The U.S. economy is currently in a primary bear market. We recently tested the 14164.53 bull market high set back in October 2007. The Dow recovered to a little over 13000, only to collapse last week below its 65-day moving average of 12600. The Dow could continue its plunge after Memorial Day weekend or remain buoyed by the 65-day moving average, even though it is currently below that level.

If it turns out the market was spooked by the possibility of rising inflation, then the odds are the Dow will move to check out March lows of 11740.15. If the March lows fail as a support, the market will make a new low. Historically, this happens when the economy is truly in a primary bear market. If the economy is officially in a bear market, it will make the market two more lower lows and two more higher highs before the final low occurs.

One of the most common characteristics of a bear market is volatility. It is extremely difficult to find stocks able to grow value longer-term. This is why it is imperative to establish and maintain stop-loss points. Being whiplashed is par for the course, so do not feel bad if the price of a stock rises shortly after you sell. The next time one of your stocks hits its stop-loss point, it will continue to plunge if you don't sell. These are difficult times, even for pros, so keep your stock portfolio under close observation and sell when your stocks hit their stop-loss points.

There is, however, one exception to the stop-loss rule of thumb. Stocks like Octillion (OCTL), whose sole business is research and development, should be held until what ever the company has under development has been carried out either with success or failure. These stocks constantly move up and down with the success or failure of every little endeavor. Therefore, a stop-loss point is counter-productive with these stocks.

In addition, during a primary bear market, it is important not to panic or become overconfident. Today, a properly balanced portfolio should be comprised of 30 to 40 percent invested in stocks with the remainder divided between short-term T-notes and bank or S&L CDs (mutual fund money market funds are not insured). Those of you who do not have investments that protect against a devaluing dollar should consider owning gold and silver stocks or coins. Another good investment is a Swiss annuity.

The good news is bear markets do not usually last nearly as long as bull markets. The U.S. economy should be about halfway through this bear market. Stay Tuned!

Sincerely,

Kenneth Coleman