Sunday, 10 February 2008

Tips on credit card use, Part 3: Canceling your credit cards

The third part of the credit card series shares a couple of tips on how to properly close your credit card account.
  1. Do not cancel your old credit cards with a large credit limit which you have owned for more than five-ten years – doing so causes the deterioration of your overall credit score which partly depends on the average age of your credit account balances. The oldest credit accounts prolong the average life of your total credit value, so canceling them automatically reduces the average life of the remaining credit accounts.

  2. If you do not use your credit card at all (which may happen with some retailer-specific cards), cancel it to reduce your overall credit exposure.

  3. If you do not need a large credit limit on a credit line, call your bank and check if reducing this limit will decrease your interest rate. If it does, then go ahead and ask the bank to reduce your credit limit and/or alternatively the interest rate on your credit line.

  4. If you do not intend to use your credit card, cancel your credit account by calling the credit-card issuer. Remember that merely letting your credit card expire does not mean that your account is automatically closed. In fact, it is not closed at all, and your bank may continue mailing you cash-advance cheques that in theory can be used by somebody else to draw cash against your credit account balance. Similarly, somebody who gets your statement or a replacement card, can make an online purchase pretending to be you.
    I had a similar situation with my Chase Visa card. The funny thing is that I never even authorized this card. It quietly expired in a box with my old statements, until 6 (!) years later I received a statement forwarded by my American friends (whose address I used as my emergency U.S. mailing address after I moved to Canada). The statement indicated that somebody in London, UK, (!!) used my unauthorized expired Visa card or relevant information to pay for some wild party entertainment. When I called the bank, feeling really frustrated, the customer rep was not even surprised and cancelled the charge without much argument. Well, I think I was lucky enough to receive this statement; otherwise, my U.S. credit history would have been damaged because of such stupid unauthorized charge that shouldn’t have happened in the first place had the bank had proper security procedures in place. So remember – letting your card expire does not mean that you credit account expires as well – you have to call and cancel it formally by phone.

  5. After you cancel your credit card account, call the bank again later to double check that it has been indeed closed. My wife cancelled her MBNA Canada Mastercard several times and each time after cancellation they kept sending her convenience cheques and replacement cards. Only one final call, where she had to call the manager and ask for the written confirmation to be mailed, stopped this practice. Afterwards, she started regularly receiving their applications for a new card, but that’s another story. So, after you cancel your card, ask for a written confirmation to be mailed to your home address, so that you are not liable for any accidental charges in the future.

  6. After you cancel your credit card, write down the time of your call, a name of a customer service associate who processed a cancellation transaction, and a confirmation number of this transaction that you can ask for from the associate. Keep this information in your personal-finance file, along with a written confirmation of a cancelled transaction (if any) and basic information about your cancelled account (account #, your billing address, a bank’s contact information). If later a need arises, you can always retrieve this information quickly to defend your position/claim or contact a bank.

As you can see, there are a lot of little things that you need to pay your attention to when using your credit cards. Once you take them into account, your credit cards will reward you with numerous benefits.

Tips on credit card use, Part 2: Optimized use and safe shopping experience

This post continues the three-part series on tips related to opening, using, and closing credit card accounts. The second part deals with optimization of credit card use and relevant safety considerations.

Credit card use:
  1. Always remember that credit card is not the same thing as cash. It is not money, it is just a convenient short-term credit tool that allows you to consolidate your payments and delay them for 20-50 days. Never run up a credit card debt and never use your credit cards to finance your consumption.

  2. Remember that credit cards do NOT increase your long-term real purchasing power; only your labor earnings, other monetary income, or realized investment gains do so.

  3. ALWAYS (try to) pay your credit card balances in FULL when due. Keep in mind that the main value of a credit card is that it gives you a free short-term credit and conveniently consolidates and delays your payments to some specified future date. Once you start accumulating the regular double-digit interest on your balances, you are in trouble. Compounding can do wonders if you apply it to your bank deposits and savings, but it can sink you into debt in no time if you run up your credit card balances.

  4. If you cannot pay your credit card balances in full, then ALWAYS make at least a minimum payment. Skipping a payment or making a late payment damages your credit history. If you do it once or twice accidentally because you just forgot, then it is OK, but if you do it several times and it becomes a pattern rather than an exception, then your credit score will take a big hit.

  5. Do not own too many credit cards. One MasterCard, one Visa, and possibly one American Express is all you need. Some people, in addition to 5-10 MasterCards and Visas, also have a dozen of retailer specific cards, but you have to ask yourself honestly if carrying them all around and occasionally using them at relevant stores gives you any substantial benefits.

  6. Whenever you can, always take advantage of a free short-term credit that your credit card conveniently provides. Remember that this is the key reason why you should be using your credit cards. By timing your large purchases relative to credit card statement dates, you can effectively extend your free credit period to almost two months. How does it work? Aside from a standard 24 day grace period, you also get extra 20-30 days of free credit when you time your large-sum purchases. For example, if you know that your regular balance payment dates are on the 25th-26th day of a month and your balance closing dates are therefore normally around the 1st-2nd day of the month, then you can make your large purchase immediately after your statement closes, so that the resulting balance is paid on the 25-26 day of the next month. The relevant interest savings and/or opportunity cost savings can be substantial if you, say, are paying for an expensive durable item worth $500-10,000 and more.

  7. Preferably have two credit cards with statement dates that stand two weeks apart from each other. In this case, you can use your cards interchangeably depending on which statement date has just passed. The rule of thumb is to use a credit card for all purchases after its statement date until the statement date of the second card, then switch for the next two weeks, and so on. By using this approach, you are adding extra 15-30 days to your interest-free credit periods.

  8. Apply for and use credit cards that give you cash or bonus-point rebates or at least collect air miles. For example, I use a PC Mastercard which accumulates bonus points equal to 1% of card balances and redeemable at Canadian stores selling PC brand products. Since I regularly shop for groceries at RCSS and occasionally at NoFrills and Loblaws stores, this card is very convenient to me. Annually, on my PC card related balances I get a discount equal to $200-250+, which is not bad at all.

  9. Use your credit card whenever and wherever you can in order to receive bonus points or cash rebates. Limit your cash and cheque purchases to a bare minimum. Try to increase the ratio of credit card spending to total purchases and expenses as close to one as possible PROVIDED that you FULLY pay your monthly credit card bills.

  10. Use your existing credit card to get discounts on time-limited promotions and sales from retailers and service providers PROVIDED that they offer something that you really need to buy.

  11. Do not use your credit cards for cash advances. It is prohibitively expensive and the compounded interest starts accruing from the moment you make a cash withdrawal or complete a balance transfer.

  12. Keep in mind that the interest on balance transfers gets paid first, so if you happen to take advantage of an attractive promotional balance-transfer interest deal, make sure that you do not have any unpaid balances related to previously made purchases. The idea behind using low promotional interest on balance transfers is to make minimum payments over a promotional period and save on interest costs. If you have an existing balance of unpaid purchases, keep in mind that your payments will be first applied to your balance transfer amounts, and it means that in a month you will start accruing double-digit interest on unpaid balances related to regular purchases.

  13. Most credit card providers conveniently "forget" to mention that you promotional low-interest balance transfers are also subject to a cash advance fee that normally ranges from 0.5 to 2% of transfered balances (plus there is a minimum cash advance fee feature as well). Once you add this fee to your "low, low" balance-transfer interest rate, the promoted deal may look not that attractive anymore. Therefore, alway read through small-font items at the bottom or the back of your promotional offer.

  14. If you know that you cannot pay fully for a purchase when a credit card payment becomes due, then do not make such a purchase. Never use debt to finance your consumption – it is the straight road to the eventual insolvency.

  15. Never make impulsive purchases, especially the ones that exceed your sensitive spending limit, say, $100. If you see a thing that you think you really need, write down its price and go home without buying it. When at home, write down at least ten reasons for and ten reasons against buying this item. Compare them. Ideally, let several days pass before returning to a decision to buy a product or service. Then revisit your pros and cons list. Be as much skeptical as you can be when making a final decision. Play a devil’s advocate against yourself. Ask your friends or relatives about their opinion on a purchase of the desired item, but make sure you pick the most skeptical and critical people as your advisors, so that the bias is on the no-buy side. If you still convinced yourself into buying a product, then look at the item again when you are back at the store and give it the last thought. Think of any extra reasons you may not like the product and then make a final decision.

  16. One of the strategies to limit impulsive shopping is to use a rule of an X-day-delay. For example, set a rule of never making a non-regular purchase on a spot, but delay your decision to, say, two weeks. If you never thought about the product or never needed it during this period, there are good chances that you do not really need it at all. Do not buy such a product.

  17. If you find yourself sinking fast into a credit card debt and your monthly balances keep accumulating without going to zero, you urgently need to develop a disciplined strategy of resolving the issue. The strategy involves several steps. First, you need to stop all new charges to your credit cards. You will not use them again before you fully pay off all outstanding balances, so put them away. Do NOT apply for new credit cards, even if they offer you promotional interest on balance transfers. Second, you need to identify which purchases and expenditures need to be cut off from your monthly spending, so that you can use the freed cash to pay off your credit card bills. Third, you need to start making at least minimum regular payments on your outstanding balances. Fourth, use all available free cash to make extra payments on your credit card accounts. Get a second job to help you paying off your credit card debt faster. If it is available and is not maxed out yet, use a lower-interest credit line to reduce your credit card balances. First apply extra payments to the account with the highest effective interest rate, then switch to the account with the second highest interest, and so forth. Finally, never ever again use your credit cards to finance your consumption. Do not spend more than you earn. If you do, then re-evaluate your income-spending patterns.

  18. Always keep your receipts for large-sum purchases, so that you can return or exchange the product later. When buying a product, ask a sales associate about a retailer’s return policy, default warranty, and a price-guarantee policy. Write down this information and store it, along with your receipts, in a designated place, such as a special file folder for receipts. If something is wrong with the product or you want to return it or if you see it on sale one week later, you can always use your receipt to return or exchange the product and/or get a refund on your credit card.

  19. When you receive your credit card statement, always go over all posted transactions and inquire your bank about the transactions that you do not recognize. Remember that there is a grace period after your statement date, during which you can dispute a questionable charge and/or cancel a transaction.

  20. Use online banking to pay for your credit card balances. Set a payment date at least two or three business days before your credit card statement date, as there may be delays in processing times and as a result you can miss your payment deadline.

  21. Use your credit card online statements as inputs for your budgeting and financial planning. Most financial institutions allow you to convert your statements to one of popular personal finance software formats, such as MS Money.

Security considerations:
  1. Never respond to email messages asking you to update your account information. If there is a problem, the bank will contact you by mail or by phone. If contacted by phone, ask about the identity of a calling person and call him/her back using the official phone number on the back of your credit card plus an extension of this person.

  2. Do not use your credit card in retail places that you do not trust. A crook can record your card information or can double swipe your card to scan it electronic code to use it for an identity theft fraud. Representatives of certain ethnic groups are more likely to be involved in such fraudulent schemes, so be extra careful when paying with your credit cards in such ethnic neighborhoods. That is one of the few examples when carrying a small amount of cash rather using your credit card may be beneficial to you.

  3. Do not use your credit cards for online purchases on websites that do not have enhanced security and encryption features.

  4. Do not save or enter your credit card or banking information and passwords on public computers (for example, those located in internet cafes or airport terminals) or on computers that are not properly protected by firewall, anti-spy, and anti-virus software.

  5. Do not input your credit card information and passwords on computers belonging to other people – it is possible to use keylogging software and certain Internet browser settings to retrieve the inputted information, including passwords.

  6. Record your credit card information (account number, expiration date, and customer service phone number) in a safe place so that you can use it promptly to report a lost or stolen credit card. Record a summary of such information for all credit cards sitting in your wallet and take it with you on a trip, but keep it separately from your wallet (and credit cards).

  7. Do not carry all of your credit cards with you if you do not need them. Use and carry just one or two.

  8. Create a good password for access to your online statements. A good password has both capital and lower-case letters and numbers and does not contain full words. Do not use names and birthday dates of yourself and your significant others (including pets :-)) as passwords.

  9. When you move to a different address, make sure that you notify your credit-card provider about your address change. Otherwise, they may continue sending convenience checks and replacement cards to your old place where somebody can use them for an identity theft fraud. It especially applies to accounts that you thought have been inactive or closed. Double check that your old credit card accounts are closed before you move to a new residential location.

The third part of this series discusses a few tips on how to properly close your credit card account.

Tips on credit card use, Part 1: Credit card applications and credit history

This is the first part of the Credit Card Tips series, which is related to your credit card applications and your credit history.

Credit card applications:
  1. To build up your credit history, if you do not have one because you are too young or just settled in a new country, first try applying for a local retailer shopping card with a small credit limit. Most major retailers, like Sears or HBC, have such card programs.

  2. Do not apply for a major-bank credit card if you do not have a source of permanent income and/or good credit history. Remember that denied applications are reflected in your credit file and can damage your credit score. Always inquire the bank about the causes of denied application.

  3. Do not apply for credit cards very often or only to get a short-term interest promotion. Remember that each additional credit application, even if successful, can negatively affect your credit score for at least several months because it increases your overall leverage.

  4. Opening a new credit card account solely for the purpose of receiving a 3-month interest-free promotion on purchases on purchases and/or balance transfers is probably not a smart move. The potential benefits are relatively small, while the potential costs, in terms of a dented credit score and regularly priced interest costs in the future, can be large. Many people simply forget or can’t afford paying off a full balance when a promotion period ends, which means that they start paying regular double-digit interest on what originally seemed to be like an interest-free purchase or loan.

  5. Think twice before opening a retailer credit card just to receive a promotional 10-20% discount on your same-day purchases. Many people are hypnotized by discount figures and do not realize that their savings may in fact be negligible, especially if they just buy a pair of socks or a shirt. Another danger is that you may convince yourself to buy an expensive item, which you were not planning to buy at all on this day, just to receive a discount. Whether you could afford this purchase is another issue that normally arises a few weeks later when your discounted, yet formidable bill becomes due.

  6. Never apply for a credit card which has an annual fee. The market for consumer debt is competitive enough in Canada and the States, so that you can easily find a card which is fee free. In fact, many promotional offers lately provide you with a gift card or a sign-up bonus in the form of a refund against your future credit card balance.

  7. Do not apply for too much credit or for a credit balance extension if you do not really need it. Increasing your credit limit, while possibly useful and practical in the short term, also reduces your credit score and increases your potential costs in the long run. For example, I was surprised to learn that doubling a credit limit on our credit line (not backed by residential equity) substantially reduced my credit score and also resulted in a new higher interest rate on credit line balances.

  8. Do not apply for a credit card over the phone, especially if you receive an unsolicited call from a sales agent. Ask for the application package to be mailed to you if you are interested and decline an offer you are not. Remember that this call can be a fraud and a person who is calling may be trying to obtain your personal information. Also, do not get caught off guard by various “once-in-a-lifetime” and “today-is-the-last-day” promotional offers. Remember that promotions on credit cards come and go and there will be better offers in the future if you decide to pass on this one.

  9. Do not write or tell your social insurance number when applying for a credit card. You are under no obligation to provide this information, which is optional in all credit-card applications.

  10. Always carefully read small-fond provisions on a credit-card application. If you see some fees or charges that you do not understand or do not feel comfortable about, either call a customer service representative to ask a question or simply dispose of the application.

Credit history:
  1. To make sure that your credit file is in good standing and free of errors, order your free credit report once a year from one of the major national credit bureaus. For example, both in Canada and the States, the relevant major credit bureaus are Equifax and TransUnion. The relevant Canadian links are here and here. For a relatively reasonable extra fee, you can also get your credit score and a more detailed report, explaining why your credit is low/high and where you stand in terms of your credit quality relative to your fellow Canadians or Americans. I have ordered mine before from Equifax for $24, and it was quite useful.

  2. When you get your credit report, check it carefully to see that all information in there is correct and that there are no mistakes. If there are any (this can happen because of processing and technical errors), then contact the credit bureau and the relevant credit provider to explain the situation and resolve the issue.

  3. When you look at components of your credit report, note what credit accounts and past transactions have caused deterioration of your credit score and take necessary steps to improve the situation.

The second part of this series will include tips on credit card use and relevant security considerations.

Tips on optimizing and simplifying your credit card use experience

This post continues the topic of credit cards started in my previous post, 20 valid reasons why you can and should use credit cards. It is not enough to know that the use of credit cards is beneficial to you. You should also know how to use them in the most effective and efficient way, so that your relevant experience is pleasant and trouble-free. In this post, partly based on my experience, I summarize several tips that you may find useful when dealing with credit cards and related issues. The series is broken down into three parts:

Part 1: Credit card application and credit history
Part 2: Optimized credit card use and safe shopping experience
Part 3: Canceling your credit cards

Should you have any other relevant tips that you found useful, please feel free to let me know about them and I will include them in the posted lists.

This post was published in the Carnival of Personal Finance 139 at My Dollar Plan.

20 valid reasons why you can and should use credit cards

Credit cards are viewed by many people as something evil, which lures people into bankruptcy, causes them to make impulsive and excessive purchases, and is at odds with sound principles of frugal and financially responsible living. Well, knives serve different purposes as well - one can argue that they can be used to cause property and body damage, as well as to rob and kill people. At the same time, however, knives basically have been one of the few most useful and universal tools that faithfully accompanied human beings in their evolutionary journey through ages. The similar argument can be applied to credit cards (although their history is much shorter :-)).

In this post, I attempted to sum up the reasons of why and how credit cards can benefit you and other people around you. So, credit cards:
  1. Can be used for online and phone-based reservations and purchases, exclusively so for some services like car rentals and hotel reservations. Credit cards are sometimes the only source to make online purchases and are generally a more convenient alternative to webmoney.

  2. Can be used to pay for parking tickets, fines, and bills over the phone and online, resulting in savings in terms of mailing costs and time.

  3. Can be set up for automatic bill payments which are quickly processed, protect you from missed payments and late payment penalties, and sometime help you get automatic-payment discounts from certain service providers (like a wireless-services company).

  4. Can be used to get nice discounts on some time-limited promotional purchases (say, you can save 20% on bookstore online purchases) or through permanent cash-back or bonus-point incentives. Many cards are paying you back 0.5-2% in a form of discount or bonus points that either reduce your statement balance or can be redeemed later with specific retailers (like PC Points with a PC MasterCard).

  5. Can collect air miles, so that you can use your air-miles balance towards the cost of future air travel trips.

  6. Can be used to make deposits for large purchases, such as furniture or other household durables. Your credit-card deposit is not processed until a delivery takes places and the total transaction is closed, so there is no opportunity cost involved.

  7. Allow you to cancel a payment or deposit if you decide not to go ahead with your purchase. Sometimes it is difficult to get back your money for a cancelled product or services. Canceling a credit card transaction, as long as you have a confirmation of a cancelled contract or purchase, is relatively easy and ensures that a dishonest seller does not retain your money.

  8. Can be used to borrow money for emergency needs through a balance transfer or cash withdrawal.

  9. Can be used, at low promotional balance-transfer rates (which can be even zero), to pay off your higher interest debt or borrow money for short term purposes at a lower interest cost.

  10. Are a great source of a FREE short-term credit. Aside from a standard 20-24-day grace period, you also get extra 26-30 days of free credit when you time your large-sum purchases. For example, if you know that your regular balance payment dates are normally on the 25th day of a month and your balance closing dates are therefore normally around the 2nd day of a month, then you can make your purchase immediately after your monthly statement closes, so that the relevant balance is paid on the 25th day of the NEXT month. The resulting interest savings and/or opportunity cost savings can be substantial if you, say, are paying for an expensive durable item.

  11. Help avoiding certain costs associated with the use of other payment media (costs of ordering and mailing cheques, cash withdrawal fees for the unaffiliated-bank ATM use, fees for certified cheques, etc.).

  12. Help avoiding foreign-exchange transactions to make purchases in a foreign country. Most credit cards can be used in any country as long as relevant credit-card formats are accepted there.

  13. Can be used for their valuable and convenient complementary features, like travel, car rental, and AD&D insurance coverage.

  14. Use much less space in your wallet and are way more durable and harder to destruct in comparison with cash and cheques.

  15. Are safer for carrying than cash and are easily replaceable when lost or stolen.

  16. Limit your liability in the case of unauthorized use to your credit limit or even zero.

  17. Create your credit history, which is essential for certain financial transactions, such as getting a bank loan or a residential mortgage.

  18. Help keeping track of all your purchases. Paper receipts and bills tend to get lost, but credit card statements can be easily stored and retrieved.

  19. Help getting better control over your personal finances because you can download online credit card statements in the Quicken or MS Money format for later use in your personal finance planning and budgeting software.

  20. Teach you in action about the power of compounding, although in a somewhat negative sense. If you do not pay for your purchases on a timely basis, then you will see how your balances will grow exponentially. Exactly the same principle works when your deposits earn interest, so you can get an idea how you can grow your money.

In the next related post, I will summarize a few tips on optimizing and simplifying your credit card use experience.

Saturday, 9 February 2008

Next week: Another rally attempt or the next round of free falling?

It was a volatile ride for the markets during the last week. A follow-up of the rally from the previous week never materiliazed as several noticeable pieces of negative news reiterated the story of recession skillfully narrated and promoted by the Bears and their talking heads. On the statistical front, we had poor auto and truck sales in January, a very recessionary number for the January ISM Services Index, falling pending home sales in December, unimpressive December factory orders, and a buildup in wholesale inventories in December.

Another disturbing noise was from a series of public apprearances by senior Fed officials who seemed to be sending the markets down every other moment they were opening their mouths. Somebody needs to introduce a public quota for speeches made by these guys. One week they talk about economic recovery and their willingness to reduce the rates as long as it is necessary, another week they talk about a danger of recession and the close attention that they will pay to inflation numbers. Please give my a break. The realistic inflation rate in the States is above 15% already as indicated by the recent growth rates of the M3 monetary aggregate (which by the way has not been published anymore for very unconvincing reasons). They keep printing money, creating debt and injecting this paper into the economy like some crazy monkeys, and meanwhile they are talking about inflation concerns... One constructuve thing they can definitely do is to elect a single speaker, let it be Bernanke, and let him alone spreak in public. Otherwise, they look like a bunch of uncoordinated and conflicting big egos who pretend to be I-know-everything monetary experts, yet at the same time do not have a consensus of sound opinion on the macro organizational level, each trying to add his extra five cents to the public debate.

Next week, we have a number of important U.S. stats being reported, including: the Treasury budget on Tuesday, Feb 12th; January Retail Sales and December Business Inventories on Wednesday, Feb 13th; and January Industrial Production and Capacity Utilization on Friday, Feb 15th.

Meanwhile, the U.S. indexes are completing a short-term triangle formation. During the upcoming week, we are likely to see a breakout in either direction. If the Dow Jones closes below 12,000, the markets are likely to plunge into the next round of free-fall days sending it to 11,600 or lower. If it breaks out above 12,350, then another attempt of a short-term rally up to 12,600+ is possible. Similarly for S&P500, a close below 1,320 is likely to continue a move down to 1,260 and lower, while a breakout above 1,350 can send it up to 1,410+. The outcome certainly depends on the news during the upcoming week. Given the fact that Bears have been successfully taking over the media lately, a chance of another sound rally attempt is slim.

The annual forecasting powers of the January performance indicator

Some traders believe that by looking at stock market performance at the beginning of a year, during the month of January, one can get an idea of how the markets will perform over the remaining eleven months. While I am somewhat sceptical about the predictive power of this January Performance Indicator, we can nonetheless look at the charts and see what the magical candlesticks are telling us about the future. :-)

Here is the Dow Industrial Index chart for January 2008:

And this is the January 2008 chart of the S&P500 Index:

According the the charts above, a couple of common conclusions can be made. First, we can expect to see continuation of the markets' fall in late February-early March and then even a more accelelrated free fall in the middle of the summer, I guess in anticipation of and during the Q2 earnings season. The rebounds are likely to happen some time in April and May. Second, the markets are likely to rally in late August-September, pull back in October, again rebound and trade sideways in late October-early December, and then finally rally hard in late December to sweeten the poor annual performance.

Overall, the charts tell us that the indexes will finish the year in a negative zone, which is at odds with the 2008 prediction of another folksy market indicator, the Super Bowl effect, which I talked about in my previous posts here and here. By the way, the after-game rally last week did not really happen as a load of poop news and those overly talkative Fed officials (shut up already, you monetary gnomes!) made sure that the short-term rally did not continue.

Although not taking the conclusions from the January performance indicator seriously, I will still keep checking during the year (just for fun) if any of its predictions materilize over the next eleven months of 2008.

Disclaimer: The charts above were generated through the online charting tool, which I use frequently in my analysis of indexes and individual stocks.

Sunday, 3 February 2008

The 2008 Super Bowl Indicator tells us the markets may have a positive year

Well, according to the most recent Super Bowl Indicator, we are to have a high probability of markets finishing higher in 2008. With NY Giants upsetting NE Patriots during the last minutes of the thrilling 17-14 game on February 3, 2008, all Bulls around the world for surely felt somewhat relieved and supercharged, with revived hopes for another "up" year.

On a more serious note, while the probability of such outcome remains pretty slim, it is still not impossible, as a possibility of the markets turning around closer to the end of this year cannot be ruled out yet. More realistically, we will probably see very short-term effects of this win, with a strong opening on Monday being very likely, as excited Bull traders and investors will return to their offices pumped up by the bullish results of Sunday game.

So far, as of the midnight before Monday, index futures and the upside opening performance of the Asian markets suggest a strong Monday-morning opening of the North American markets as well, which may or may not develop later during the day into a massive Bullish assault on the resistance-area bastions. It is going to be an interesting battle between Bears and Bulls over the first 2-3 days of this week. Let's have fun watching it.

The Bulls will almost surely lose by the end of this week or later during the month, but who cares! It is a great market game, and its players are well aware of the gaming rules. The Bears have been impatiently waiting for thir momentum of dominance for several years. They finally got their say and will generally run the party at least for the next several months, while the Bulls will have to scavenge on short-lived Bear rallies like the one we are currently observing.

Next week: Indexes at resistance levels and testing of a bear rally

It's been quite a week in the markets. We witnessed the first bear rally since the stock markets officially entered into the Bear territory not so long ago. All major indexes finished te week with positive weekly performance figures. Of course, the major factor behind these moves has a two-part series of interest rate cuts by the Fed, with latest 50 bps cut announced during the regular meeting last Wednesday, January 30, 2008, which brings the total recent cut to the whopping 1.25%. Then there was also Microsoft announcing its intention to buy Yahoo, along with several other ongoing and fresh M&A talks and rumors, which somewhat boosted the markets on Friday.

Even the weak non-farm payroll, hourly earnings, and construction spending numbers, which were reported last week, could not spoil the short-term bull party. There is still quit a bit of money alongside, waiting to jump into the equity market on the long side at any hint of a rally attempt. The players are quite cautious and nervious though, so any strong short-term bursts on the upside are followed by profit taking which considerably mutes rally results.

It was quite amusing to see stocks of financials, retailers, home builders, and mortgage companies rally last week. I understand that they among the sectors that mostly benefit from rate cuts and any resulting boosts n consumer leverage and spending, but come on... We all know that these sectors have entered the big-mess territory recently and it will take more time for them to recover for good. Otherwise, there were a few very good 20-50% rallies in some of these stocks last week, mostly due to the fact that these stocks were deeply oversold and beaten up during the pre-rate-cut sell-off. I was tracking a few of them, but did not enter due to risk considerations and constraints on available funds. In any case, I will continue watching them, and some of these stocks will become some of my swing targets as soon as the next rallies arrive and later on, when the relevant sectors will turn onto the steady recovery track.

For now, the market conditions seems to be very risky and volatile. It is pretty funny that as soon as the markets rally a little bit, which is due mostly to short covering, short-term speculative long moves, and targeted interventions by major institutional players, then you start hearing people talking about the end of this market correction and more long bright years ahead of us. There certainly will be bright years in the stock markets, just not now or in the nearest future. According to the historical observations, we are about to enter into the next, quite ferocious down leg of the Bear market once this rally is over, and it looks like it is going to happen pretty soon. During the last week, the markets quickly moved from being deeply oversold to the overbought condition, so according to the technical charts we have at most several days (1-3) worth of fuel left in the tanks of this rally vehicle. Then the shorts will take over again and we are very likely to "enjoy" the next wild sell-off.

There is nothing particularly optimistic about the current fundamentals of the U.S. economy and the global financial system, which would make us think that this whole recent financial mess and economic slowdown are just a little corrective bump on the way to new market highs. There is a price to pay for the financial and housing bubbles, and it will take at least a couple of quarters, if not years, to ease the issue and move the economy on its way to the new, even bigger bubble. Oh, sorry, I meant to say "on the way to strong economy recovery." :-) I am planning to post on the bubble situation pretty soon.

I sold my WFC position on Monday at a decent 14% gross profit. Since then the stock continued rallying another $3 per share. G-r-r-r-r. Well, it is better to have some certain positive outcome at the end than taking chances. It is a very shaky environment right now and things can turn around in no time. So, I do not regret much about the lost chance to make an extra 10% profit. In any case, I am still learning to trade. I currently have a couple of other short-term positions which I am ready to close if the need arises, so we let's see how the things will work out during the next week.

During the upcoming week of February 4-8, 2008, we need to take into account the numbers on January auto sales (much lower then expected), December factory orders, December pending home sales, and a series of public appearances by senior Fed and government officials, among other things to watch among government stats and tips. Of course, the continuing Q4 and FY2007 year-end earnings announcements will make or break the weather during this week as well.

The major indexes have approached the strong resistance levels at the end of the past week, so Monday and Tuesday will be the testing days when the bulls will face very strong pressure from the selling side. The resistance numbers to watch for the Dow index are 12,800 and 13,000 and for the S&P500 are 1,410 and 1,440. We are very close to these levels. It will be a fun week to watch.