Updated Technical Outlook for Stocks

PROFIT CONFIDENTIAL

December 3, 2009

In Today's Issue: Updated Technical Outlook for Stocks... The Right
Thing at the Right Time in the Right Place... How Economic
Recovery's Still Calling the Shots... Gold Bugs Just Might Be onto
Something...Finally!

** Updated Technical Outlook for Stocks
-- by special guest columnist Anthony Jasansky, P. Eng.

The flow of financial news has been plentiful and extraordinarily
conflicting, as this market attempts to discount an economic
recovery from the deepest plunge in the economy and financial
markets since the 1930s. The question I still ponder is: do the
massive and rapid gains of the stock market of the last eight months
discount a comparable V-rebound in the economy, or are they only
reflecting the relief at having avoided a global depression?

My guess is that the market, as usual, has overdone either or both
scenarios, a discounting of the rebound and the celebrations at
having averted a depression. The combination of unprecedented
fiscal and monetary stimulus that has done wonders for the financial
markets has yet to do the same for the economy. The coming year
will be a reality check as to the outcome.

Trading over the latest two months shows a notable loss in upside
price momentum and increasing deterioration in market breadth and
volume indicators. In contrast to the indices weighted by large U.S.
multinationals that benefit from the weakness in the U.S. dollar, the
broadly based stock indices such as the NYSE Composite and the
Russell 200 failed to make new higher highs last week.

As the widely watched Dow Jones Industrial Average and the S&P
500 hit another 2009 high last week, investor sentiment (subdued by
the experience of the 2007-2009 meltdown for much of the rebound
from the March 2009 lows) has surged to unhealthy bullish levels.
The sell signals from short-term indicators based on option and
index futures trading, combined with the already bearish insider
trading and the Investors Intelligence Advisory Sentiment, depressed
our sentiment group of indicators to twice our minimum bearish
limit.

That leaves only our fundamental and monetary group of indicators
bullish due to the "zero interest rate" policy of the Fed. Without a
doubt, the unprecedented monetary steps taken by the Fed to rescue
banks from self-destruction were the primary reason for the recovery
in financial markets.

The dilemma investors now face is what the long-term cost will be
for this short-term rescue success. Will the outcome be inflation or
will the economy plunge back into an even deeper recession
accompanied by deflation? If forced to choose between these two
dire alternatives, both the central banks and the public at large will
go with the devil they know -- the inflation.

Putting aside this long-term dilemma, for the short term, Wall Street
pundits are touting the well-known year-end bullish pattern. Beyond
that, a very marketable bullish case is being made from the trillions
of cash stashed in savings, GICs, and MMFs, earning meager
interest.

The cynical policy of central bankers to penalize savers and reward
reckless risk-takers is expected to eventually compel an avalanche of
"dumb cash" to buy overpriced stocks from Wall Street pros.

The review of asset holdings and money flows within the U.S.
mutual fund industry (www.ici.org) suggests that this still remains a
wishful hypothesis. ICI monthly data shows that the decline in
money market funds assets of $460.3 billion (between March 1 and
November 1 of this year) was accompanied by a meager $11.2-
billion new cash flow into equity funds. In the last two months,
equity funds actually suffered outflows of $10.38 billion and $7.08
billion, respectively.

So, we have a stock market rising with net outflows of money. Just
imagine what will happen to stock prices if money comes back into
the stock market.

** The Right Thing at the Right Time in the Right Place
-- Ahead of the Street Column, by Mitchell Clark, B. Comm.

On a number of occasions in this column, I've written about a very
interesting small company called A-Power Energy Generation
Systems, Ltd. (NASDAQ/APWR). This stock has been a
powerhouse wealth creator this year and it's been volatile. To say
that this stock is a trader's dream would be an understatement.

It doesn't happen very often (maybe once a year), but every now and
again you come across a company that offers a unique "package" in
terms of its investment potential. In A-Power's case, the company
builds small, localized power plants in China. This in itself is an
exciting prospect for any company with this kind of expertise.

China doesn't really have a national power grid. Cities, towns and
industries build their own power plants to serve their local market.
The International Energy Agency (IEA) projects that China's energy
demand will grow about five percent annually from 2005 to 2015.
Based on these growth rates, China will overtake the U.S. as the
world's largest energy consumer shortly after 2010. The IEA
estimates that China will have to add more than 1,300 gigawatts
(GW) to its electricity-generating capacity over the coming years,
more than the total currently installed capacity within the United
States. So, in A-Power's case, you've got a company that's in the
right industry at the right time. Those are good fundamentals.

The company also is in the wind power generation business and it's
done so in the right way. A-Power recently signed a deal with GE
Drivetrain to supply it with wind turbine gearboxes and to establish a
joint venture partnership for a wind turbine gearbox manufacturing
plant in China. A-Power also recently announced that it was picked
to be one of the lead suppliers of wind turbines for a new wind
power project in Texas that is expected to be one of the biggest
alternative energy developments in the U.S. Once the financing is in
place, the total development is estimated to cost about $1.5 billion
and take up 36,000 acres. Again, these are good fundamentals if
you're in the business of selling wind power equipment.

A-Power has already generated outstanding growth in its financial
results and the company reports its latest numbers to the Street this
week. Naturally, the stock is rallying in advance of the numbers. It's
up about three points just in the last week and has more than tripled
in value since the beginning of the year.

Like most fast-growing companies, this stock got hammered during
last year's financial crisis. It has, however, made a full recovery since
the November and March lows. Like I say, if you look long enough,
you eventually come across a few amazing companies that are doing
the right things at the right time in the right place. In my mind, A-
Power is one of those companies, so it's a good example of what to
look for.

** How Economic Recovery's Still Calling the Shots
-- Calling the Trend Column, by George Leong, B. Comm.

Markets are holding, with some indecisive trading at the current
levels. On one hand, bulls want to bid stocks higher, but at the same
time are concerned about the market's rise and its sustainability.
Markets have declined in four of the last six sessions, but the
declines have been marginal and the trading volume has been
relatively light. There is clearly not a mass exodus to the sell side, as
the sentiment remains bullish. The DOW is holding above 10,400
and the S&P 500 at 1,100. Small-caps also joined in, with the
Russell 2000 hovering just below 600.

Investor sentiment remains bullish and we are seeing decent support.
We sense that traders want to bid markets higher. The CBOE
Volatility Index (VIX) has been declining at multi-month lows, an
indication of potentially more gains, as this fear sentiment indicator
falls.

Trading continues to be based on the economy and the recovery in
2010. The first-time claims report yesterday was strong, with the
weekly claims declining below 500,000 for the first time since
January, which added some optimism to the jobs situation. Yet, in
the end, we need to see job creation and net gains in jobs before we
can feel more confident. The Durable Goods Orders fell 0.6% in
October, worse than the 0.5% gain estimated and down from the
two-percent gain in September. The data support our contention that,
while the economy is improving, there remain issues.

The final Q3 GDP was weaker than expected at 2.8%, versus the
2.9% estimate; nonetheless, it was still the best showing since
November 2007. Home prices also continue to fall. The S&P Case
Shiller Home Price Index of 20 major cities showed home prices
declining 9.4% in October, worse than the 9.1% estimate, but better
than the 11.3% drop in September. Again, the economy is not there
yet, but is showing some encouraging signs. Markets could languish
given the recent gains.

The Retail Sales report in October was positive. The reading is
welcome and indicates that consumers may be starting to spend,
which in turn will help drive up the GDP, as the economy rallies out
of the recession. With Thanksgiving last Thursday, all eyes will be
on the malls and on consumer spending. This is a critical period for
retailers and could help to dictate GDP in the first quarter of 2010.
The jobs losses along with continued weakness in the housing
market will likely continue to make consumers think twice about
spending. We feel that consumers may hold back this holiday season
and wait for the perceived bargains to follow in January, as retailers
deal with potential bloated inventory.

The key Black Friday began last Friday, with the important one-
month shopping season widely regarded as the most important
shopping period of the year.

Commodities continue to edge higher, as the U.S. dollar index trades
at a 15-month low. The Fed said that the decline is orderly. Gold is
at another record, above $1,184 an ounce, while oil is holding below
$80.00.

Markets may pause and decide whether to continue to trend higher.
You should continue to ride the rally, but, again, take some profits
along the way.

If markets stall, you may consider writing some covered calls on
your long positions to generate some premium income. Be careful,
as this strategy is vulnerable to rallies in the stock and loss of
potential profits should the stock price move above the strike price
where you would be forced to sell the stock.

This week is huge for the economy. Watch for the non-farm payrolls
on Friday. Other key economic data expected this week includes
Chicago PMI (Monday), ISM Index (Tuesday), ADP Employment
Report (Wednesday), Fed Beige Book (Wednesday) and ISM
Services (Thursday).

** Gold Bugs Just Might Be onto Something...Finally!
-- The Financial World According to Inya Column, by Inya Ivkovic,
MA

Since early March through mid-October, the S&P 500 Index has
gained over 60%. Thriving in the same often hostile economic
environment, gold is hitting record highs, too. Now, if you owned an
exchange-traded fund (ETF) where the underlying entity is a
recognized index such as S&P 500 SPDR or if you owned gold,
which of the two would you keep in your portfolio?

Allow me to digress a little. It is not easy to be a gold bug. There is
no respect in it, being constantly compared with and often even
equated to conspiracy theorists, bad news bears, survivalists and
nutcases of all species and brands. Even more so, gold bugs are often
accused of waiting for the Great Hyperinflation that never comes.

On the other hand, what I cannot understand for the life of me is how
anyone can ignore the centuries of a relationship between gold and
financial crises. And I particularly cannot understand how anyone
can ignore gold in the aftermath of the credit bubble, the explosion
of which has left leverage the size of a proverbial Moby Dick. The
only question now is whether Moby Dick is inflationary or
deflationary, and the price of gold just might offer an answer.

Let me first define leverage. It is a simple concept that has existed
throughout the history of finance -- debt secured by assets. This
simple structure has also been a historic explanation for far too many
bubbles, created as the rationale that it is okay for debt to grow far
beyond the available asset coverage has gained considerable traction.

Recently, the real estate bubble swelled beyond anyone's wildest
dreams, because consumers genuinely believed their future earnings
power and their exaggerated net worth would only grow.
Admittedly, some of those expectations were so grossly exaggerated
that many now believe they were flirting with fraud. When the
credit-card addicts have finally spent the last maxed-out dollar and
when the last rocket scientist has signed on the dotted line of a
negative-amortizing mortgage (when principal payment is less than
interest charge, thus increasing the outstanding loan amount), the
credit bubble burst and the rest is for the history books.

Despite the mirage of recovery in the form of Cash for Clunkers
programs and phantom inventory restocking, we have plunged deep
into a deflationary trend. Consumers are no longer interested in
borrowing and, until the last garage and yard sale is done and the last
bid is closed on eBay, no one will be rushing the doors of lenders
asking for cash.

Consumers have finally figured out the Federal Reserve's prisoner's
dilemma, a concept in game theory that shows why two people
might not choose to work together even if it is in both their best
interests to do so. They have finally realized that their net worth was
a Fata Morgana, an illusion created by inflated home prices, and not
a result of personal income growth. Americans have also finally
taken off their blinders and seen that manufacturing and service jobs
have left the domestic labor market and moved to significantly
cheaper overseas markets. Unfortunately, the only way the Fed
knows how to deal with American consumers' rude awakening is to
pump more and more money into the financial systems, hoping to
jumpstart the economy to its original growth rates, which were
surreal to begin with.

The Treasury's power to print enormous sums of money is quite
formidable and it may avert severe deflation. However, this will not
stop the U.S. dollar from leaving American soil and it will not
narrow the trade gap. This troublesome dynamics will reverse its
course only when the U.S. economy starts yielding more jobs and
when personal incomes start rising again. The only problem is that
no one can tell for sure when the reversal will finally happen.

This is where we, the gold bugs, may offer some insight. At this
point, this is not just about betting on inflation and relying on
conventional wisdom. In all honesty -- and not many gold bugs out
there would ever admit it -- gold was not exactly the most
predictable among inflation hedges out there. However, what no one
can deny is that gold has been more often than not a viable safe
haven against deep currency depreciations.

On these PROFIT CONFIDENTIAL pages, I have talked
extensively about deflation and inflation. But I don't think I have
really called for hyperinflation before. And it is the third possibility
serious investors should consider, particularly in the current
environment of the quickly depreciating U.S. dollar.

Currency, just like any other financial instrument, is really an
obligation covered by certain assets. Only in this case, the
underlying asset is the U.S. economy. Furthermore, currency is also
more than susceptible to bubbles. When a government fears its
currency jumping off the cliff, it often succumbs to irrational
behavior, such as making individual purchases of gold illegal or
choosing to increase taxes.

Judging by the dollar's recent performance, the U.S. economy is
worth considerably less than the implied value of its debt. How
much less? I don't think anyone really knows, which is precisely why
gold bugs like all of us here at Lombardi Financial are buying gold,
gold stocks, gold ETFs, you name it. And we are not selling any of
our gold holdings either. As a colleague of mine has said, "We
should keep piling it on. You never know when the government will
make gold a controlled commodity again or even prohibit
transactions in it."