The Week in Review:

The volatility in the stock market continued on Friday as the DJIA dropped more than 280 points after the Bear Stearns CFO said that the "turmoil in credit markets were the worst he had seen in 22 years".

I warned investors over two years ago that the real estate was going to pop. In 2005, I told investors that there were no better contrarian indicators than the front covers than popular financial publications.

Time Magazine had a headline that read, " HOME SWEET HOME: WHY WE坦E GOING GA-GA OVER REAL ESTATE". The May 30, 2005 issue of Fortune proclaimed, “REAL ESTATE GOLD RUSH".

After seeing these headlines, I knew the real estate bubble was about to burst.

A headline that was overshadowed by the real estate craze was a 2005 Fortune magazine cover that read, "IS GREED STILL GOOD?" This article was about the other hot investment of the day, Hedge Funds.

What is really sad about the current real estate situation is the number of investors who got caught up in the hype of getting rich in real estate. Yes, people do get rich in real estate. But, there is a time to buy, and a time to say "no thank you".

I have said this many times before, but greed leads people into to a herd mentality, and you know that the masses have no opinions of their own; they just simply followed the herd.

Since investors have made so many bad decisions with their mortgages, Ditech has come up with a new slogan to make them feel better about themselves-"People Are Smart".

Over the next 12-18 months, opportunities for investment in real estate will present themselves. I have been pondering as to which approach would be best. Naturally if you've always wanted to buy a second home, I think that opportunity is coming.

If you are looking for a way to invest in real estate and get rich, I would focus on buying banks, lenders, REIT's, and homebuilders.

Last week, I took a mental survey of what investment advisors said when I asked them if they thought the homebuilders, banks, and lenders were buys at current levels. The response was an overwhelming, no. Usually when so many people are negative (or positive) about a particular investment, I look to see if I shouldn't be considering the opposite view.

Back to the markets.

After closing above 14,000 a few weeks ago, the DJIA is now 819 points or about 6% below that record close. After the huge run up we've had since July 2006, I can't believe so many people are stressed out about a 6% decline. While the fed may attempt to sooth the markets this week, a 6% decline in the Dow is not enough to warrant a rate cut.

I don't believe the current correction is the beginning of a new bear market. I believe the markets will rally one more time (back to new highs) before giving way to a full blown decline.

In March 2000, the market had a steep decline, rallied back in August, and then began its second leg into a full blown bear. I believe the next bear market decline will be sharp, but short lived.

Technically, it looks as if the DJIA will test support at the 12,800, and a break below this level could carry the index down to 12,500. At 12,600 the DJIA will have corrected about 10%. If the Dow fails to find support in this range, be prepared for a more sustainable correction to the 12,000 level.

On the positive side, if the DJIA is able to find key support at the above levels, we may see one more impressive rally that could carry the index to the 14,200-14,300.

The S&P has labored over the past few months, so warnings of a correction here have been obvious to most market watchers. As you know we have been cautious for quite some time. We like to be patient and allow the markets to come to us.

On Friday, the SPX closed at 1433 which broke below key support levels at the 1445-1460 level. Now our eyes are fixed on just below the 1400 mark as key support.

The NASDAQ has been the index that has impressed us the most. The index continues to attract strong money flow and momentum. It looks as if the rotation into technology stocks is for real, and we are happy to own 3 technology related funds in our Fidelity Select Sector Portfolio.

ECONOMICS

Jim Cramer was begging Ben Bernanke to cut rates ASAP on his show Friday. The Federal Open Market Committee (FOMC) is scheduled to meet on August 7th, but the sell-off in the stock market has not been severe enough (yet) for the fed to make any moves.

On Friday, the ISM said that the unemployment rate rose to 4.6 from 4.5% in June. To be specific, the unemployment rate came in at 4.647%.

The problem with a fed ease is the potential danger of a continued slide in the U.S. dollar. If the dollar continues to decline, energy prices will remain high or go higher. The fed is in a very tough situation. On one hand they want inflationary pressures to subside, and on the other hand, they don't want the mortgage meltdown to get out of control.

Last week, we raised our allocation to the stock market by 5%. If the DJIA drops to the 12,800 mark and the SPX to 1400, we will automatically raise our allocations by another 5%.

For now, we are content with an asset allocation of;

65% Equities: (Normally 95%) Aggressive
55% Equities: (Normally 80%) Moderately Aggressive
45% Equities: (Normally 60%) Moderate
25% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative

At DJIA 12,800/ SPX 1400

70% Equities: (Normally 95%) Aggressive
60% Equities: (Normally 80%) Moderately Aggressive
50% Equities: (Normally 60%) Moderate
30% Equities: (Normally 40%) Moderately Conservative
15% Equities: (Normally 20%) Conservative