The good news is that you don't need an advanced accounting degree to master some of the basics of financial analysis. It is very productive to (1) know how manipulation takes place, (2) identify the trends showing that something manipulative is going on, and (3) understand the questions to ask.

Today everyone will be examining a report in The Wall Street Journal saying the Federal Reserve is debating how to signal the next rate move, though the central bank is unlikely to change its phrasing about keeping interest rates near zero for a long time during next week’s meeting.

Although Enron was not a small-cap stock when its troubles came to light, the problems disclosed are instructive and can serve as an objective lesson on why you need to be careful when relying on financial statements.

In hindsight, the name is synonymous with a vast array of unsavory doings. Once esteemed as a big player in the big business of energy, Enron was a disaster, and its management fooled many people. Those deceived include the Dow Jones Company, which added Enron to its prestigious Dow Jones Utility Average (and then quickly removed it once the real problems were disclosed). Enron, indeed, turned out to be a house of cards. Thousands of jobs lost, and billions of market capitalization evaporated in a short period of time, wiping out the investment accounts of employees and investors. Reputations, careers, and lives were devastated.

But what a performance by small-cap stocks! The Russell closed the week at 666 after breaking through 660-level resistance around 10:30 Friday morning. The close above this level, and the fact that the index rose throughout the entire day, is certainly bullish. I've been saying for weeks that if we see the Russell break through 620 and then 660, I'm targeting a move to 725. I think we might see this in the next few weeks, pending any major economic disruptions on a global scale.  

Take a look at this 5-year chart of the Russell and you'll see what I mean from a technical perspective. The precipitous drop that occurred in late 2008 when the index fell from 750 to 350 was the result of panic selling as investors became convinced another great depression was unavoidable. Valuations went out the window, and stocks plunged. The index is now approaching the trading range that began in January of 2008, when investors had priced in slowing growth but not a global economic catastrophe.    

So we LOST fewer jobs than expected but we still LOST jobs! Unbelievable.

For today please check out the SPX chart below. Watch for a sell-off this week down to the first support level at the least.

This morning's U.S. employment data release is the main catalyst today. The consensus estimate was for 68,000 non-farm job losses and an unemployment rate of 9.8% during February. Results showed a loss of 36,000 non-farm job losses and an unchanged 9.7% unemployment rate. Both results are better than expected. What's more, China's Premier Wen Jaibao came out with a statement that Beijing will continue to control inflation despite stimulus spending. He said that his spending should help the country hit its 8% growth target on the year.  

Today we’re seeing China stocks rally, and several in the Small Cap Investor PRO portfolio are moving higher. We're sitting on gains like 108% on our China agriculture stock, 74% on our natural gas stock, and 30% on our electronic payment terminal stock.

issues this week, and it's critical that individual investors heed the advice.

As I wrote in yesterday's issue, another factor that individual investors can use to their advantage (or demise) is the powerful effect of emotion. The combination of these two ingredients, inefficiency and emotion, can help small-cap investors make explosive investing gains. This is what we try to accomplish with every stock added to the Small Cap Investor PRO portfolio, and so far we have a pretty good track record.

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