Here's a story about the psychological dynamic of stock market trading. When trading we work from preconceived assumptions, i.e. are we bullish or bearish. Usually we find traders on both sides of a market.

Byron Wien of the Blackstone Group (BX) is in the bullish camp. Here are some of his assumptions:

CBOE Volatility Index: VIX was up 5.26 to 27.53; up 23%. The S&P 500 was down 1.99%.

CBOE Volatility Index: VIX 10 day-moving average was 19.32, 50-day moving average 21.09, according to Track Data.

Option Update provided by Stock Specialist Paul Foster of theflyonthewall.com

If you still hold stocks, should you use the recent plunge to buy? Should you hold? or Should you just get out of stocks altogether? The answer depends on how soon you need your money and your outlook for stock prices. The first question is easier to answer than the second one -- which is virtually impossible to get right. As I posted last October, if you need your money in the next six years, it probably makes sense to sell.

How bad was January 2009? After falling 38.5% in 2009, the S&P 500 lost another 8.6% of its value last month. And the January barometer effect -- the idea that as goes January, so goes the year -- has a pretty good track record. In 60 of the last 80 years, the S&P 500's performance in January has reflected the index's annual result. For example, in January 2008, the S&P 500 fell 6%. And this January was the worst ever for the market. So maybe 2009 will be even worse than 2008.

Since the S&P 500 hit an 11 year low of on November 20th, it's risen 24%. Does this have anything to do with President-elect Barack Obama? I have absolutely no idea -- but it could. That was the week when Obama cut back on talking about how there was only one President at a time and began to assemble and announce his economic team.

This was also the time I began to notice that some stocks in my newsletter started to go up. And yet the drumbeat of bad economic news continues -- with the latest being the worst decline in global manufacturing activity in 60 years. The big question for investors is whether the 24% rise in the S&P 500 is the end of a bear market rally or the beginning of a bigger one.

The only rationale I can think of for a rise in stocks is that investors may have concluded that the stimulus plan -- which has been rumored to be potentially $1 trillion -- could boost specific stocks in 2009 as that money begins to create jobs for companies that build roads, bridges, and broadband networks across the U.S. Alternatively, today's rally could reflect investors' realization that with money market and bank deposit rates near zero -- the only way to put all that cash to work is to move into stocks.

Are you participating in this Obama rally? Or do you think it's a head fake? How will you decide it's time to move your cash off the sidelines?

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Mutual funds lost $320 billion to redemptions last year. It was, by most measures, a "flight to safety." Equity funds, in particular, were hit hard by the falling stock market.

According to the FT, "The data include both retail and institutional investors. The total outflow of $320bn does not include money market funds."

The flight out is fine, but what about the flight in? Some analysts see 2009 as a "rebound" year, especially if government stimulus packages work. If that is true, stocks could begin to move up sharply as the Obama and TARP plans start to bear fruit, perhaps as early as the second quarter.

Other researchers believe that stocks are cheap. The P/E ratio for the S&P 500 is at a multiyear low. It would not take much of an earnings recovery to push that up.

Investors may have saved themselves from having their investments down 30% instead of 40% by moving money into Treasuries. But, the Dow has been up as much as 30% in strong years. Those who stay on the sideline risk a chance to get their money back.

Douglas A. McIntyre is an editor at 247wallst.com.

With the S&P 500 down 13% so far this year, the market has been terrible. But most people are suffering so much from the middle class squeeze that they lack the discretionary cash to invest in stocks. For those who do have cash on the sidelines, there is a strategy they might consider that could yield big profits in the future: sift the downtrodden industries for survivors and buy their stocks as their prices fall.

The best opportunities for this strategy are in banking, home building, automobile and oil refining stocks. I would look for companies whose stock prices have been beaten down the most but that are not likely to file for bankruptcy.

How should investors evaluate whether a company in a suffering industry is likely to avoid bankruptcy? One way is to analyze all the companies in the industry based on how much money they need to pay back over the next several years and compare that figure to the amount of cash they have on hand now and whether that cash is likely to rise or fall over the next few years.

Firms that appear to have the most potential cash available to repay their obligations are the ones most likely to survive. There is more pain ahead for each of these industries, but at some point in the future, they are likely to come back. The challenge is to buy at the bottom, and the bottom is impossible to predict. Therefore, one strategy is to start buying now and if the stocks fall further, buy more to achieve a lower cost basis.

If you're interested in specific names, please comment below.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

The S&P 500 closed today at 1530.23, a new all-time closing high. The S&P 500 had been flirting with a new high these past 10 days, but now it is done and official. So, what does all this signify? Where do we go from here?

The United States stock markets have proven to be resilient and strong so far in 2007. The first quarter saw general corporate earnings to be quite healthy and, even more important, sustainable for the remainder of the year. The market was knocked -- before it even opened -- this morning by the news out of China. The government of China, trying to cool off the wild ride its market has provided this year, introduced a higher transaction tax. The government raised the rate from 0.1% to 0.3%. The Chinese market took a hit, but appears ready to plow right back through the pre-tax announcement.

The US market, and the S&P 500 specifically, is not generally viewed as "expensive." With the S&P 500 trading at 16 times 2007 expected earnings, the consensus is the market is fairly priced -- not over-priced. Coupled with strong corporate earnings experienced the first quarter, investors are feeling and showing confidence in the US economy. After all the stock market is the voice of near term confidence -- or lack of it.

The private equity world is keeping investors interest at a peak. The game of "who is next " on the acquisition block is keeping stocks afloat, and almost any company under $50 billion in market capitalization could be "in play." The share buyback programs are actively in place with almost $150 billion committed during this second quarter. It's a strong vote of confidence by American corporations in the value and merits of their own stocks.

So, we see strong corporate earnings flow, private equity activity at fever pitch, active share buy-backs, net in-flows into equity mutual funds and relatively low interest rates ... the S&P 500 is reflecting all of these positive factors.

Georges Yared is the CIO of Yared Investment Research. For more growth ideas please visit the web site