The Philosopher Nietzsche wrote, “When you stare into the abyss, the abyss stares back into you.”

And as the new week’s trading approaches, we also peer down from that yawning precipice to a barely visible bottom and ask: could it be the end?

Nietzsche’s intention in the above quote was to warn us against the allure of gazing trance-like into the seemingly bottomless, vertigo-inducing wastes of doom, lest they become mirrors into our own meaningless lives.  For it is the abyss within ourselves that so terrifies.

Without the anchor of faith, Nietzsche wrote – without belief that life has a purpose and a time and place for everything – we are doomed ultimately to cast ourselves headlong into the meaningless void below.  A leap from the precipice that both swallows and gets swallowed all at once – a destitute deed that points up the universe’s absolute meaninglessness.

But is it so?  Certainly for one whose life is markets and profits and returns and wealth-creation, the abyss of a market sell off holds a mirror to the soul – and exposes the material life for what it is: emptiness and waste; vanity and selfishness.

Take a good, long gaze in the mirror.

But for those who are anchored in the spirit and purpose of existence – whose lives are not focused on mere “getting and spending” – reality is different.

The market appears poised to disintegrate.  Panic is the ethos of the season.  Capitalism is in doubt – its destruction being cheered by billions of America’s enemies worldwide.  We have been through manias and bubbles – are we now destined for depressions and banking collapses?

On one popular financial blogger’s site we read about “Armageddon trades” – stocks that will thrive during a meltdown not only in stock markets, but in the prevailing social order.  His picks include Campbell’s Soup and Taser, in keeping with the average Joe’s need for hoardable food and effective self-defense.  The chart is here:

Over the last three months, Campbell’s is up 16% and Taser a giant 34%, making for performances of 30% and 48% above the S&P 500 over the same time frame.

So is it time to load up on spam and head for the hills?

Perhaps.

But perhaps not.

Let’s take a look at a few more charts first.

Here is a chart of Wells Fargo (NYSE:WFC) – one of the biggest banking regionals still alive today.

Consider the following:

1. Wells Fargo is now bidding for control of distressed Wachovia, an East Coast regional that would significantly push Wells Fargo further up the U.S. banking food chain.

• Is this something that a banker with Wells Fargo’s record does directly before Financial Armageddon?

• Remember, Wells Fargo largely sidestepped the subprime loan fiasco by sticking to centuries old lending practices and eschewing flavor of the week banking gimmickry.

2. Note, too, that Wells has risen impressively on very high volume after bottoming in mid-July at just over $20 a share.

• Is that the technical action of a stock about to step into the abyss?

3. The stock is trading above its rising trendline and has maintained trade over the 200 DMA for over a month

• Do you recognize a bearish technical omen in these chart fundamentals?

In short, Wells Fargo may be a picture of health as far as banking stocks are concerned.  But believe me, folks, no one gets off scot-free in a market meltdown.  And it would take a significant external and unknown shock – likely on the order of a 9/11 attack – to move Wells Fargo toward any sort of purgatorial abyss.

And here we get to the crux.  My friends, there will be no abyss.  Sentiment is so disastrous and the majority of investing Americans is so seized with “deer-in-the-headlights” inertia that the chances of a general public sell off are minimal – possible, but minimal.  Again, we would have to see a major external event come into the play in order to flip to the bearish view.

Consider this: the dividend yield on the Dow Jones Industrial Average (3.14%) is higher than the return offered on 5 year U.S. Treasuries (2.68%)!

Absurd!

It’s a situation that is simply unsustainable.  Panic buying (of treasuries) and selling (of stocks) is exactly that – panic.  And he who is ready to capitalize here, now, at the very precipice, amidst the panic will make off like a titan in the end.

There is no place for fear in the trader’s toolkit.  Only cold analysis yields fortunes.

Look here:

The U.S. Dollar Index is up 15% from its springtime lows – and this at a time when the entire world is fixated on the bailout plan and how much damage it’s meant to do to the U.S. economy!  Am I the only madman in the Gulag?!  Why is the world a net buyer of U.S. dollars?  Why aren’t short sellers driving this worthless currency to the bottom of a godless ocean!?  You can still short the U.S. Dollar, gang!  WHY IS NO ONE DOING IT?!

The answer is simple.  Inflows.  Money is starting to wash up on American shores because however bad those shores may be littered they’re still the place where money gets treated best.

Pick yourself three or four quality, dividend paying stocks with fundamentals and good chart patterns and start buying them.  And leave the blank stares and mouth-breathing to the CNBC addicts.

And for some great investment ideas, try Oxbury’s Residual Income Report.

Here is a recent feature from that premium service:

Odyssey Re Holdings, whose stock popped within a week of our recommendation and is poised to ramp significantly higher in the weeks ahead – despite the doomsayers.  And (gasp!) a financial stock, no less!

“To every thing there is a season,
 and a time to every purpose under heaven.”

The time is now for courage and proper resource deployment.  Get on it.

Matt McAbby
Analyst, Oxbury Research