Vol. 79 - THE FACTS

Dear member,

Last week was filled with extreme volatility across the markets. Resurging oil prices pulled many resource stocks higher but they were combated by an ever faltering US economy. Our team at Pinnacle has been very focused on the US financial index as its overall health, in our opinion, is a great indicator of what we are calling the 'turning point' in the market. This index recently had its largest single day increase (12.3% on July 16th) since its creation in 1990. We have repeatedly discussed volatility and the window of opportunity that it creates. Large single day rallies are a characteristic of bear markets. The US Financial Index is 18 years old and 9 of the top 20 single day increases have occurred this year.

The same is true for the Nasdaq. Between 2000 and 2002, during the technology bust where billions of dollars evaporated into thin air, 19 of the largest 20 single day gains were experienced. Looking back to the Great Depression the top 20 rallies of the Dow Jones occurred after Black Tuesday. Today's bear market has been spurred by the financial industry which is experiencing the same fluctuations and flat out amazing volatile trading days. If the US Financial Index has seen 9 of the top 20 single day increases, technical indicators and historical evidence would lead us to believe that we are about half way through. We are confident investors with cash positions and patience have a major advantage at this time. These individuals who are ready to enter the market could be reaping major returns come year's end.

Let's get back to the facts. On Wednesday the Fed announced that it will be extending its emergency lending to Wall Street banks and it will also be expanding other loan programs. This is a clear indicator that we should expect negative news from the US economy and the financial system as a whole. Perhaps even some historically-significant single-day rallies as well. So, keep your eye on the US Financial Index. There was an immediate emergency-lending program initiated in March following the Bear Stearns & Co. collapse. This program has been extended until January with the expectation that it may be longer.

Unemployment in the United States is sitting at 5.5%- the highest in more than 20 years. Consumer demand for gasoline has dropped 2.5% between January and May- the largest drop since the Gulf War. Many people have been forced to limit their driving. The high cost and intense demand for oil is putting pressure on everyone. However, in some ways it will stimulate the American economy. With oil prices over $100 a barrel the cost to ship products and resources from foreign markets is so expensive its forcing US companies to look domestically.

Here's proof that American's are holding on to their money: Starbucks has