The overall market as measured by the Dow Jones Industrial Average failed to follow through with the move higher that our technical indicators signaled would occur. Granted no set of indicators is flawless, and we are in time when news and conditions changes daily and sometimes multiple times during the same day. However, Friday's close of the Dow Jones Industrial Average at 8,378.95 was below the closing low of 8,451.19 set two week's earlier on the 10th. This was a bearish trading signal in that the Dow Jones Industrial Average closed below near term support. While there is some support at 8,235.81 and 7,762.34 I am expecting the Dow Jones Industrial Average to move lower and test the low set in 2002 & 2003. As the chart below shows, I am expecting to see support at 7,524.06 and then 7,286.27 If those levels fail to hold then we'll see some support in the low 6,000 range, and then no meaningful support until the 5,700 level.

In the July 21st edition of the Sterling Weekly I listed five (5) factors I thought were weighing on the market. They were Financial System Weakness, High Oil Prices, Dollar Weakness, Taxes, and Political Uncertainty. I discussed financial system weakness in the August 13th edition, and the price of oil in the September 9th edition, and Dollar Weakness in the September 15th edition, of the Sterling Weekly. Since then we have seen the price of Oil fall by over 50%, and the US Dollar strengthen against the other major currencies of the world. Last week in the October 21st edition of the Sterling Weekly, I briefly discussed the Tax Issues facing the country and the two (2) alternative proposals, the Flat Tax, and the Fair Tax. This week, I want to take a look at the political uncertainty facing this country and how a win by either Presidential candidate will either be positive of negative for each sector.

As I have written several times in the past, we have a very wide gap in the ideologies of our two (2) Presidential candidates, and politics is the single biggest influence on the market. While most polls have Mr. Obama leading Mr. McCain, and being the most likely winner of the President Election, there is still some level of uncertainty due to the unique nature of this election. As a result of this uncertainty is placing a great deal of downward pressure on the market, it's either that or the market is trying to tell us that the expected winner is going to be bad for the US economy. I track a variety of market indices on a daily basis, the major market indices and several sector indices. In the table below I have attempted to organize the various sector indices provide my opinion of how each of the Presidential candidates will effect the separate indices based upon the following major policy differences: Taxes, Regulation, Tort Reform, and Labor Issues (believe it or not this will have a big impact in the next 2 years). I think everyone at this point in time should be pretty well aware of their differences on these topics, so I have attempted to just summarize how I see the difference.

I have agonized over the publication of this edition of the Sterling Weekly more than any other I can remember. I did not set out to endorse one political candidate over another, and I know that the opinions laid out in the table above will upset some readers of the Sterling Weekly. However due to the starkt differences in these candidates I see one potentially causing a very sharp contraction in the economy, and one attempting to clean up the cause of the problems, which I see as too much government regulation of our economy. I am not endorsing one candidate over another; but I do believe that ultimately our problems result from our voting population not understanding what they are voting for.

It will take some time, but once this election is over and the dust settles, the market will begin to sort the winners from the losers in the various sectors. Investors and traders will also fall into one (1) of these two (2) groups. I know which one (1) I want to be in.

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Our most recent Performance Report is now available available (here). 16 of our last 20 recommendation resulted in profitable trades for an average profit of $3.61/share. This is an 80% success rate. Two (2) of our recommendations opened outside of our initial target and we would not have entered the trade, and we did not issue a recommendation on the 24th due to the futures being limit down. Only one (1) of last 20 trading recommendations would not have been profitable.

Dow Jones Industrial Average (INDU)

Current Opinion: Closed @ 8,378.95 Last Signal: Called Lower (again) with the close of 8,378.95 on October 24th. Current Expectations: I am expecting the Dow Jones Industrial Average to continue to move lower and test 8,235.81 and then 7,762.34 on a closing basis

The S&P 500

Current Opinion: Closed @ 876.77 Last Signal: Called Lower (again) with the close of 876.77 on October 24th. Current Expectations: I am expecting the S&P 500 to continue to move lower and test 851.19 and then 817.35 on a closing basis.

The NASDAQ 100 (NDX)

Current Opinion: Closed @ 1,202.27 Last Signal: Called Lower (again) with the close of 1,202.27 on October 22nd. Current Expectations: I am expecting the NASDAQ 100 to continue to move lower and test 1,188.41 and then 1,172.58 on a closing basis.

CBOE Ten Year Treasury Index (TNX)

Current Opinion: Closed @ 3.697% Current Expectations: With the current market turmoil it is anyone's guess where interest rates are going. However, my guess is that short term debt instruments will be more sought after than longer term ones.