I know I’ve said all this before but paying attention to the commentary of the newspapers, the magazines and the talking heads on CNBC is enough to well.. make your head spin. Recession talk is bantered about amidst the back drop of Jim Cramer exclaiming Dow 14500 by the end of the year. A few weeks ago IBD hinted that a recession is unlikely based on one jobs report against a back drop of CEO’s from major corporations sounding the alarm of potential economic weakness, further housing deterioration, etc. The contradictions of opinions and background noise can and will keep you from your goal of making money in the market. Only technical analysis of the market can keep you focused on how strong or weak the market really is. Anyone who dismisses technical analysis as irrelevant should, in my opinion not be making decisions to invest their own money let alone money for their clients. The big myth on Wall Street is that you can’t time the market. No, you won’t always get in at the bottom and out at the top but with sound technical analysis you will capture the bulk of the move a high percentage of the time.
Why does technical analysis work? The reason is simple supply and demand. Spikes in price and volume reveal the demand (or lackthereof) in stocks from the big fellas (institutions like banks, mutual funds, pension funds, etc) Since 60 – 70% of the move in the mark is the result of their trading it pays to follow their moves. .. and those moves show up in the charts! A major focus of the blog is to analyze the charts for you to help eliminate all the noise that’s out there. Over the past few weeks I’ve been recommending to my readers to be cautious and to begin locking in profits so a move like we had on Friday should not have been all that painful.
October 1st
"…. it’s clear that institutions didn’t do a whole of participating in today’s rally. It seemed to be more of a case of the retail side fearing missing the next move up and some short covering. Considering that the market is being led by commodities (no, Gold shouldn’t lead the way in a bull market) along with overbought conditions quite frankly I’m becoming skeptical of this rally. I’m continuing to play it with small long positions and added a couple more today but I’ll be vigilant about looking for more warning signs and even more vigilant about protecting my profits."
October 7th
"…until the institutional money starts pouring in, this market rise remains a house of cards. Notice how as the Dow pushes to record highs, but volume behind the move recedes. The market looks tired up here and at the very least needs to take a breather and spend some time sideways. At worst, this is the end of the road and marks a double top…
October 9th
"With the Nasdaq nearing some resistance at the upper level of a wide channel, the market may be soon be looking for excuses to take profits. Now may be a good time to find excuses to take profits of your own."
October 11th
"I think tomorrow’s action will be fairly important. Will retail sales and PPI data on the agenda for tomorrow, will it send the the market into another tailspin and confirm the selling of today? It’s anyone’s guess but as I’ve been saying for several days now it’s best to remain cautious up here."
October 16th
"The bottom line is that all indications point to further deterioration in the coming weeks. Preserve that capital and consider locking in profits quicker."
I highlight my remarks on the market over the past couple weeks not to prove I was right but rather to serve as a reminder that simple technical analysis can provide you with the skills to time the market to a certain degree. The deterioration over the past several days had been forecasted well before with the divergence between and volume and finally with the high volume reversal on October 11th and finally a break of key trendlines on October 16th.
Where do we go from here? Down is the obvious answer. With the degree of selling momentum we had on Friday, there will be further deterioration. Now some of the volume on Friday can be attributed to options expiration so it wasn’t as severe as it appeared at first glance but I think we have another 2% down to go before we begin bouncing. However, based on the action over the past few weeks I think it will be very difficult to take out those October highs before the end of the year.
::: Model Portfolio Update :::
My strategy of playing cautious with a large cash position of near 50% but initiating positions in fairly aggressive stocks continues to pay off extremely well. Despite a week in which the S&P was off 4%, the SelfInvestors Model Portfolio continued to push higher led by a 2nd position in LULU initiated on Oct. 16th as well as long time hold Google (GOOG) which continues to defy gravity. Also helping the portfolio to greatly outperform the market was a hedge position initiaiton in the Nasdaq Ultra Short (QID) on Oct 12th which I continue to hold along with a short position in BTH which as was added this past week. With a year to date return of 21.8%, the Model Portfolio has now returned nearly 4x that of the S&P 500 and is in position to be one of the top performing Model Portfolios of all advisory services for the 2nd year in a row. If you’ve been following my review of the portfolio here in 2007 you know that I struggled a bit in the middle of the year so this is a big turn around and hopefully is a good reminder to all who trade their own accounts that there will be peaks and valleys along the way. The key is to keep emotions in check, stick with the strategies that have been successful in the past and remain confident!
::: Best/Worst Performers :::
– Top 10 Performing Industries For the Week –
1. Computer Peripherals: 5.85%
2. Dairy Products: 2.70%
3. Processing Systems & Products: 2.50%
4. Tobacco Products: 1.45%
5. Major Integrated Oil & Gas: 1.00%
6. Cigarrettes: .85%
7. Personal Computers: .80%
8. Semiconductor – Equipment & Materials: .80%
9. Air Services – Other: .65%
10. Independent Oil & Gas: .50%
– Top 10 Worst Performing Industries For the Week –
1. Surety & Title Insurance: -19.35%
2. Residential Construction: -11.50%
3. Mortgage Investment: -11.20%
4. Savings & Loans: -10.25%
5. Sporting Goods Stores: -9.40%
6. Trucks & Other Vehicles: -9.20%
7. Banks – SE: -9.10%
8. Home Improvement Stores: -8.90%
9. Investment Brokerage: -8.70%
10. Recreational Goods: -8.60%
– Top 5 Best Performing ETFs For the Week –
1. US Oil (USO) 4.90%
2. Ishares Commodities (GSG) 3.55%
3. Powershares Commodity (DBC) 2.80%
4. Powershares Agriculture (DBA) 2.80%
5. Ishares Gold (IAU) 2.10%
– Worst 5 Performing ETF’s –
1. Herzfeld Cuba (CUBA) -18.15%
2. HLDRS Utilities (UTH) -14.70%
3. Ishares Home Construction (ITB) -10.70%
4. Morgan Stanley China (CAF) -10.55%
5. KBW Banking (KRE) -10.30%
::: IPO’s Worth Watching for This Week :::
There are few great looking IPO’s coming this week – yet another Chinese IPO, 2 strong energy IPO’s and another srong women focused retailer (the last one, Lululemon has performed remarkably).
1. Longtop Financial Technologies (LFT): Longtop Financial Technologies makes software to help manage your hard cash. The firm designs both custom-built and standard software and services for financial services clients in China. Its channel-related software enables banks to interact with customers through numerous channels, including ATMs, bank tellers, call centers, and Web sites. Its business-related products help banks conduct transactions like international trade finance, payments and settlements, and credit card operations. The firm’s management-related software supports clients’ internal operations. Among its customers are several of China’s leading banks, including China Construction Bank, Agricultural Bank of China, and Bank of China. Trading set to begin on Wednesday.
2. CVR Energy (CVI): an independent refiner and marketer of high value transportation fuels and, through a limited partnership, a producer of ammonia and urea ammonia nitrate, or UAN, fertilizers. Trading set to begin on Tuesday.
3. Ulta Salon, Cosmetics & Fragrance (ULTA): operates 200-plus stores in about 25 states. More than a third of its stores are located in Illinois, Texas, and California. Ulta sells cosmetics, fragrances, skin and hair care products and appliances, and accessories. Ulta stores also offer hair salon services, as well as manicures, pedicures, massages, and other beauty and spa treatments. The company’s Web site ULTA.com is being upgraded to offer about 9,000 products and more than 400 brand names. Trading set to begin Thursday
4. Vanguard Natural Resources (VNR): Vanguard Natural Resources is at the forefront of oil and gas exploration in the hills of the Appalacia Basin. Focusing its efforts in southeastern Kentucky and northeastern Tennessee, the company acquires and develops oil and gas properties in the region. Trading set to begin on Wednesday.
::: Upcoming Economic Reports (10/22/07 – 10/26/07) :::
Monday: None
Tuesday: None
Wednesday: Existing Home Sales, Crude Inventories
Thursday: Durable Orders, New Home Sales
Friday: Mich Sent (rev)
::: Upcoming Notable Earnings Reports :::
Monday: Apple (AAPL), Weathorford International (WFT), Astec Industries (ASTE)
Tuesday: Smith International (SII), Satyam Computer (SAY), Trimble Navigation (TRMB), Precision Castparts (PCP), Anixter Intl (AXE), T Rowe Price (TROW), Riverbed Technology (RVBD), Centex (CTX), Coach (COH)
Wednesday: VMWare (VMW), Alcon (ACL), Grant Prideco (GRP), Legg Mason (LM), Complete Production Services (CPX), Freeport McMoRan (FCX), Monster Worldwide (MNST), Starent Networks (STAR), VCA Antech (WOOF), Chicago Mercantile (CME), F5 Networks (FFIV), Taser Intl (TASR)
Thursday: LifeCell (LIFC), Companhia Vale do Rio (RIO), Vasco Data Security (VDSI), Ultimate Software (ULTI), Celgene (CELG), Syntel (SYNT), Stericycle (SRCL), FLIR Systems (FLIR), Diamond Offshore (DO), EMC (EMC), MEMC Electronic Materials (WFR), Baidu.com (BIDU), Dynamic Materials (BOOM), Intercontinental Exchange (ICE), Double-Take Software (DBTK), Life Time Fitness (LTM), LKQ Corp (LKQX), Synchronoss Technologies (SNCR), Spartan Motors (SPAR), Varian Sem Equipment (VSEA), VistaPrint (VPRT)
Friday: CountryWide Financial (CFC), IDEXX Laboratories (IDXX), Tidewater (TDW), Fortune Brands (FO)
::: In Case You Missed It – SelfInvestors Blog Entries of the Past Week :::
1. Putting the Plural in SelfInvestors – Options Trading Lessons Begin
2. Google (GOOG) Hitting On All Cylinders, Still No Reason To Sell
3. Holding Google (GOOG) Through Earnings Again
4. Trade of the Day – Score With Stripper Stocks: VCG Holdings (PTT)