Following a lengthy market run like the one we’ve had over the past couple months (which is rivaling the run off the market bottom back in ’03) I tend to get a little defensive and begin looking for any clues that the run is over, at least in the short term. Those clues come in the form of technical analysis and only technical analysis. In fact it’s during these times I try to read less about the various opinions on what the market will do and focus more on what the charts are indicating. Granted, for those of us who are technical analysts or "chartists" it’s not always easy to trust the charts, but essential.
So what are the charts telling me and what am I "trusting"? For the S&P and Dow, I’m fairly neutral. The charts aren’t showing signs of significant weakness at this point and there are no significant resistance levels in sight. What concerns me most is the Naz and the deteriorating action in the semiconductors which appear to have much more room to run.. to the downside. In the Nasdaq, it faces formiddable restance at the April highs. If you take a look at the weekly chart, what you’ll see is 3 straight weeks of weakening technical action. By all indications, with the Nasdaq leading the way, the market begins to digest its gains now.
That being said, I don’t believe any correction from here will be severe and that any dips will provide anxious buyers who may have missed the bulk of the rally with an opporunity to get their feet wet. I know I will be looking for an orderly pull back to begin leveraging gains with margin. Remember that many investors are still stung by the 2000 crash and remain skeptical about the ability of the market to make them money with tolerable risk. It wasn’t until recently that more friends of mine (who don’t follow the market) have begun to make comments about the market, but none of them are yet putting money to work. We haven’t reached that frenzied stage.
::: Model Portfolio Update :::
Despite half of the gains for the week being erased in just the last few hours of trading on Friday, it was a good week for the Self Investors Model Portfolio, beating the overall market with a 1.2% gain, bringing the year to date gain to over 20% for the first time this year (20.3%). 6 new long positions were initiated, 4 of which closed the week with sizable gains. 5 long positions were closed in DIVX, ATHR and LTM ahead of earnings, as well as 2 quick strike profit plays in DSCO and OIIM, which stalled and failed to produce quick strike profits. Only the DIVX and LTM trades provided a profit with 11% and 5% gains respectively. It’s almost always my policy to sell ahead of an earnings report and DIVX reports Monday. Selling LTM ahead of earnings proved to be a bad idea as the company reported a great quarter and soared the next day. I’ll be looking to reinitiate the position with any pull back. I did reinitiate a long position in ATHR following its earnings report, which was outstanding. Also closed during the week was a short position in Q, which failed to follow through to the downside following a high volume gap down on October 11th. I covered for a small 3% loss as the stock broke out of consolidation on October 24th. I continue to hold 11 positions, 8 of which are profitable. Current allocation is 85% long and 15% cash. I expect to move more to cash next week and possibly put on a short trade or two.
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::: Best/Worst Performers :::
– Top 10 Performing Industries For the Week –
1. Music & Video Stores 11.76%
2. Broadcasting Radio 6.63%
3. Nonmetallic Mineral Mining 6.60%
4. Confectioners 5.70%
5. Shipping 5.50%
6. Apparel Footwear 5.20%
7. Cement 5.05%
8. Sporting Goods 4.95%
9. Silver 4.80%
10. Toys & Games 4.35%
– Top 10 Worst Performing Industries For the Week –
1. Insurance – Tite -5.55%
2. Computer Based Systems -5.27%
3. Research Services -4.80%
4. Printed Circuit Boards -3.65%
5. Drugs – Generic -3.05%
6. Medical Laboratories & Research -2.90%
7. Information & Delivery Service -2.60%
8. Drug Delivery -2.40%
9. Semiconductory – Memory Chips -2.20%
– Top 5 Best Performing ETFs For the Week –
1. HLDRS Internet (HHH) 6.65%
2. Powershares Oil Services (PXJ) 3.90%
3. HLDRS Oil Services (OIH) 3.70%
4. Ishares Singapore (EWS) 3.55%
5. Turkish Invest Fund (TKF) 3.20%
– Worst 5 Performing ETF’s –
1. Japan Small Cap (JOF) -3.45%
2. HLDRS Broadband (BDH) -2.50%
3. Ishares Software (IGV) -1.70%
4. Powershares Dynamic Semiconductor(PSI) -1.50%
5. HLDRS Software (SWH) -1.40%
::: IPO’s Worth Watching for This Week :::
3 Sattelite IPO’s to Watch!
1. GlobalStar (GSAT): California based provider of mobile voice and data communications services via satellite. The company operates about 43 in orbit satellites and 25 ground stations offering voice and data communications services to about 236,500 customers in over 120 countries. GlobalStar is profitable and growing quickly. Set to start trading Thursday.
2. ORBCOMM (ORBC): New Jersey based provider of commercial wireless messaging systems optimized for narrowband commuications in over 75 countries. The company operates 30 low Earth orbit stallites that allow its customers and end users to track, monitor, control, and communicate cost effectively with fixed and mobile assets located anywhere in the world. The company is not yet profitable but growing. Trading set to start Friday.
3. RRSat Global Communications (RRST): Israel based satellite provider of content and distribution services to the television and radio broadcasting inustries. Its clients inlude more than 265 television channels and over 80 radio channels in more than 150 countries. The company is profitable and growing. Trading set to start on Wednesday.
::: Upcoming Economic Reports (10/30/06- 11/3/06) :::
Monday: Personal Income
Tuesday: Consumer Confidence, Chicago PMI, Retail Sales, Employment Cost Index
Wednesday: ISM Manufacturing, Construction Spending, Petroleum Status, Mortgage Apps
Thursday: Money Supply, Factory Orders, Productivity & Costs, Jobless Claims
Monster Employment Index
Friday: ISM Non Manufacturing, Employment Situation
::: Notable Upcoming Earnings Reports I’ll Be Watching This Week :::
Monday: GOL Intelligente Airlines (GOL), General Cable (BGC), Novatel (NGPS), BlackRock (BLK)
Tuesday: UnderArmor (UARM), Chipotle Mexican Grill (CMG), Cummins (CMI)
Wednesday: Guess (GES), Baidu.com (BIDU), Diodes (DIOD), Garmin (GRMN),
Las Vegas Sands (LVS), Natco Group (NTG), Kenexa (KNXA), Amdocs (DOX)
Smith Micro (SMSI), Steve Madden (SHOO)
Thursday: Tower Group (TWGP), Investment Technology Group (ITG), Ness Tech. (NSTC)
Digene (DIGE), Intercontinental Exchange (ICE), American Reprographics (ARP)
Perficient (PRFT), Cognizant Technology Solutions (CTSH)
Friday: none
::: Latest Blog Entries – In Case You Missed Them! :::
– SelfInvestors Blog –
1. Nasdaq Takes out Multi Year Highs, But Pay Tomorrow’s Close is Critical
http://investing.typepad.com/tradingstocks/2006/10/nasdaq_takes_ou.html
2. Mastering the Emotions of Trading
http://investing.typepad.com/tradingstocks/2006/10/mastering_the_e.html