Hope your ProShares UltraShort S&P500 Fund (SDS) position is securely established, StormWatchers,

…since, clearly, earnings season is shaping up to be a doozy.

Wal-Mart to miss.   Ouch.

Remember: At 900 or below on the S&P, we ADD to our Nestle (NSRGY at $41 or less), we ADD to our Pepsico (PEP at $62 or less).

You’ve got your TIPS for cash, right?  Been doing nicely there, as your brokerage statement will confirm.  More goodness coming.  See the Q & A later, too.

We’ve been through our sell check-list at this point—all the weaklings have been culled.  All that’s left is strength, which we’ll need.

WHAT HAPPENS NEXT

We’re going down, but not in flames.  There’s an orderliness to the market, now that hedge funds have unwound their positions.

Clue:  no chaos in the last hour of trading each day.

The coming drop won’t be a rout, but make no mistake: The direction is south until the last ounce of complacency has been wrung out.

Painful, but not for you.  SDS up 7% this week—no, no problems for you.

HAD LOTS OF QUESTIONS

• Gene W.: You’ve mentioned your Simple Profit System a couple of times and I guess I’ve seen some of it playing out here in Storm Watch.  So how do I get in on the whole thing?  Love SW—you get to the point.

Thanks Gene.  Here’s the Simple Profit System in a nutshell:  Slam out the profits day after day during rallies… keep your head down during the slumps… never wait for a bull market and above all… never marry a stock.

That’s how Profitable Investing has beat the market by 73% since the turn of the decade.

It’s a SYSTEM, OK?  No mystery, no guesswork.  It’s a path.  All you have to do is put one foot in front of another and follow it.

Item: ICICI Bank.  Snagged a 97% gain in 6 months, sold at the top, ducked the 81% drop.  Rinse and repeat.

You want the whole enchilada, no problem: my publisher is giving it away to every Profitable Investing subscriber.  Go here and you’ll be on your way.

• Angela: My REAL concern is INFLATION! It seems certain to follow the spending binge. Please suggest defensive measures and timing.

Right.  Inflation’s returning as surely as the sun will rise tomorrow morning.  Best protection: rising, top-quality dividend-payers like Verizon (VZ, up 20% in 7 weeks and yielding almost 6%) and Cohen & Steers Dividend Majors Fund (DVM). It’s up 26% in those same 7 weeks and still yields a juicy 7.7%!  More details on these next week.  Shun CDs, bonds.

• Michael: I don’t understand why TIPS will go up during inflation. I need an example of how they function, if you will.

In short, Michael, TIPS are bonds whose principal adjusts in step with the Consumer Price Index. So, if you buy a $1,000 TIPS bond and consumer prices rise 3% in a year, the principal value of your bonds will increase that same 3% to $1,030.

As they say in the commercials, but wait, there’s more! The interest paid on the bond will also go up by 3%. TIPS have been yielding around 2.5% recently, so in our example here, your interest rate would go up to 5.5%.

Now is a great time for TIPS.  We’re seeing some of the best deals in the last six years because investors are focusing on depression and deflation and not looking ahead. You can buy them directly from the U.S. Treasury (www.treasurydirect.gov) or go the easy route and put some of your cash in the Vanguard Inflation Protected Securities Fund (VIPSX).

NEXT WEEK

Earnings—ghastly.  Unemployment surging to 7%, headed for 10%.  Options players see the light.  The Perfect Storm?  Talk to you on Tuesday.

Richard

ALSO—an update on our positions—some great news here.

PLUS:  I’m going to get StormWatch to you before the market closes from now on.  I’ve had lots of requests for that.