception is that the economy and earnings growth are slowing down. Worse yet, the fear of inflation is increasing and investors don't believe that Dr. Bernanke is lowering interest rates fast enough to prevent a recession. Now I know these perceptions may not necessarily be true, but where's the spark going to come from to push stock prices higher?

Even though 2008 is the fourth year of the election cycle and fourth years have been very good years for stock prices, I'm not expecting much for next year. President Bush is a lame duck president and has very little ability to influence much of anything in a positive way. So how bad will the stock market get in 2008?

Well, I don't think it's going to be that bad. For one thing, the economy is still growing, albeit at a slower pace. And earnings are still going higher year-over-year. This is the key. The market is going to remain in a bullish scenario as long as earnings are going up. If stock prices go down while earnings are going up, there will be more bargains to feast upon. These feasts will spark the rallies needed to push the market higher. So I'm not worried if the market's not going to be so hot in 2008. I'm prepared to go bargain hunting in The Year Ahead.

SMOOTH COMFORT.
Stocks with high Comfort Index (CI) ratings have the best looking chart patterns in our database. One wonders how these stocks can just keep going higher and higher. Invariably, they are driven by powerful earnings performance. Mr. John Campbell will show us how to turn this performance into profits in this week's "Strategy of the Week." Visit the VectorVest University to see John's presentation on "Smooth Comfort."