Dear Cabot Wealth Advisory Reader,
Some of my readers are very good writers, and today I want to share one of
their letters with you.
"Timothy,
"I work in the offshore oil industry--my specialty is making the rigs
designed for ultra deep water work right. I work all over the planet, but
spend a lot of time in Korea and Singapore where we build them. We are
starting to build the big rigs in China, where construction will move over
the next decade.
"I travel business class, and frequently sit next to business people
headed to China.
"You are spot on. China is like a cage of tigers in the middle of a flock
of sheep, with one more bar to chew in half. They are going to EXPLODE
out of the cage.
"Here is what I am seeing.
"Ten years ago we had bare hulls built in China, then would tow the hulls
to the USA to outfit with machinery. On each of the hulls I saw, we had
$50,000 rework of bad welds. That's probably 10% of the rework we would
have to do if we built the hull in Finland or the USA.
"Today we are building more of the rig in China, and a few brave souls are
doing the whole thing. The Chinese haven't a clue how to build such a
complex machine, but they are HUNGRY, and I expect them to learn in two to
three years, not the 10 years required in Singapore and Korea.
"I flew to Shanghai with a former Electronics Arts guy who has a startup
computer games company in China. Short version, he is struggling to keep
up with sales growth, but not struggling to assemble talent. His biggest
worry is training his programmers to develop new media as fast as the
Chinese demand better games.
"In October 2009, my CEO told me I had to teach a course on ultra deep
water for 14 employees of CNOOC (I work for Transocean). Our goal is
convincing CNOOC to have us build some $900 million drill ships for them.
As I do nothing by halves, I contacted the guy who was coordinating the
Chinese employees and asked him to fill me in. His comments were that
they were junior staff, petroleum engineers, not very clever, over here to
see what we have and report back. I reviewed my teaching material and got
ready.
"Day one we introduced ourselves. I have lived and worked in Asia for 30
years, so I know a bit of the culture. And as Xie and Wu and Han and Du
walked in, the other 10 acted like eunuchs of the Imperial Court! The top
four sat across from me, slightly separate from the rest. Hmm. They
introduced themselves saying, "We are involved with drilling for CNOOC."
Hmm. When I did the introductions, I asked them to describe where they
had drilled. After hearing their answers, I switched tracks and taught at
my highest level.
"That night I spent four hours researching and found these guys had "grown
up" developing some of the toughest oil fields on earth. I made up some
nice looking certificates and brought them to class.
"Day two I started by showing the certificates and telling them I would
award achievement certificates if they passed my test, and that I needed
names and titles to put on the certificates. That's when I learned Xie
was President of CNOOC, the next two were Assistant Presidents, and the
fourth guy was head of drilling for the entire planet! The other 10 were
the cream of the younger management. Turned out I had 3 millionaires in
the class--in Chinese currency, but millionaires nonetheless. All 14 had
started out in dirt-floored huts. Subsequently, I became friends with
them, as I treated them with the respect they deserved, not as "don't know
anything, here to learn" rubes.
"They are taking this knowledge back to China and will launch their own
deep water drilling industry. They will argue with their government to
buy the first two rigs from us, but only two. The rest of the training we
are giving them has served to convince them that China isn't far behind
after all. They explained to me several things.
"1. They grew up in huts with dirt floors, 10 to a room. They now live
on Berber carpet, five to a room. Their grandchildren will live like we
do.
"2. They couldn't see the sky as children, today it's clear most of the
time, and their great-grandchildren WILL NOT breathe smog.
"3. Rivers that were green and yellow are crystal clear, though you can't
drink it, and fish don't survive, but their great-grandchildren WILL CATCH
TROUT in those streams.
"4. They are going to buy two rigs from us, then build 200.
"You are spot on, and I am looking east. As the US sinks further into
corruption, and Obama not only fails to correct Bushanomics, but also
layers another set of crooks on top, I think our economy is doomed to
become like the citizens of the matrix, quiescent and drained.
"China and Vietnam are rising and soon, Africa will follow. Africa is
another place I visit that is growing exponentially better by the hour,
but nobody notices because they are so far down that doubling performance
still leaves them near zero. However, look for Nigeria to turn the
corner, with Angola close behind. We are struggling to work in both
countries because the corrupt governments are increasingly coming under
pressure from the population, who are staring in through the gates and
wanting their chance.
Best Regards,
L.W."
To me, this letter is just one more piece of evidence to support the idea
of investing in China.
Yet many people remain afraid to invest in China.
Some say the stocks have come too far, that they're too high.
Some distrust the accounting of Chinese companies.
Some criticize the country's human rights record.
And some simply some fall back on the old refrain that it's wrong to deal
with communists, ignoring the fact that China has in fact evolved into
something far more effective at improving the lot of its citizens.
Whatever the reason, my message to you today--if you're not investing in
China--is to overcome your fear. Read the writing on the wall. China is
where the growth is, and China is where the growth is likely to be in the
years ahead.
I recognized at least some of this growth potential when I began
publishing Cabot China & Emerging Markets Report back in 2004, and I'm
happy to report that it's paid off very well for subscribers who've
followed our advice.
In fact, if you'd followed every recommendation of editor Paul Goodwin
over the past five years, your account would be up a hefty 164%! In the
same period, the S&P gained just 2.1% ... and that includes dividends!
Paul's performance was so good that Hulbert Financial Digest ranked his
newsletter the #1 performer over the past five years.
Some of the credit for this remarkable achievement goes to Paul; he's a
smart guy, and he's done a remarkable job of adapting the time-tested
Cabot growth investing system to Chinese stocks traded on American
exchanges as American Depositary Receipts.
But a lot of the credit goes to China, a juggernaut of economic growth
that shows no sign of slowing down.
Now, I'm not saying the road ahead is paved with diamonds. Doubtless
there will setbacks in China's growth, just as there were occasional dips
in the long rise of housing prices, and occasional bumps in the long fall
of interest rates. But I'm saying that the Chinese era is in its early
stages, and if you truly want your money to grow, you've got to have a
decent chunk in the best growth stocks of China.
So, if your goal is profits ...
If you're ready to apply the lessons of a time-tested investment strategy ...
If you're ready to invest in the leading stocks of China ...
And if you're ready to take advice from the leading expert in the field, I
invite you to join Paul Goodwin's grateful subscribers by taking a trial
subscription to Cabot China & Emerging Markets Report.
Give it a try today. With my money-back guarantee, you've got nothing to
lose and everything to gain!
http://cabotmail.net/t/864217/18273018/622/0/
Best wishes for all of your investments,
Timothy Lutts
Publisher
P.S. If you're afraid of investing in China, consider this. Many things
in life are scary until you try them ... like swimming, kissing girls and
eating sushi. But after, they become some of life's greatest pleasures.
So don't delay, try Cabot China & Emerging Markets Report today!
http://cabotmail.net/t/864217/18273018/622/0/
Saturday, January 30, 2010
Thursday, January 28, 2010
Finding micro cap stocks
Hi Tony - I tend to find ideas for stocks in a lot of different places and then do research from there. Typically, it might be something someone says on a conference call that makes me look for a competitor or supplier who might benefit or it could just be a macro thesis that I have and I then go and look for industries that would benefit. I also use various stock screeners like the one on Yahoo! and Bloomberg that allow me to filter by market cap and by other criteria such as having more assets than debt, limited goodwill positions, rising sales, positive earnings, etc.
Very rarely will I look at a stock that I feel like someone is trying to "sell" me. Whether that means a active message board, a broker or articles that seem like they are slanted or about hype. The best way to turn me off to an idea is to tell me that I need to buy now.
Since I'm typically seeking value, I prefer to find the idea on my own and then do research from there.
As far as the pink sheets go, I won't even consider a stock that trades on them. If a company isn't going to do regular filings, it's a deal killer for me. If one of the stocks I owned went to the pink sheets, I'd probably sell, but typically I go into these positions understanding that 100% loss is possible and will refuse to sell even when I'm down (with the exception of some tax loss situations) I do own one over the counter stock and while I've lost a bundle on that one, I feel more comfortable with it because it's in a highly regulated industry that would make it tough for management to commit fraud. Doesn't mean that the company can't go bankrupt, but I'd rather make a bad bet on actual business results then realize that I'm helping to fund an endless underwriting. In the past my other OTCBB investments have done very well, but you need to research their management about 20 times more than you would a small cap.
Very rarely will I look at a stock that I feel like someone is trying to "sell" me. Whether that means a active message board, a broker or articles that seem like they are slanted or about hype. The best way to turn me off to an idea is to tell me that I need to buy now.
Since I'm typically seeking value, I prefer to find the idea on my own and then do research from there.
As far as the pink sheets go, I won't even consider a stock that trades on them. If a company isn't going to do regular filings, it's a deal killer for me. If one of the stocks I owned went to the pink sheets, I'd probably sell, but typically I go into these positions understanding that 100% loss is possible and will refuse to sell even when I'm down (with the exception of some tax loss situations) I do own one over the counter stock and while I've lost a bundle on that one, I feel more comfortable with it because it's in a highly regulated industry that would make it tough for management to commit fraud. Doesn't mean that the company can't go bankrupt, but I'd rather make a bad bet on actual business results then realize that I'm helping to fund an endless underwriting. In the past my other OTCBB investments have done very well, but you need to research their management about 20 times more than you would a small cap.
10 reasons why US is down
I love my country - the chaos, the hurly burly of democracy, the hard work of quiet people on Main Street, and the great big heart, as shown by our private donations to Haiti at a time of near 20% unemployment and underemployment. We forgive wayward politicians, and athletes, let our children make more decisions than virtually any people on earth and unlike other nations, except Britain and its former colonies (I guess we are one), stand for something. A true city on a hill. But right now, the city itself is in political chaos - and a bit broke.
It is time to short the US - for a couple of years - until our crisis gets so severe Congress commits mass seppuku and replacements arrive who get something done. Perhaps Gandalf will come to us from Middle Earth and lead us to better times. I am betting on Gandalf. Yes, I am letting Obama off the hook - you always let rookies off the hook, don't you - and unless Congress changes dramatically, his rookie mistakes are going to become sophomore and junior year mistakes and the nation will suffer. I am long the US, long term - I am a Buffett kind of guy and laugh when I think of any truly long term problems in the US compared to other developed nations (more on that in a later column). But short term, well, here are ten reasons to short the US, metaphorically and in the market, in the next 1-3 years.
1. Economic Growth: We will see misleading - and therefore worse than meaningless - GDP numbers on Friday due to flawed data and inventory accumulation. In the real world, we are already entering a double dip recession and once this is over unemployment - real unemployment, which means those who have dropped off the work force, those looking for work and those looking for more than part time work - will continue near the 20% level for at least another two years.
2. Private Sector Debt: The Fortune 500 is borrowing - and no one else. Small business cannot get money, directly or via credit cards, and consumers continue to de-leverage. And they will do so for five to ten years - maybe more - as debt levels retreat to those of the early 1990s. De-leveraging drives reductions in consumer spending and asset values. Get used to it. And with this consumer discretionary stocks will stall or take a pounding, including retailers. Look at shorting the XRT.
3. Public Debt: Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as government services debt. That will not happen for a while but will start near the end of this year or early in 2011. And please, don't blame the Dems; the party of fiscal rectitude, those red state guys, doubled the debt while they controlled the White House and Congress, financing a war off the balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. Historically red staters spend more on their key constituents than the Dems, so if they grab power, nothing will change. Plenty of ETFs around to short T-Bills.
4. Housing: Ain't comin' back my friends. The bullishness and optimism on Wall Street about housing is surreal given all the data one needs to forecast housing values, mortgage defaults, foreclosures and new home starts is in the public domain or can be bought with some soft dollars not used for travel and entertainment (excuse me, that would be illegal!). You can find the data somewhere else - or read some older columns - but housing prices are going to fall for another couple of years (nationally) as foreclosures hit 6-7 million in the next 30 months and as the 600,00-800,000 homes foreclosed but not yet listed are added to housing inventory. Not to mention more than one third of Americans would sell their homes tomorrow if the price were right. Add tightened credit standards, no market for jumbo mortgages anywhere in sight, the end of the home buyer tax credit in April, and the slowing down of Fed purchases of agency debt in April. This constitutes a witches' brew that creates headwinds that will last until foreclosures peak and those homes hit the market - late 2011 to mid 2012, and foreclosures will not hit historical norms until a year or two after that date. Avoid or short the homebuilders via an ETF -- the XHB - or an individual company with a weak balance sheet.
5. Consumer Spending: The New Normal is not going to be normal as reduced national income due to unemployment, reduced consumer spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above create a new culture of a "new Frugal." We have never been good at being a frugal nation, but have been frugal in spurts and we are already seeing the beginnings of one. It would take a thousand words or more plus data to prove the point so just go to the mall and ask people questions (I do), or look at your own spending. What to short? Weak retailers and restaurants, either in overcrowded segments (Saks SKS) or weak balance sheets (Macy's M).
6. The Banks: Banks are the kink between financial markets and the Main Street economy. They are also the lubricant - when they are lending - of a growing economy. US banks, using time honored but now discarded accounting standards, are, as a group, insolvent. They are hoarding cash because deep in the recesses of little offices, they know they are insolvent if they had to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, and therefore lower profits. When interest rates rise - Federal Reserve interest rates - their spreads will contract, also hitting profits. Consumer delinquencies continue to be at historical highs yet this past earnings season the banks managed their earnings and actually reduced their loan loss provisions. And did I mention the rapid rise in defaults in commercial real estate? And Obama is not done with them. What to short? The big money center banks, not the investment banks, and check out some regionals with huge exposure to commercial real estate.
7. Congress: You could probably short Congress - metaphorically - for a century and never lose money. To steal a line from the movie Charlie Wilson's War (very true to the book by the way), "Why does Congress say one thing and do another?" He is asked and he answers "Tradition, I guess." But even by the low standards Congress sets - and should set, we are a democracy which means they are supposed to react to bad and good news, not create it - this Congress is laughable. Polarization between left and right when all the country wants is some practical intelligence residing in the political middle has frozen the indecisive (most of them) and the cowardly (those up for re-election this year). If you want to read a great piece by an acquaintance, Steve Pearlstein, Pulitzer Prize winning columnist for the Washington Post, check out his column Wednesday on the State of the Union address he would deliver. What to short? Nothing, really. It's just damned depressing.
8. Obama: He has done a fair job for a rookie given the pile he was handed - two wars with no end game or plan, a federal deficit and dent, a broken economy, broken financial markets and so on. His mistake? He believed his own campaign promises and some lousy advice from his economic advisors and made the economy a secondary priority after passing a filled stimulus bill that so far has cost us $200,00--$400,000 for every job supposedly saved or created. But he has failed to lead, and will probably do so again. His instinct is to organize and drive, not pull, and we need someone pulling the train right now. What to short? Again, nothing. Or everything.
9. The Market: The market is wildly overvalued given the trajectory of the economy. Profits cannot hold up throughout the year, and are being driven by traders. The trade of the day continues to be dollar/commodities/China but more and more individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers but bad for the vast majority of money managers who know little more than the movement of the indices. What to short? Companies with weak balance sheets; the leaders in this market that will lead the market down, the banks; and over a two year period, the market itself.
10. The Doubters: Long term, the US is in far better shape than almost all developed nations except for some of the small British colonies with commodities and reasonable public policy - Canada, Australia, New Zealand. Our population is growing faster than any OECD country; our debt is not half as bad as Japan or some European nations; our higher education system is several orders of magnitude better than all but Britain and its former colonies (trust me, I have twins going off to college this September, have visited 17 and counting); and we have an economic system and culture that lends itself to growth, not stasis. What to short? Short the doubters - go long the companies that do what the good old US of A does best - go long biotech, go long selective chip stocks, go long the great brands and innovators, i.e. Apple (AAPL).
After the State of the Union address, the blow dried pundits (or the corpulent ones with no real hair) will be screaming at us. Ignore them. Ignore people who doubt our long term future - craven fear mongers like Jim Rogers, who so admires the Chinese for all the honesty, transparency and dignity they show their own people; ratings hawkers like Glenn Beck; xenophobes like Lou Dobbs; cartoon-like ideologues ranging from Robert Reich and Paul Krugman to Rush Limbaugh - ignore them all. The ten and fifteen year plan will work. How? Turn to another movie - Shakespeare in Love - for when crisis seems to overwhelm everything and the producer of the play is confronted with disaster and asked how things will work out, he answers "I don't know, it's a mystery."
It is time to short the US - for a couple of years - until our crisis gets so severe Congress commits mass seppuku and replacements arrive who get something done. Perhaps Gandalf will come to us from Middle Earth and lead us to better times. I am betting on Gandalf. Yes, I am letting Obama off the hook - you always let rookies off the hook, don't you - and unless Congress changes dramatically, his rookie mistakes are going to become sophomore and junior year mistakes and the nation will suffer. I am long the US, long term - I am a Buffett kind of guy and laugh when I think of any truly long term problems in the US compared to other developed nations (more on that in a later column). But short term, well, here are ten reasons to short the US, metaphorically and in the market, in the next 1-3 years.
1. Economic Growth: We will see misleading - and therefore worse than meaningless - GDP numbers on Friday due to flawed data and inventory accumulation. In the real world, we are already entering a double dip recession and once this is over unemployment - real unemployment, which means those who have dropped off the work force, those looking for work and those looking for more than part time work - will continue near the 20% level for at least another two years.
2. Private Sector Debt: The Fortune 500 is borrowing - and no one else. Small business cannot get money, directly or via credit cards, and consumers continue to de-leverage. And they will do so for five to ten years - maybe more - as debt levels retreat to those of the early 1990s. De-leveraging drives reductions in consumer spending and asset values. Get used to it. And with this consumer discretionary stocks will stall or take a pounding, including retailers. Look at shorting the XRT.
3. Public Debt: Large and rapidly growing deficits and public debt at the federal and state level will eventually lead to a rise in interest rates and to the crowding out of other spending as government services debt. That will not happen for a while but will start near the end of this year or early in 2011. And please, don't blame the Dems; the party of fiscal rectitude, those red state guys, doubled the debt while they controlled the White House and Congress, financing a war off the balance sheet, led by a cheerleader in chief who told people to go shopping rather than tighten their belts after 9/11. Historically red staters spend more on their key constituents than the Dems, so if they grab power, nothing will change. Plenty of ETFs around to short T-Bills.
4. Housing: Ain't comin' back my friends. The bullishness and optimism on Wall Street about housing is surreal given all the data one needs to forecast housing values, mortgage defaults, foreclosures and new home starts is in the public domain or can be bought with some soft dollars not used for travel and entertainment (excuse me, that would be illegal!). You can find the data somewhere else - or read some older columns - but housing prices are going to fall for another couple of years (nationally) as foreclosures hit 6-7 million in the next 30 months and as the 600,00-800,000 homes foreclosed but not yet listed are added to housing inventory. Not to mention more than one third of Americans would sell their homes tomorrow if the price were right. Add tightened credit standards, no market for jumbo mortgages anywhere in sight, the end of the home buyer tax credit in April, and the slowing down of Fed purchases of agency debt in April. This constitutes a witches' brew that creates headwinds that will last until foreclosures peak and those homes hit the market - late 2011 to mid 2012, and foreclosures will not hit historical norms until a year or two after that date. Avoid or short the homebuilders via an ETF -- the XHB - or an individual company with a weak balance sheet.
5. Consumer Spending: The New Normal is not going to be normal as reduced national income due to unemployment, reduced consumer spending power due to tightened credit, reduced wealth due to falling home and stock market values and reduced confidence due to all of the above create a new culture of a "new Frugal." We have never been good at being a frugal nation, but have been frugal in spurts and we are already seeing the beginnings of one. It would take a thousand words or more plus data to prove the point so just go to the mall and ask people questions (I do), or look at your own spending. What to short? Weak retailers and restaurants, either in overcrowded segments (Saks SKS) or weak balance sheets (Macy's M).
6. The Banks: Banks are the kink between financial markets and the Main Street economy. They are also the lubricant - when they are lending - of a growing economy. US banks, using time honored but now discarded accounting standards, are, as a group, insolvent. They are hoarding cash because deep in the recesses of little offices, they know they are insolvent if they had to dump toxic assets on the market. They are also looking at reduced activity due to the economy and new taxes and regulations, and therefore lower profits. When interest rates rise - Federal Reserve interest rates - their spreads will contract, also hitting profits. Consumer delinquencies continue to be at historical highs yet this past earnings season the banks managed their earnings and actually reduced their loan loss provisions. And did I mention the rapid rise in defaults in commercial real estate? And Obama is not done with them. What to short? The big money center banks, not the investment banks, and check out some regionals with huge exposure to commercial real estate.
7. Congress: You could probably short Congress - metaphorically - for a century and never lose money. To steal a line from the movie Charlie Wilson's War (very true to the book by the way), "Why does Congress say one thing and do another?" He is asked and he answers "Tradition, I guess." But even by the low standards Congress sets - and should set, we are a democracy which means they are supposed to react to bad and good news, not create it - this Congress is laughable. Polarization between left and right when all the country wants is some practical intelligence residing in the political middle has frozen the indecisive (most of them) and the cowardly (those up for re-election this year). If you want to read a great piece by an acquaintance, Steve Pearlstein, Pulitzer Prize winning columnist for the Washington Post, check out his column Wednesday on the State of the Union address he would deliver. What to short? Nothing, really. It's just damned depressing.
8. Obama: He has done a fair job for a rookie given the pile he was handed - two wars with no end game or plan, a federal deficit and dent, a broken economy, broken financial markets and so on. His mistake? He believed his own campaign promises and some lousy advice from his economic advisors and made the economy a secondary priority after passing a filled stimulus bill that so far has cost us $200,00--$400,000 for every job supposedly saved or created. But he has failed to lead, and will probably do so again. His instinct is to organize and drive, not pull, and we need someone pulling the train right now. What to short? Again, nothing. Or everything.
9. The Market: The market is wildly overvalued given the trajectory of the economy. Profits cannot hold up throughout the year, and are being driven by traders. The trade of the day continues to be dollar/commodities/China but more and more individual stocks are being rewarded or whacked based on fundamentals, a good thing for stock pickers but bad for the vast majority of money managers who know little more than the movement of the indices. What to short? Companies with weak balance sheets; the leaders in this market that will lead the market down, the banks; and over a two year period, the market itself.
10. The Doubters: Long term, the US is in far better shape than almost all developed nations except for some of the small British colonies with commodities and reasonable public policy - Canada, Australia, New Zealand. Our population is growing faster than any OECD country; our debt is not half as bad as Japan or some European nations; our higher education system is several orders of magnitude better than all but Britain and its former colonies (trust me, I have twins going off to college this September, have visited 17 and counting); and we have an economic system and culture that lends itself to growth, not stasis. What to short? Short the doubters - go long the companies that do what the good old US of A does best - go long biotech, go long selective chip stocks, go long the great brands and innovators, i.e. Apple (AAPL).
After the State of the Union address, the blow dried pundits (or the corpulent ones with no real hair) will be screaming at us. Ignore them. Ignore people who doubt our long term future - craven fear mongers like Jim Rogers, who so admires the Chinese for all the honesty, transparency and dignity they show their own people; ratings hawkers like Glenn Beck; xenophobes like Lou Dobbs; cartoon-like ideologues ranging from Robert Reich and Paul Krugman to Rush Limbaugh - ignore them all. The ten and fifteen year plan will work. How? Turn to another movie - Shakespeare in Love - for when crisis seems to overwhelm everything and the producer of the play is confronted with disaster and asked how things will work out, he answers "I don't know, it's a mystery."
Wednesday, January 20, 2010
Market timer guru
The following confirming market uptrend was written by a market guru yesterday and today the market is plunging. What we learn are:
* Even the best guru could not predict the market direction esp. short-term.
* There is no perfect market timing.
* However, the author has a good opinion on the sectors.
* I did OK if the market still slides in next few days. Yesterday I thought my market timing on down trend was dead wrong. So, never be too emotionally attached. Guessing right 51% of the time could beat S&P by a good margin.
----------
The DJIA, S&P 500, NASDAQ Composite, and the NYSE Cumulative Daily Advance-Decline Line all rose to new 15-month highs, thereby confirming a broad-based, major uptrend for the general market. All 3 indexes remain well above 50- and 200-day simple moving averages, which are rising bullishly.
Not all stocks are so strong. So, stock selection remains critical.
Health Care Stock Sector Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
11.01% , CIEN.O , CIENA
8.10% , WMB , WILLIAMS
7.04% , EP , EL PASO
1.71% , SWH , Software H, SWH
7.07% , HUM , HUMANA
1.50% , PWO , OTC Dynamic PS, PWO
4.44% , LLY , ELI LILLY
4.88% , PH , PARKER HANNIFIN
1.73% , TYC , TYCO INTL
1.24% , ELG , Growth Large Cap, ELG
1.46% , DSG , Growth Small Cap DJ, DSG
2.18% , RZV , Value SmallCap S&P 600, RZV
1.31% , DGT , Global Titans, DGT
4.00% , LBTYA , Liberty Global Inc. (LBTYA)
5.61% , GRMN , GARMIN LTD
3.96% , MET , METLIFE
1.98% , IYH , Healthcare DJ, IYH
2.25% , RYAAY , Ryanair Holdings plc
1.76% , PWY , Value SmallCap Dynamic PS, PWY
2.85% , CEPH , Cephalon Inc
1.15% , JKD , LargeCap Blend Core iS M, JKD
1.08% , NY , Value LargeCap NYSE 100 iS, NY
1.95% , NWL , NEWELL RUBBER
2.93% , CI , CIGNA
1.83% , PWP , Value MidCap Dynamic PS, PWP
2.27% , WPI , WATSON PHARM
3.03% , HSY , HERSHEY FOODS
1.21% , ISI , LargeCap Blend S&P 1500 iS, ISI
1.14% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
0.84% , PBJ , Food & Beverage, PBJ
5.23% , ZION , ZIONS
1.89% , PZI , Micro Cap Zachs, PZI
2.14% , PBE , Biotech & Genome, PBE
1.51% , UTH , Utilities H, UTH
1.89% , PIC , Insurance, PIC
2.56% , SEE , SEALED AIR
2.42% , XLV , Health Care SPDR, XLV
1.89% , IYM , Basic Materials DJ US, IYM
1.45% , PMR , Retail, PMR
1.41% , IGE , Natural Resource iS GS, IGE
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.27% , FAST , Fastenal Company
-2.35% , HMA , HEALTH MGMT STK A
-3.46% , THC , TENET HEALTHCARE
-2.05% , FHN , FIRST TENNESSEE
-2.17% , FRE , FREDDIE MAC
-1.33% , TAP , ADOLPH COORS STK B, TAP
-2.15% , DXD , Short 200% Dow 30 PS, DXD
-0.75% , CECO , CAREER EDUCATION CORP
-1.55% , CVG , CONVERGYS
-0.47% , PGF , Financial Preferred, PGF
-0.26% , LTD , LIMITED BRANDS
-0.30% , SIRI , Sirius Satellite
-1.40% , LVLT , LEVEL 3 COMMUNICATIONS
-0.33% , RDC , ROWAN COMPANIES
-0.53% , USB , US BANCORP
-0.21% , BAX , BAXTER INTL
-0.19% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.16% , AGG , Bond, Aggregate, AGG
-0.89% , NIHD , NII Holdings, Inc.
-0.78% , PAYX , PAYCHEX
-0.61% , PMCS , PMC SIERRA
-0.08% , TIP , Bond, TIPS, TIP
-0.09% , PHM , PULTE HOMES
-0.28% , BA , BOEING
-0.20% , MO , ALTRIA, MO
-1.33% , ABK , AMBAC FINL GRP
-0.06% , AA , ALCOA
9 major U.S. stock sectors ranked in order of long-term relative strength:
Health Care (XLV) Neutral, Market Weight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) fell below the lows of the previous 5 weeks on 1/12/10, but it has stabilized since then, although it remains slightly below its 50- day simple moving average. More significantly, XLY/SPY rose above its highs of the previous 32-months on 12/23/09, confirming its preexisting major uptrend. XLY/SPY remains above its rising 200-day simple moving average. Absolute price of XLY moved above its highs of the previous 15 months on 1/7/10. Support 29.77, 29.22, and 28.73. Resistance 30.54, 31.95 and 33.76.
Technology (XLK) Bullish, Overweight. The Relative Strength Ratio (XLK/SPY) fell further below the lows of the previous 6 weeks on 1/15/10, confirming a short-term pullback. This after rising above its highs of the previous 7-years on 12/31/09. XLK/SPY fell below its rising 50- day simple moving average on 1/11/10 but remains above its rising 200-day simple moving average. Absolute price of XLK fell to its lowest level in 3 weeks on 1/1/10. Support 22.46, 22.36 and 22.06. Resistance 23.15, 23.30, 23.48 and 23.83.
Materials (XLB) Bullish, Overweight. The Relative Strength Ratio (XLB/SPY) ) fell below the lows of the previous 8 days on 1/14/10, confirming a short-term pullback. More significantly, XLB/SPY broke out above 15-month highs on 1/6/10. XLB/SPY remains above its 50- and 200-day simple moving averages, which are rising bullishly. Absolute price of XLB rose above 15-month highs on 1/8/10. Support 33.63, 32.99 and 31.67. Resistance 34.52, 35.38, 35.55, 37.10, and 37.56.
Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) rose above its highs of the previous 11-months on 1/12/10. Despite a modest pullback, XLI/SPY remains above rising 50-day and 200-day simple moving averages. Absolute price of XLI moved above its highs of the previous 15 months on 1/11/10. Support 28.56, 27.67 and 27.46. Resistance 29.61. 30.56 and 32.00.
Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) has been in a choppy sideways range for the past 15 months. XLE/SPY hovering near its 50- and 200-day simple moving averages. Absolute price of XLE briefly traded above 15-month highs on 1/11/10 but quickly pulled back into a trading range. Support 58.25, 56.98, and 55.88. Resistance 60.87 and 62.73.
Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) eased moderately below its lows of the previous 15 months on 1/8/10. XLP/SPY is below its falling 50- and 200-day simple moving averages. Absolute price of XLP has been correcting and consolidating gains since making a 14-month high on 12/4/09. Support 26.38, 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.
Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09. XLF/SPY crossed below its 50-day simple moving average on 1/15/10 and is now below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09. Support 14.59, 14.30 and 14.01. Resistance 15.40 and15.76.
Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY remains moderately below its 50- and 200-day simple moving averages. Absolute price of XLU has been in a correction since 12/14/09. Support 30.52, 30.28 and 30.19. Resistance 31.64 and 32.08.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) and absolute price both fell below 9-day lows on 1/15/10 to confirm a short-term pullback. Both remain above rising 200-day simple moving averages, indicating bullish trends for the intermediate term.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 50- and 200-day simple moving averages on 1/14/10. EFA absolute price rose to a 15-month high on 1/14/10--but still EFA has underperformed the SPY since 9/9/09.
NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price moved above its highs of the previous 15 months on 1/19/10.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages. Absolute price of IWM rose above 15-month highs on 1/8/10.
The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 8 weeks on 12/23/09 and has been going sideways since. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/8/10.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback. In any event, Oil remains above both rising 50- and 200-day simple moving averages, which normally is positive for the intermediate term. Support 76.76, 75.65 and 72.72. Resistance 80.36, 83.95, 85.82 and 98.65.
CRB Index absolute price closed above its highs of the previous 14 months on 1/6/10 but has been in a moderate correction since.
Gold nearest futures contract price rose above the highs of the previous 5-weeks on 1/11/10. The short-term trend still appears bullish. Gold remains above its 50-day and 200-day simple moving averages. Support 1118.5, 1115.5 and 1086.6. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.
Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell below both 50- and 200-day simple moving averages on 1/15/10. The mining stocks have underperformed bullion since 9/17/09.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
Copper nearest futures contract price closed above 3-day highs on 1/19/10. Copper has been consolidating gains, short term, since making a 15-month highs on 1/7/10. Copper remains in a long-term major bullish trend. Rising copper prices suggest growing confidence about global economic prospects. Support 3.264 and 3.09. Resistance 3.544, 3.5625, 3.5625, and 3.79.
U.S. Treasury Bond nearest futures contract price consolidated short-term gains after rising above the highs of the previous 3 weeks on 1/15/10. That was a bullish signal for the short term. The problem is that the Bond fell below 6-month lows on 12/31/09, which confirmed its preexisting downtrend for the intermediate term. The Bond remains below its 50- and 200-day simple moving averages, which is bearish. Support 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.
Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) and absolute price both rose above the highs of the previous 15 months on 1/8/10, and both remain above rising 50- and 200-day simple moving averages. They have been consolidating gains mildly since1/8/10.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.
The U.S. dollar nearest futures contract price moved above 5-day highs on 1/19/10, after falling below the lows of the previous 4 weeks on 1/13/10. The short-term trend appears uncertain. USD has been holding above its rising 50-day simple moving average but is still below its falling 200-day simple moving average (since last May). Support 76.74 and 75.90. Resistance 78.44, 78.77 and 79.00.
The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.
Advisory Service Sentiment: There were 53.4% Bulls versus 15.9% Bears as of 1/13/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 3.36, up from 2.86 the previous week. This is the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.
VIX Fear Index collapsed to 17.55 on 1/11/10, its lowest level in 26 months, indicating falling levels of fear and growing confidence in the stock market. VIX is down from a closing high of 80.86 set on 11/20/08. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.
VXN Fear Index collapsed to 18.47 on 1/11/10, its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.
ISEE Call/Put Ratio rose to 1.68 on 1/11/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.
CBOE Put/Call Ratio fell to 0.49 on 1/8/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.
The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.
S&P 500 Composite (SPX) rose above the highs of the previous 15 months on 1/19/10, confirming its preexisting Bullish Major Trend. SPX remains well above its rising 50- and 200-day simple moving averages. Support 1,130.38, 1,114.81 and 1,103.74. Resistance 1,158.76 and 1,220.03.
S&P 500 Cash Index Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,381.50, Fibonacci 78.6% of 2007-2009 range
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,238.81, Fibonacci 78.6% of 1,576.09 high
1,228.74, Fibonacci 61.8% of 2007-2009 range
1,220.03, high of 9/25/2008
1,158.76, EW ABC measured move target
S&P 500 Cash Index Potential Support
1,130.38, high of 12/29/2009
1,114.81, low of 12/31/2009
1,103.74, high of 12/18/2009
1,093.88, low of 12/18/2009
1,083.74, low of 11/27/2009
1,066.83, high of 10/29/2009
1,029.38, low of 11/2/2009
1,019.85, low of 10/2/2009
1,014.14, Fibonacci 38.2% of 2007-2009 drop
1,007.78, Gann 37.5% of 2007-2009 range
998.80, Fibonacci 23.6% Retrace of 2009 range
991.97, low of 9/2/2009
992.72, Gann 25% Retrace of 2009 range
978.51, low of 8/17/2009
956.50, Dow 33.3% Retrace of 2009 range
956.23, high of 6/11/2009
935.35, Fibonacci 38.2% Retrace of 2009 range
930.17, high of 5/8/2009
884.08, Fibonacci 50% of 2009 range
869.32, low of 7/8/2009
826.83, low of 4/21/2009
832.80, Fibonacci 61.8% Retrace of 2009 range
814.53, low of 4/7/2009
813.62, high of 4/1/2009
779.81, low of 3/30/2009
775.43, Gann 75% Retrace of 2009 range
759.79, Fibonacci 78.6% Retrace of 2009 range
721.11, Gann 87.5% Retrace of 2009 range
666.79, intraday low of 3/6/2009
602.07, Fibonacci 38.2% of 1,576.09 high
One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
3.18% China 25 iS, FXI
3.14% Ultra QQQ Double, QLD
2.53% SmallCap PS Zacks, PZJ
2.47% Ultra S&P500 Double, SSO
2.46% Ultra MidCap400 Double, MVV
2.42% Health Care SPDR, XLV
2.31% Microcap Russell, IWC
2.27% Biotech SPDR, XBI
2.22% Realty Cohen & Steers, ICF
2.22% Silver Trust iS, SLV
2.18% Value SmallCap S&P 600, RZV
2.17% REIT Wilshire, RWR
2.16% Pharmaceutical H, PPH
2.14% Biotech & Genome, PBE
2.14% Ultra Dow30 Double, DDM
2.09% India Earnings WTree, EPI
2.08% European VIPERs, VGK
2.06% South Korea Index, EWY
2.04% REIT VIPERs, VNQ
2.03% Health Care VIPERs, VHT
2.03% Emerging Markets, EEM
1.99% Pharmaceuticals, PJP
1.99% Real Estate US DJ, IYR
1.98% Healthcare DJ, IYH
1.94% Value LargeCap Euro STOXX 50 DJ, FEU
1.94% Healthcare Global, IXJ
1.93% Metals & Mining SPDR, XME
1.93% Biotech H, BBH
1.93% Internet Architecture H, IAH
1.91% Value SmallCap Russell 2000, IWN
1.90% Singapore Index, EWS
1.89% Insurance, PIC
1.89% Micro Cap Zachs, PZI
1.89% Basic Materials DJ US, IYM
1.84% SmallCap Russell 2000, IWM
1.83% Value MidCap Dynamic PS, PWP
1.81% LargeCap Blend Dynamic PS, PWC
1.76% Value SmallCap Dynamic PS, PWY
1.75% SmallCap S&P 600, IJR
1.75% Latin Am 40, ILF
1.73% Emerging VIPERs, VWO
1.72% Technology SPDR, XLK
1.71% Software H, SWH
1.71% Materials VIPERs, VAW
1.68% Growth SmallCap VIPERs, VBK
1.68% Value MidCap Russell, IWS
1.66% Growth BARRA Small Cap 600, IJT
1.64% Value 40 Large Low P/E FT DB, FDV
1.63% Value SmallCap S&P 600 B, IJS
1.62% Small Cap VIPERs, VB
1.61% Growth LargeCap NASDAQ 100, QQQQ
1.61% Dividend Leaders, FDL
1.60% Materials SPDR, XLB
1.60% Mexico Index, EWW
1.59% Growth SmallCap R 2000, IWO
1.56% Value SmallCap VIPERS, VBR
1.55% Growth SmallCap Dynamic PS, PWT
1.53% Value LargeCap Dynamic PS, PWV
1.53% Value Small Cap DJ, DSV
1.52% Technology DJ US, IYW
1.51% Value Line Timeliness MidCap Gr, PIV
1.51% Utilities H, UTH
1.50% OTC Dynamic PS, PWO
1.49% Growth SmallCap iS M, JKK
1.48% Australia Index, EWA
1.47% Homebuilders SPDR, XHB
1.47% Brazil Index, EWZ
1.46% Growth Small Cap DJ, DSG
1.45% Retail, PMR
1.45% Value SmallCap iS M, JKL
1.45% Semiconductor H, SMH
1.44% SmallCap Core iS M, JKJ
1.44% United Kingdom Index, EWU
1.43% Technology GS, IGM
1.41% Networking, IGN
1.41% LargeCap Blend Russell 3000, IWV
1.41% Natural Resource iS GS, IGE
1.41% LargeCap Blend S&P=Weight R, RSP
1.39% Value MidCap S&P 400 B, IJJ
1.39% Info Tech VIPERs, VGT
1.38% Oil, Crude, U.S. Oil Fund, USO
1.37% MidCap Blend Core iS M, JKG
1.37% Pacific ex-Japan, EPP
1.36% Spain Index, EWP
1.35% South Africa Index, EZA
1.35% Semiconductor SPDR, XSD
1.34% Emerging 50 BLDRS, ADRE
1.33% Consumer Discretionary SPDR, XLY
1.33% Growth S&P 500/BARRA, IVW
1.33% Nanotech Lux, PXN
1.32% Dividend SPDR, SDY
1.32% Blend Total Market VIPERs, VTI
1.31% Global Titans, DGT
1.29% Value VIPERs, VTV
1.29% Oil & Gas, PXJ
1.29% Value S&P 500 B, IVE
1.29% Value S&P 500, RPV
1.28% Dividend High Yield Equity PS, PEY
1.28% Software, PSJ
1.28% Growth VIPERs, VUG
1.28% MidCap S&P 400 SPDRs, MDY
1.27% Growth LargeCap NASDAQ Fidelity, ONEQ
1.27% Hong Kong Index, EWH
1.27% Financial SPDR, XLF
1.27% Extended Mkt VIPERs, VXF
1.26% LargeCap Blend Socially Responsible iS, KLD
1.25% Telecom H, TTH
1.25% S&P 500 SPDRs LargeCap Blend, SPY
1.25% MidCap Russell, IWR
1.24% Value LargeCap Russell 3000, IWW
1.24% Growth Large Cap, ELG
1.24% S&P 500 iS LargeCap Blend, IVV
1.23% Building & Construction, PKB
1.23% LargeCap 1000 R, IWB
1.23% Utilities VIPERs, VPU
1.23% Value MidCap iS M, JKI
1.22% Growth MidCap 400 B, IJK
1.22% LargeCap VIPERs, VV
1.21% Utilities DJ, IDU
1.21% Capital Markets KWB ST, KCE
1.21% LargeCap Blend S&P 1500 iS, ISI
1.20% Leisure & Entertainment, PEJ
1.20% MidCap VIPERs, VO
1.20% Euro STOXX 50, FEZ
1.20% Financials VIPERs, VFH
1.20% MidCap S&P 400 iS, IJH
1.20% Financial DJ US, IYF
1.19% Growth LargeCap iS M, JKE
1.19% LargeCap Blend Total Market DJ, IYY
1.19% Developed 100 BLDRS, ADRD
1.18% Value LargeCap iS M, JKF
1.17% Malaysia Index, EWM
1.17% Energy Exploration & Prod, PXE
1.16% Utilities SPDR, XLU
1.16% LargeCap Rydex Rus Top 50, XLG
1.16% LargeCap Blend S&P 100, OEF
1.16% Growth EAFE MSCI, EFG
1.16% Growth S&P 500, RPG
1.15% LargeCap Blend Core iS M, JKD
1.15% Semiconductor iS GS, IGW
1.14% Value LargeCap Fundamental RAFI 1000, PRF
1.14% Lg Cap Growth PSD, PWB
1.14% Global 100, IOO
1.14% Value Large Cap DJ, ELV
1.13% Oil Services H, OIH
1.12% Wilshire 5000 ST TM, TMW
1.12% Growth LargeCap Russell 3000, IWZ
1.12% Retail H, RTH
1.11% Dividend Appreciation Vipers, VIG
1.10% Industrial SPDR, XLI
1.10% Dividend DJ Select, DVY
1.10% LargeCap Blend NYSE Composite iS, NYC
1.09% DIAMONDS (DJIA), DIA
1.09% Growth 1000 Russell, IWF
1.08% Value LargeCap NYSE 100 iS, NY
1.08% Semiconductors, PSI
1.06% Software, IGV
1.06% Technology Global, IXN
1.06% Europe 350 S&P Index, IEV
1.06% Internet Infrastructure H, IIH
1.06% Industrial LargeCap Blend DJ US, IYJ
1.05% EMU Europe Index, EZU
1.05% Sweden Index, EWD
1.04% Water Resources, PHO
1.03% Value 1000 Russell, IWD
1.03% Technology MS sT, MTK
1.00% Utilities, PUI
1.00% Consumer D. VIPERs, VCR
1.00% Telecom Services VIPERs, VOX
1.00% Growth MidCap S&P 400, RFG
0.99% Consumer Cyclical DJ, IYC
0.98% Europe 100 BLDRS, ADRU
0.98% EAFE Index, EFA
0.97% Dividend International, PID
0.97% Telecommunications Global, IXP
0.94% Dividend Achievers PS, PFM
0.94% Telecommunications & Wireless, PTE
0.94% Value EAFE MSCI, EFV
0.94% Growth MidCap Russell, IWP
0.93% Energy VIPERs, VDE
0.91% Energy SPDR, XLE
0.89% Industrials VIPERs, VIS
0.87% Growth Mid Cap Dynamic PS, PWJ
0.84% Food & Beverage, PBJ
0.80% China LargeCap Growth G D H USX PS, PGJ
0.79% Aerospace & Defense, PPA
0.77% Telecom DJ US, IYZ
0.77% Financial Services DJ, IYG
0.76% Energy DJ, IYE
0.74% MidCap Growth iS M, JKH
0.74% Internet H, HHH
0.73% Asia 50 BLDRS, ADRA
0.72% France Index, EWQ
0.69% Consumer Non-Cyclical, IYK
0.67% Germany Index, EWG
0.66% Commodity Tracking, DBC
0.65% Italy Index, EWI
0.63% Consumer Staples VIPERs, VDC
0.61% Switzerland Index, EWL
0.60% Consumer Staples SPDR, XLP
0.60% Gold Shares S.T., GLD
0.55% Pacific VIPERs, VPL
0.49% Energy Global, IXC
0.49% Financials Global LargeCap Value, IXG
0.47% Netherlands Index, EWN
0.46% WilderHill Clean Energy PS, PBW
0.43% Short 200% US T Bond, TBT
0.36% Transportation Av DJ, IYT
0.30% Taiwan Index, EWT
0.30% Short 200% Bond 7-10 Yr T, PST
0.28% Bank Regional H, RKH
0.20% IPOs, First Tr IPOX-100, FPX
0.11% Canada Index, EWC
0.09% Bond, Corp, LQD
0.08% Belgium Index, EWK
0.04% Bond, High-Yield Corporate, HYG
0.02% Bond, 1-3 Year Treasury, SHY
0.00% Austria Index, EWO
-0.08% Bond, TIPS, TIP
-0.08% Preferred Stock iS, PFF
-0.10% Japan Index, EWJ
-0.16% Bond, Aggregate, AGG
-0.18% Bond, 10 Year Treasury, IEF
-0.19% Japan LargeCap Blend TOPIX 150, ITF
-0.29% Bond, 20+ Years Treasury, TLT
-0.47% Financial Preferred, PGF
-1.07% Short 100% Dow 30, DOG
-1.17% Short 100% MidCap 400, MYY
-1.22% Short 100% S&P 500, SH
-1.60% Internet B2B H, BHH
-1.72% Short 100% QQQ, PSQ
-2.15% Short 200% Dow 30 PS, DXD
-2.38% Short 200% S&P 500 PS, SDS
-2.53% Short 200% MidCap 400 PS, MZZ
-3.17% Short 200% QQQ PS, QID
* Even the best guru could not predict the market direction esp. short-term.
* There is no perfect market timing.
* However, the author has a good opinion on the sectors.
* I did OK if the market still slides in next few days. Yesterday I thought my market timing on down trend was dead wrong. So, never be too emotionally attached. Guessing right 51% of the time could beat S&P by a good margin.
----------
The DJIA, S&P 500, NASDAQ Composite, and the NYSE Cumulative Daily Advance-Decline Line all rose to new 15-month highs, thereby confirming a broad-based, major uptrend for the general market. All 3 indexes remain well above 50- and 200-day simple moving averages, which are rising bullishly.
Not all stocks are so strong. So, stock selection remains critical.
Health Care Stock Sector Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
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Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
11.01% , CIEN.O , CIENA
8.10% , WMB , WILLIAMS
7.04% , EP , EL PASO
1.71% , SWH , Software H, SWH
7.07% , HUM , HUMANA
1.50% , PWO , OTC Dynamic PS, PWO
4.44% , LLY , ELI LILLY
4.88% , PH , PARKER HANNIFIN
1.73% , TYC , TYCO INTL
1.24% , ELG , Growth Large Cap, ELG
1.46% , DSG , Growth Small Cap DJ, DSG
2.18% , RZV , Value SmallCap S&P 600, RZV
1.31% , DGT , Global Titans, DGT
4.00% , LBTYA , Liberty Global Inc. (LBTYA)
5.61% , GRMN , GARMIN LTD
3.96% , MET , METLIFE
1.98% , IYH , Healthcare DJ, IYH
2.25% , RYAAY , Ryanair Holdings plc
1.76% , PWY , Value SmallCap Dynamic PS, PWY
2.85% , CEPH , Cephalon Inc
1.15% , JKD , LargeCap Blend Core iS M, JKD
1.08% , NY , Value LargeCap NYSE 100 iS, NY
1.95% , NWL , NEWELL RUBBER
2.93% , CI , CIGNA
1.83% , PWP , Value MidCap Dynamic PS, PWP
2.27% , WPI , WATSON PHARM
3.03% , HSY , HERSHEY FOODS
1.21% , ISI , LargeCap Blend S&P 1500 iS, ISI
1.14% , PRF , Value LargeCap Fundamental RAFI 1000, PRF
0.84% , PBJ , Food & Beverage, PBJ
5.23% , ZION , ZIONS
1.89% , PZI , Micro Cap Zachs, PZI
2.14% , PBE , Biotech & Genome, PBE
1.51% , UTH , Utilities H, UTH
1.89% , PIC , Insurance, PIC
2.56% , SEE , SEALED AIR
2.42% , XLV , Health Care SPDR, XLV
1.89% , IYM , Basic Materials DJ US, IYM
1.45% , PMR , Retail, PMR
1.41% , IGE , Natural Resource iS GS, IGE
Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.27% , FAST , Fastenal Company
-2.35% , HMA , HEALTH MGMT STK A
-3.46% , THC , TENET HEALTHCARE
-2.05% , FHN , FIRST TENNESSEE
-2.17% , FRE , FREDDIE MAC
-1.33% , TAP , ADOLPH COORS STK B, TAP
-2.15% , DXD , Short 200% Dow 30 PS, DXD
-0.75% , CECO , CAREER EDUCATION CORP
-1.55% , CVG , CONVERGYS
-0.47% , PGF , Financial Preferred, PGF
-0.26% , LTD , LIMITED BRANDS
-0.30% , SIRI , Sirius Satellite
-1.40% , LVLT , LEVEL 3 COMMUNICATIONS
-0.33% , RDC , ROWAN COMPANIES
-0.53% , USB , US BANCORP
-0.21% , BAX , BAXTER INTL
-0.19% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-0.16% , AGG , Bond, Aggregate, AGG
-0.89% , NIHD , NII Holdings, Inc.
-0.78% , PAYX , PAYCHEX
-0.61% , PMCS , PMC SIERRA
-0.08% , TIP , Bond, TIPS, TIP
-0.09% , PHM , PULTE HOMES
-0.28% , BA , BOEING
-0.20% , MO , ALTRIA, MO
-1.33% , ABK , AMBAC FINL GRP
-0.06% , AA , ALCOA
9 major U.S. stock sectors ranked in order of long-term relative strength:
Health Care (XLV) Neutral, Market Weight. The Relative Strength Ratio (XLV/SPY) rose above 6-month highs on 1/19/10. XLV/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of XLV closed above its highs of the previous 15 months on 1/19/10. Support 32.03, 31.61, 31.07 and 30.88. Resistance 33.08, 33.37 and 33.74.
Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) fell below the lows of the previous 5 weeks on 1/12/10, but it has stabilized since then, although it remains slightly below its 50- day simple moving average. More significantly, XLY/SPY rose above its highs of the previous 32-months on 12/23/09, confirming its preexisting major uptrend. XLY/SPY remains above its rising 200-day simple moving average. Absolute price of XLY moved above its highs of the previous 15 months on 1/7/10. Support 29.77, 29.22, and 28.73. Resistance 30.54, 31.95 and 33.76.
Technology (XLK) Bullish, Overweight. The Relative Strength Ratio (XLK/SPY) fell further below the lows of the previous 6 weeks on 1/15/10, confirming a short-term pullback. This after rising above its highs of the previous 7-years on 12/31/09. XLK/SPY fell below its rising 50- day simple moving average on 1/11/10 but remains above its rising 200-day simple moving average. Absolute price of XLK fell to its lowest level in 3 weeks on 1/1/10. Support 22.46, 22.36 and 22.06. Resistance 23.15, 23.30, 23.48 and 23.83.
Materials (XLB) Bullish, Overweight. The Relative Strength Ratio (XLB/SPY) ) fell below the lows of the previous 8 days on 1/14/10, confirming a short-term pullback. More significantly, XLB/SPY broke out above 15-month highs on 1/6/10. XLB/SPY remains above its 50- and 200-day simple moving averages, which are rising bullishly. Absolute price of XLB rose above 15-month highs on 1/8/10. Support 33.63, 32.99 and 31.67. Resistance 34.52, 35.38, 35.55, 37.10, and 37.56.
Industrial (XLI) Neutral, Market Weight. The Relative Strength Ratio (XLI/SPY) rose above its highs of the previous 11-months on 1/12/10. Despite a modest pullback, XLI/SPY remains above rising 50-day and 200-day simple moving averages. Absolute price of XLI moved above its highs of the previous 15 months on 1/11/10. Support 28.56, 27.67 and 27.46. Resistance 29.61. 30.56 and 32.00.
Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) has been in a choppy sideways range for the past 15 months. XLE/SPY hovering near its 50- and 200-day simple moving averages. Absolute price of XLE briefly traded above 15-month highs on 1/11/10 but quickly pulled back into a trading range. Support 58.25, 56.98, and 55.88. Resistance 60.87 and 62.73.
Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) eased moderately below its lows of the previous 15 months on 1/8/10. XLP/SPY is below its falling 50- and 200-day simple moving averages. Absolute price of XLP has been correcting and consolidating gains since making a 14-month high on 12/4/09. Support 26.38, 25.96 and 25.77. Resistance 27.04, 27.18 and 29.29.
Financial (XLF) Bearish, Underweight. The Relative Strength Ratio (XLF/SPY) has been in a downward correction since 10/14/09. XLF/SPY crossed below its 50-day simple moving average on 1/15/10 and is now below both 50- and 200-day simple moving averages. Absolute price of XLF has been in a correction/consolidation phase since 10/14/09. Support 14.59, 14.30 and 14.01. Resistance 15.40 and15.76.
Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) may be attempting to stabilize since probing 2-year lows on 11/18/09. XLU/SPY remains moderately below its 50- and 200-day simple moving averages. Absolute price of XLU has been in a correction since 12/14/09. Support 30.52, 30.28 and 30.19. Resistance 31.64 and 32.08.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) and absolute price both fell below 9-day lows on 1/15/10 to confirm a short-term pullback. Both remain above rising 200-day simple moving averages, indicating bullish trends for the intermediate term.
Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 50- and 200-day simple moving averages on 1/14/10. EFA absolute price rose to a 15-month high on 1/14/10--but still EFA has underperformed the SPY since 9/9/09.
NASDAQ Composite/S&P 500 Relative Strength Ratio rose above its highs of the previous 8-years on 1/4/10 and remains above its rising 50- and 200-day simple moving averages. Absolute price moved above its highs of the previous 15 months on 1/19/10.
Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 7-day highs on 1/19/10 and rose above its 200-day simple moving averages on 1/12/10. Absolute price of IWF rose above 15-month highs on 1/19/10.
Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) fell below its 200-day simple moving average on 1/19/10. IWD/SPY has been in a downtrend since 9/18/09.
The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) rose further above previous 6-year highs on 1/8/10. RSP/SPY remains above its rising 50- and 200-day simple moving averages. Absolute price of RSP rose to a new 15-month closing price high on 1/8/10.
The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell further below the lows of the previous 3 months on 12/22/09. OEX/SPX remains below its falling 50- and 200-day simple moving averages.
The Small Cap/Large Cap Relative Strength Ratio (IWM/SPY) rose above 2-week highs on 1/19/10. IWM/SPY remains above both its 50- and 200-day simple moving averages. Absolute price of IWM rose above 15-month highs on 1/8/10.
The Mid Cap/Large Cap Relative Strength Ratio (MDY/SPY) rose above the highs of the previous 8 weeks on 12/23/09 and has been going sideways since. MDY/SPY remains above its 50- and 200-day simple moving averages. Absolute price of MDY rose above 15-month highs on 1/8/10.
Crude Oil nearest futures contract price fell below 3-week lows on 1/19/10 but reversed to close higher on the day. Such a one-day reversal may or may not end Oil’s short-term price pullback. In any event, Oil remains above both rising 50- and 200-day simple moving averages, which normally is positive for the intermediate term. Support 76.76, 75.65 and 72.72. Resistance 80.36, 83.95, 85.82 and 98.65.
CRB Index absolute price closed above its highs of the previous 14 months on 1/6/10 but has been in a moderate correction since.
Gold nearest futures contract price rose above the highs of the previous 5-weeks on 1/11/10. The short-term trend still appears bullish. Gold remains above its 50-day and 200-day simple moving averages. Support 1118.5, 1115.5 and 1086.6. Resistance 1163.0, 1170.2, 1196.8 and 1226.4.
Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell below both 50- and 200-day simple moving averages on 1/15/10. The mining stocks have underperformed bullion since 9/17/09.
Silver/Gold Ratio rose further above rising 50- and 200-day simple moving averages on 1/19/10, suggesting rising confidence in the world economy.
Copper nearest futures contract price closed above 3-day highs on 1/19/10. Copper has been consolidating gains, short term, since making a 15-month highs on 1/7/10. Copper remains in a long-term major bullish trend. Rising copper prices suggest growing confidence about global economic prospects. Support 3.264 and 3.09. Resistance 3.544, 3.5625, 3.5625, and 3.79.
U.S. Treasury Bond nearest futures contract price consolidated short-term gains after rising above the highs of the previous 3 weeks on 1/15/10. That was a bullish signal for the short term. The problem is that the Bond fell below 6-month lows on 12/31/09, which confirmed its preexisting downtrend for the intermediate term. The Bond remains below its 50- and 200-day simple moving averages, which is bearish. Support 115.24, 114.16, 113.04 and 112.15. Resistance 119.08 and 120.08.
Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) and absolute price both rose above the highs of the previous 15 months on 1/8/10, and both remain above rising 50- and 200-day simple moving averages. They have been consolidating gains mildly since1/8/10.
U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) rose to another new 15-month high on 1/7/10, again confirming a bullish long-term trend. TIP/IEF remains above rising 50- and 200-day simple moving averages. Bond investors may be growing increasingly concerned about the inflation outlook, despite assurances of tame inflation by economists.
The U.S. dollar nearest futures contract price moved above 5-day highs on 1/19/10, after falling below the lows of the previous 4 weeks on 1/13/10. The short-term trend appears uncertain. USD has been holding above its rising 50-day simple moving average but is still below its falling 200-day simple moving average (since last May). Support 76.74 and 75.90. Resistance 78.44, 78.77 and 79.00.
The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.
Advisory Service Sentiment: There were 53.4% Bulls versus 15.9% Bears as of 1/13/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio was 3.36, up from 2.86 the previous week. This is the highest ratio of bullish sentiment in 6 years. The 20-year range of the ratio is 0.41 to 3.74, the median is 1.50, and the mean is 1.57.
VIX Fear Index collapsed to 17.55 on 1/11/10, its lowest level in 26 months, indicating falling levels of fear and growing confidence in the stock market. VIX is down from a closing high of 80.86 set on 11/20/08. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.
VXN Fear Index collapsed to 18.47 on 1/11/10, its lowest level in 26 months. VXN is down from a closing high of 80.64 set on 11/20/08. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.
ISEE Call/Put Ratio rose to 1.68 on 1/11/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 1.41, its median is 1.36, and its range is 0.51 to 3.16.
CBOE Put/Call Ratio fell to 0.49 on 1/8/10, a level indicating above-normal optimism. The ratio’s 6-year mean is 0.66, its median is 0.64, and its range is 0.35 to 1.35.
The Dow Theory last confirmed a Bullish Major Trend on 1/11/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 14 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 signal reversed the previous signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.
S&P 500 Composite (SPX) rose above the highs of the previous 15 months on 1/19/10, confirming its preexisting Bullish Major Trend. SPX remains well above its rising 50- and 200-day simple moving averages. Support 1,130.38, 1,114.81 and 1,103.74. Resistance 1,158.76 and 1,220.03.
S&P 500 Cash Index Potential Resistance
1,576.09, high of 10/11/2007
1,552.76, high of 10/31/2007
1,523.57, high of 12/11/2007
1,498.85, high of 12/26/2007
1,440.24, high of 5/19/2008
1,406.32, high of 5/29/2008
1,381.50, Fibonacci 78.6% of 2007-2009 range
1,366.59, high of 6/17/2008
1,335.63, high of 6/25/2008
1,313.15, high of 8/11/2008
1,274.42, high of 9/8/2008
1,255.09, high of 9/12/2008
1,238.81, Fibonacci 78.6% of 1,576.09 high
1,228.74, Fibonacci 61.8% of 2007-2009 range
1,220.03, high of 9/25/2008
1,158.76, EW ABC measured move target
S&P 500 Cash Index Potential Support
1,130.38, high of 12/29/2009
1,114.81, low of 12/31/2009
1,103.74, high of 12/18/2009
1,093.88, low of 12/18/2009
1,083.74, low of 11/27/2009
1,066.83, high of 10/29/2009
1,029.38, low of 11/2/2009
1,019.85, low of 10/2/2009
1,014.14, Fibonacci 38.2% of 2007-2009 drop
1,007.78, Gann 37.5% of 2007-2009 range
998.80, Fibonacci 23.6% Retrace of 2009 range
991.97, low of 9/2/2009
992.72, Gann 25% Retrace of 2009 range
978.51, low of 8/17/2009
956.50, Dow 33.3% Retrace of 2009 range
956.23, high of 6/11/2009
935.35, Fibonacci 38.2% Retrace of 2009 range
930.17, high of 5/8/2009
884.08, Fibonacci 50% of 2009 range
869.32, low of 7/8/2009
826.83, low of 4/21/2009
832.80, Fibonacci 61.8% Retrace of 2009 range
814.53, low of 4/7/2009
813.62, high of 4/1/2009
779.81, low of 3/30/2009
775.43, Gann 75% Retrace of 2009 range
759.79, Fibonacci 78.6% Retrace of 2009 range
721.11, Gann 87.5% Retrace of 2009 range
666.79, intraday low of 3/6/2009
602.07, Fibonacci 38.2% of 1,576.09 high
One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol
3.18% China 25 iS, FXI
3.14% Ultra QQQ Double, QLD
2.53% SmallCap PS Zacks, PZJ
2.47% Ultra S&P500 Double, SSO
2.46% Ultra MidCap400 Double, MVV
2.42% Health Care SPDR, XLV
2.31% Microcap Russell, IWC
2.27% Biotech SPDR, XBI
2.22% Realty Cohen & Steers, ICF
2.22% Silver Trust iS, SLV
2.18% Value SmallCap S&P 600, RZV
2.17% REIT Wilshire, RWR
2.16% Pharmaceutical H, PPH
2.14% Biotech & Genome, PBE
2.14% Ultra Dow30 Double, DDM
2.09% India Earnings WTree, EPI
2.08% European VIPERs, VGK
2.06% South Korea Index, EWY
2.04% REIT VIPERs, VNQ
2.03% Health Care VIPERs, VHT
2.03% Emerging Markets, EEM
1.99% Pharmaceuticals, PJP
1.99% Real Estate US DJ, IYR
1.98% Healthcare DJ, IYH
1.94% Value LargeCap Euro STOXX 50 DJ, FEU
1.94% Healthcare Global, IXJ
1.93% Metals & Mining SPDR, XME
1.93% Biotech H, BBH
1.93% Internet Architecture H, IAH
1.91% Value SmallCap Russell 2000, IWN
1.90% Singapore Index, EWS
1.89% Insurance, PIC
1.89% Micro Cap Zachs, PZI
1.89% Basic Materials DJ US, IYM
1.84% SmallCap Russell 2000, IWM
1.83% Value MidCap Dynamic PS, PWP
1.81% LargeCap Blend Dynamic PS, PWC
1.76% Value SmallCap Dynamic PS, PWY
1.75% SmallCap S&P 600, IJR
1.75% Latin Am 40, ILF
1.73% Emerging VIPERs, VWO
1.72% Technology SPDR, XLK
1.71% Software H, SWH
1.71% Materials VIPERs, VAW
1.68% Growth SmallCap VIPERs, VBK
1.68% Value MidCap Russell, IWS
1.66% Growth BARRA Small Cap 600, IJT
1.64% Value 40 Large Low P/E FT DB, FDV
1.63% Value SmallCap S&P 600 B, IJS
1.62% Small Cap VIPERs, VB
1.61% Growth LargeCap NASDAQ 100, QQQQ
1.61% Dividend Leaders, FDL
1.60% Materials SPDR, XLB
1.60% Mexico Index, EWW
1.59% Growth SmallCap R 2000, IWO
1.56% Value SmallCap VIPERS, VBR
1.55% Growth SmallCap Dynamic PS, PWT
1.53% Value LargeCap Dynamic PS, PWV
1.53% Value Small Cap DJ, DSV
1.52% Technology DJ US, IYW
1.51% Value Line Timeliness MidCap Gr, PIV
1.51% Utilities H, UTH
1.50% OTC Dynamic PS, PWO
1.49% Growth SmallCap iS M, JKK
1.48% Australia Index, EWA
1.47% Homebuilders SPDR, XHB
1.47% Brazil Index, EWZ
1.46% Growth Small Cap DJ, DSG
1.45% Retail, PMR
1.45% Value SmallCap iS M, JKL
1.45% Semiconductor H, SMH
1.44% SmallCap Core iS M, JKJ
1.44% United Kingdom Index, EWU
1.43% Technology GS, IGM
1.41% Networking, IGN
1.41% LargeCap Blend Russell 3000, IWV
1.41% Natural Resource iS GS, IGE
1.41% LargeCap Blend S&P=Weight R, RSP
1.39% Value MidCap S&P 400 B, IJJ
1.39% Info Tech VIPERs, VGT
1.38% Oil, Crude, U.S. Oil Fund, USO
1.37% MidCap Blend Core iS M, JKG
1.37% Pacific ex-Japan, EPP
1.36% Spain Index, EWP
1.35% South Africa Index, EZA
1.35% Semiconductor SPDR, XSD
1.34% Emerging 50 BLDRS, ADRE
1.33% Consumer Discretionary SPDR, XLY
1.33% Growth S&P 500/BARRA, IVW
1.33% Nanotech Lux, PXN
1.32% Dividend SPDR, SDY
1.32% Blend Total Market VIPERs, VTI
1.31% Global Titans, DGT
1.29% Value VIPERs, VTV
1.29% Oil & Gas, PXJ
1.29% Value S&P 500 B, IVE
1.29% Value S&P 500, RPV
1.28% Dividend High Yield Equity PS, PEY
1.28% Software, PSJ
1.28% Growth VIPERs, VUG
1.28% MidCap S&P 400 SPDRs, MDY
1.27% Growth LargeCap NASDAQ Fidelity, ONEQ
1.27% Hong Kong Index, EWH
1.27% Financial SPDR, XLF
1.27% Extended Mkt VIPERs, VXF
1.26% LargeCap Blend Socially Responsible iS, KLD
1.25% Telecom H, TTH
1.25% S&P 500 SPDRs LargeCap Blend, SPY
1.25% MidCap Russell, IWR
1.24% Value LargeCap Russell 3000, IWW
1.24% Growth Large Cap, ELG
1.24% S&P 500 iS LargeCap Blend, IVV
1.23% Building & Construction, PKB
1.23% LargeCap 1000 R, IWB
1.23% Utilities VIPERs, VPU
1.23% Value MidCap iS M, JKI
1.22% Growth MidCap 400 B, IJK
1.22% LargeCap VIPERs, VV
1.21% Utilities DJ, IDU
1.21% Capital Markets KWB ST, KCE
1.21% LargeCap Blend S&P 1500 iS, ISI
1.20% Leisure & Entertainment, PEJ
1.20% MidCap VIPERs, VO
1.20% Euro STOXX 50, FEZ
1.20% Financials VIPERs, VFH
1.20% MidCap S&P 400 iS, IJH
1.20% Financial DJ US, IYF
1.19% Growth LargeCap iS M, JKE
1.19% LargeCap Blend Total Market DJ, IYY
1.19% Developed 100 BLDRS, ADRD
1.18% Value LargeCap iS M, JKF
1.17% Malaysia Index, EWM
1.17% Energy Exploration & Prod, PXE
1.16% Utilities SPDR, XLU
1.16% LargeCap Rydex Rus Top 50, XLG
1.16% LargeCap Blend S&P 100, OEF
1.16% Growth EAFE MSCI, EFG
1.16% Growth S&P 500, RPG
1.15% LargeCap Blend Core iS M, JKD
1.15% Semiconductor iS GS, IGW
1.14% Value LargeCap Fundamental RAFI 1000, PRF
1.14% Lg Cap Growth PSD, PWB
1.14% Global 100, IOO
1.14% Value Large Cap DJ, ELV
1.13% Oil Services H, OIH
1.12% Wilshire 5000 ST TM, TMW
1.12% Growth LargeCap Russell 3000, IWZ
1.12% Retail H, RTH
1.11% Dividend Appreciation Vipers, VIG
1.10% Industrial SPDR, XLI
1.10% Dividend DJ Select, DVY
1.10% LargeCap Blend NYSE Composite iS, NYC
1.09% DIAMONDS (DJIA), DIA
1.09% Growth 1000 Russell, IWF
1.08% Value LargeCap NYSE 100 iS, NY
1.08% Semiconductors, PSI
1.06% Software, IGV
1.06% Technology Global, IXN
1.06% Europe 350 S&P Index, IEV
1.06% Internet Infrastructure H, IIH
1.06% Industrial LargeCap Blend DJ US, IYJ
1.05% EMU Europe Index, EZU
1.05% Sweden Index, EWD
1.04% Water Resources, PHO
1.03% Value 1000 Russell, IWD
1.03% Technology MS sT, MTK
1.00% Utilities, PUI
1.00% Consumer D. VIPERs, VCR
1.00% Telecom Services VIPERs, VOX
1.00% Growth MidCap S&P 400, RFG
0.99% Consumer Cyclical DJ, IYC
0.98% Europe 100 BLDRS, ADRU
0.98% EAFE Index, EFA
0.97% Dividend International, PID
0.97% Telecommunications Global, IXP
0.94% Dividend Achievers PS, PFM
0.94% Telecommunications & Wireless, PTE
0.94% Value EAFE MSCI, EFV
0.94% Growth MidCap Russell, IWP
0.93% Energy VIPERs, VDE
0.91% Energy SPDR, XLE
0.89% Industrials VIPERs, VIS
0.87% Growth Mid Cap Dynamic PS, PWJ
0.84% Food & Beverage, PBJ
0.80% China LargeCap Growth G D H USX PS, PGJ
0.79% Aerospace & Defense, PPA
0.77% Telecom DJ US, IYZ
0.77% Financial Services DJ, IYG
0.76% Energy DJ, IYE
0.74% MidCap Growth iS M, JKH
0.74% Internet H, HHH
0.73% Asia 50 BLDRS, ADRA
0.72% France Index, EWQ
0.69% Consumer Non-Cyclical, IYK
0.67% Germany Index, EWG
0.66% Commodity Tracking, DBC
0.65% Italy Index, EWI
0.63% Consumer Staples VIPERs, VDC
0.61% Switzerland Index, EWL
0.60% Consumer Staples SPDR, XLP
0.60% Gold Shares S.T., GLD
0.55% Pacific VIPERs, VPL
0.49% Energy Global, IXC
0.49% Financials Global LargeCap Value, IXG
0.47% Netherlands Index, EWN
0.46% WilderHill Clean Energy PS, PBW
0.43% Short 200% US T Bond, TBT
0.36% Transportation Av DJ, IYT
0.30% Taiwan Index, EWT
0.30% Short 200% Bond 7-10 Yr T, PST
0.28% Bank Regional H, RKH
0.20% IPOs, First Tr IPOX-100, FPX
0.11% Canada Index, EWC
0.09% Bond, Corp, LQD
0.08% Belgium Index, EWK
0.04% Bond, High-Yield Corporate, HYG
0.02% Bond, 1-3 Year Treasury, SHY
0.00% Austria Index, EWO
-0.08% Bond, TIPS, TIP
-0.08% Preferred Stock iS, PFF
-0.10% Japan Index, EWJ
-0.16% Bond, Aggregate, AGG
-0.18% Bond, 10 Year Treasury, IEF
-0.19% Japan LargeCap Blend TOPIX 150, ITF
-0.29% Bond, 20+ Years Treasury, TLT
-0.47% Financial Preferred, PGF
-1.07% Short 100% Dow 30, DOG
-1.17% Short 100% MidCap 400, MYY
-1.22% Short 100% S&P 500, SH
-1.60% Internet B2B H, BHH
-1.72% Short 100% QQQ, PSQ
-2.15% Short 200% Dow 30 PS, DXD
-2.38% Short 200% S&P 500 PS, SDS
-2.53% Short 200% MidCap 400 PS, MZZ
-3.17% Short 200% QQQ PS, QID
Tuesday, January 19, 2010
4 year presidential cycle
I don’t consider myself a political person. I don’t stay up late on election nights to tally results. Nor do I put signs up in my front yard. In fact, my personal views about the way our great country should be run don’t even fit into any of the mainstream viewpoints.
Regardless, as an investor, I am very interested in figuring out how a new Administration will affect different assets, especially stocks. I try to remain as objective as possible when doing my analysis. I let the numbers do the talking, and adjust my strategy … rather than trying to make the numbers fit my strategy or worldview.
With that in mind, I recently did an in-depth study of 81 years worth of stock market data to help my Dividend Superstars subscribers understand what Obama’s election could mean for their portfolios. And today, as our new President officially takes his place in the White House, I want to share the essence of my findings with you, too.
According to My Presidential Cycles Study,
Stocks Should Gain — Modestly — in 2009 and 2010
Based strictly on past Presidential cycles, 2009 will be positive for stocks but produce a below-average return. The first year of a Presidential term is historically the worst for stocks.
Internal Sponsorship
President Obama’s #1 nightmare is
unfolding even as he takes the oath of office …
Bank Crisis II Goes Global!
As our new president took the oath of office moments ago, he inherited the greatest financial catastrophe any U.S. president has had to deal with in at least 76 years: Bank Crisis II.
The new global banking crisis is compelling new evidence of the great “financial famine” we warn about in our video: A long period of time in which every source of income and profits you count on is in extreme danger.
Click here for more information …
On average, the S&P 500 has risen just 3.1% in the first year of a new President’s term. However, the first year of a Democratic candidate has produced a much better average performance — an 8.9% gain vs. a 2.78% loss under a Republican (the only negative number in the party averages).
Keep in mind that my 81 years of data (1928-2008) includes 41 years of Republican leadership and 40 years of Democrats, so the results shouldn’t be skewed because of unequal representation.
I'm always amazed at the over-the-top glitz and glamour of The Strip. But I have to remind myself who paid for it all.
Speaking of political parties, my study led to another interesting conclusion: Overall, stocks have done much better under Democrats, with an average increase of 10.1% vs. 3.1% under a Republican White House.
In terms of Democratic leadership, the second year is typically the weakest for stocks, producing a gain of 4.29%. That would make 2010 another rough one for the markets.
Of course, the current climate is hardly typical. Much will depend on how swiftly and effectively the new Administration handles its massive challenges.
Obama has already announced his intention to launch the largest infrastructure initiative since Eisenhower developed the U.S. highway system about 50 years ago. He is pushing for the release of the second half of the $750 billion in bailout money approved by Congress. And he is aggressively arguing for another $850 billion in new stimulus measures.
Only time will tell how successful these moves are. But so far, the bailouts have a very limited impact on our nation’s current state of affairs.
If the market doesn’t take off immediately, don’t be shocked. As past Presidential cycles demonstrate, it often takes a few years for an Administration (and companies) to see the benefits of new initiatives.
In Fact, the Third Year of a President’s Term
Is Typically the Strongest for Stocks
Strictly going by the numbers, we can expect 2011 to be a very good year for stocks. Under all Presidents from 1928, the third year of a White House term produced an average annual gain of 14.12%. And in a Democrat’s third year, the gain averaged a whopping 17.7%!
I find that extremely interesting, especially in light of what top economists are forecasting right now — a deepening recession through 2009, and a housing market bottom sometime in 2010.
In other words, based on current fundamental analysis, 2011 would in fact be the light at the end of the tunnel for the U.S. economy. Overlay that with my Presidential cycle model and all indicators point to the same thing — a big rally in 2011.
Again, these are atypical times … and history never repeats itself perfectly. But I do think looking back at long spans of time can provide us with interesting investment insights. And if the Presidential cycles demonstrate anything, it’s that stocks will post solid gains under Obama … even if we have to wait a couple years to see Wall Street celebrate his inauguration.
Best wishes,
Nilus
Regardless, as an investor, I am very interested in figuring out how a new Administration will affect different assets, especially stocks. I try to remain as objective as possible when doing my analysis. I let the numbers do the talking, and adjust my strategy … rather than trying to make the numbers fit my strategy or worldview.
With that in mind, I recently did an in-depth study of 81 years worth of stock market data to help my Dividend Superstars subscribers understand what Obama’s election could mean for their portfolios. And today, as our new President officially takes his place in the White House, I want to share the essence of my findings with you, too.
According to My Presidential Cycles Study,
Stocks Should Gain — Modestly — in 2009 and 2010
Based strictly on past Presidential cycles, 2009 will be positive for stocks but produce a below-average return. The first year of a Presidential term is historically the worst for stocks.
Internal Sponsorship
President Obama’s #1 nightmare is
unfolding even as he takes the oath of office …
Bank Crisis II Goes Global!
As our new president took the oath of office moments ago, he inherited the greatest financial catastrophe any U.S. president has had to deal with in at least 76 years: Bank Crisis II.
The new global banking crisis is compelling new evidence of the great “financial famine” we warn about in our video: A long period of time in which every source of income and profits you count on is in extreme danger.
Click here for more information …
On average, the S&P 500 has risen just 3.1% in the first year of a new President’s term. However, the first year of a Democratic candidate has produced a much better average performance — an 8.9% gain vs. a 2.78% loss under a Republican (the only negative number in the party averages).
Keep in mind that my 81 years of data (1928-2008) includes 41 years of Republican leadership and 40 years of Democrats, so the results shouldn’t be skewed because of unequal representation.
I'm always amazed at the over-the-top glitz and glamour of The Strip. But I have to remind myself who paid for it all.
Speaking of political parties, my study led to another interesting conclusion: Overall, stocks have done much better under Democrats, with an average increase of 10.1% vs. 3.1% under a Republican White House.
In terms of Democratic leadership, the second year is typically the weakest for stocks, producing a gain of 4.29%. That would make 2010 another rough one for the markets.
Of course, the current climate is hardly typical. Much will depend on how swiftly and effectively the new Administration handles its massive challenges.
Obama has already announced his intention to launch the largest infrastructure initiative since Eisenhower developed the U.S. highway system about 50 years ago. He is pushing for the release of the second half of the $750 billion in bailout money approved by Congress. And he is aggressively arguing for another $850 billion in new stimulus measures.
Only time will tell how successful these moves are. But so far, the bailouts have a very limited impact on our nation’s current state of affairs.
If the market doesn’t take off immediately, don’t be shocked. As past Presidential cycles demonstrate, it often takes a few years for an Administration (and companies) to see the benefits of new initiatives.
In Fact, the Third Year of a President’s Term
Is Typically the Strongest for Stocks
Strictly going by the numbers, we can expect 2011 to be a very good year for stocks. Under all Presidents from 1928, the third year of a White House term produced an average annual gain of 14.12%. And in a Democrat’s third year, the gain averaged a whopping 17.7%!
I find that extremely interesting, especially in light of what top economists are forecasting right now — a deepening recession through 2009, and a housing market bottom sometime in 2010.
In other words, based on current fundamental analysis, 2011 would in fact be the light at the end of the tunnel for the U.S. economy. Overlay that with my Presidential cycle model and all indicators point to the same thing — a big rally in 2011.
Again, these are atypical times … and history never repeats itself perfectly. But I do think looking back at long spans of time can provide us with interesting investment insights. And if the Presidential cycles demonstrate anything, it’s that stocks will post solid gains under Obama … even if we have to wait a couple years to see Wall Street celebrate his inauguration.
Best wishes,
Nilus
Sunday, January 17, 2010
Correction at home and in China
Wall Street continues to position itself for a typical rebound from a typical inventory-led recession. The groupthink among Wall Street strategists shows astonishing consensus in a recent research piece published by Birinyi Associates.
Birinyi compiled all of the 2010 strategist forecasts and calculated the following averages: a yearend S&P 500 target of 1,222, $76 in S&P 500 earnings, and 3.1% GDP growth. The deviation from these averages was not wide. These numbers might be plausible if this were a typical rebound from an inventory-led recession. But this is not what we’re experiencing.
Just consider today’s weak nonfarm payroll report. Government number crunchers estimate that the economy lost 85,000 jobs in December. Of course, this figure is highly massaged by seasonal adjustments and the “birth/death model,” which assumed that new businesses created 59,000 new jobs in December. Without the birth/death adjustment, the headline would have been 144,000 jobs lost.
The civilian labor force participation rate fell to a new low — 64.6% — as more discouraged workers give up looking for jobs. If these workers were considered by the statisticians to be looking for jobs, the headline unemployment rate would jump several percentage points.
To gauge the accurate health of the labor market, check the tax withholding figures. These figures are still down significantly year-over-year.
Job creation needs to turn highly positive quickly to justify the valuation of the stock market. The employment picture is also vital to the health of the credit markets and the banking system. The popular obsession over how long the Federal Reserve is going to hold short-term rates at zero distracts many investors from the destructive influence that high unemployment will have on credit quality.
The Fed’s extremely loose policies have sparked investors to take on more credit risk in the secondary markets. This has pushed up the prices of junk bonds and junk stocks, lowering yields. But if the labor markets don’t rebound dramatically from here, we’ll see accelerating credit losses on everything from mortgages to credit cards. Those who piled into junky credits due to zero interest rate policy will flee out of them due to rising defaults.
We’re in uncharted waters when we combine stubborn labor market weakness with heavy private sector debt loads. Credit losses are likely to surprise the market on the upside in 2010. This is especially dangerous for a banking system that’s marking its own assets at “mark-to-myth” levels.
Through several examples, it’s clear that the Treasury Department’s unofficial policy for dealing with underwater real estate loans is “extend and pretend.” This means that as long as underwater borrowers are making monthly payments, most bank examiners will look the other way and allow banks to mark loans at artificially high values. Bank regulators are also likely to look the other way if banks roll over maturing loans that are underwater on a mark-to-market appraisal basis.
But this isn’t cause for celebration. Instead, this mass denial of reality will only make the ultimate credit losses even larger. But this seems to be the policy, because it’s politically expedient and painless (for now).
Just like we saw in post-1990 Japan, “extend and pretend” will commit huge amounts of scarce capital in the banking system to defend bubble-era loans. Instead of extracting this capital out of bankrupt situations to be reinvested into new loans, we’re prolonging a misallocation of capital. By defending and maintaining old underwater loans at unreasonably high marks, most banks won’t have much room on their balance sheets for new lending. This one consequence of “extend and pretend”: continued tightness in lending for small businesses, which are the biggest job creators.
A Correction in China Looms
It’s likely that the growth we saw in emerging markets in 2009 will decelerate. China’s infrastructure-heavy stimulus package put Chinese people to work and boosted commodity imports from resource-rich countries like Brazil and Australia.
But this stimulus package is leading to excess capacity in real estate and many heavy industries like steel. It’s also gone hand-in-hand with mind-boggling growth in bank lending. Rapid growth in bank lending always leads to trouble.
So the People’s Bank of China (PBOC) is just now tiptoeing towards a tightening policy. The PBOC seems worried about the real estate bubble that’s now becoming more obvious in major Chinese cities. Earlier this week, the PBOC sold three-month bills at a higher (rather than lower) interest rate for the first time in 19 weeks. This is a clear signal to the heavily state-influenced banking sector that it should tighten its loose lending policies. Much of this lending went to finance large infrastructure projects deemed by (often corrupt) communist bureaucrats — not the free market — to be necessary.
This kind of activity can go on for much longer than logic would dictate, but eventually, misallocated resources become too obvious to ignore. Just as the U.S. housing bubble continued a few years beyond when it became obvious (say, in 2005), so can the excesses in the Chinese economy.
The potential catalysts for a correction in China are many, but the most likely would be continued escalation of trade protectionism. This protectionist trend could offer several attractive short ideas in 2010. For example, on Dec. 30, The U.S. International Trade Commission ruled that growth in imports of Chinese-made drill pipe and casing materially injured the U.S. steel industry. The commission imposed 10%-15% tariffs on imports of Chinese steel pipes, with the possibility of further tariffs in the coming months. The Chinese government is allegedly subsidizing its steel industry. This is probably true, but China will likely respond with its own protectionist measures anyway.
The interference of governments into free trade — in the form of both subsidies and tariffs — is not good for the future of globalization. Many of today’s big transnational corporations are built on the assumption of unending globalization. These big corporations are establishing closer ties to politicians around the globe, and many are seeking to game the system or pursue government subsidies rather than serve their customers.
Regards,
Dan Amoss
January 15, 2010
Birinyi compiled all of the 2010 strategist forecasts and calculated the following averages: a yearend S&P 500 target of 1,222, $76 in S&P 500 earnings, and 3.1% GDP growth. The deviation from these averages was not wide. These numbers might be plausible if this were a typical rebound from an inventory-led recession. But this is not what we’re experiencing.
Just consider today’s weak nonfarm payroll report. Government number crunchers estimate that the economy lost 85,000 jobs in December. Of course, this figure is highly massaged by seasonal adjustments and the “birth/death model,” which assumed that new businesses created 59,000 new jobs in December. Without the birth/death adjustment, the headline would have been 144,000 jobs lost.
The civilian labor force participation rate fell to a new low — 64.6% — as more discouraged workers give up looking for jobs. If these workers were considered by the statisticians to be looking for jobs, the headline unemployment rate would jump several percentage points.
To gauge the accurate health of the labor market, check the tax withholding figures. These figures are still down significantly year-over-year.
Job creation needs to turn highly positive quickly to justify the valuation of the stock market. The employment picture is also vital to the health of the credit markets and the banking system. The popular obsession over how long the Federal Reserve is going to hold short-term rates at zero distracts many investors from the destructive influence that high unemployment will have on credit quality.
The Fed’s extremely loose policies have sparked investors to take on more credit risk in the secondary markets. This has pushed up the prices of junk bonds and junk stocks, lowering yields. But if the labor markets don’t rebound dramatically from here, we’ll see accelerating credit losses on everything from mortgages to credit cards. Those who piled into junky credits due to zero interest rate policy will flee out of them due to rising defaults.
We’re in uncharted waters when we combine stubborn labor market weakness with heavy private sector debt loads. Credit losses are likely to surprise the market on the upside in 2010. This is especially dangerous for a banking system that’s marking its own assets at “mark-to-myth” levels.
Through several examples, it’s clear that the Treasury Department’s unofficial policy for dealing with underwater real estate loans is “extend and pretend.” This means that as long as underwater borrowers are making monthly payments, most bank examiners will look the other way and allow banks to mark loans at artificially high values. Bank regulators are also likely to look the other way if banks roll over maturing loans that are underwater on a mark-to-market appraisal basis.
But this isn’t cause for celebration. Instead, this mass denial of reality will only make the ultimate credit losses even larger. But this seems to be the policy, because it’s politically expedient and painless (for now).
Just like we saw in post-1990 Japan, “extend and pretend” will commit huge amounts of scarce capital in the banking system to defend bubble-era loans. Instead of extracting this capital out of bankrupt situations to be reinvested into new loans, we’re prolonging a misallocation of capital. By defending and maintaining old underwater loans at unreasonably high marks, most banks won’t have much room on their balance sheets for new lending. This one consequence of “extend and pretend”: continued tightness in lending for small businesses, which are the biggest job creators.
A Correction in China Looms
It’s likely that the growth we saw in emerging markets in 2009 will decelerate. China’s infrastructure-heavy stimulus package put Chinese people to work and boosted commodity imports from resource-rich countries like Brazil and Australia.
But this stimulus package is leading to excess capacity in real estate and many heavy industries like steel. It’s also gone hand-in-hand with mind-boggling growth in bank lending. Rapid growth in bank lending always leads to trouble.
So the People’s Bank of China (PBOC) is just now tiptoeing towards a tightening policy. The PBOC seems worried about the real estate bubble that’s now becoming more obvious in major Chinese cities. Earlier this week, the PBOC sold three-month bills at a higher (rather than lower) interest rate for the first time in 19 weeks. This is a clear signal to the heavily state-influenced banking sector that it should tighten its loose lending policies. Much of this lending went to finance large infrastructure projects deemed by (often corrupt) communist bureaucrats — not the free market — to be necessary.
This kind of activity can go on for much longer than logic would dictate, but eventually, misallocated resources become too obvious to ignore. Just as the U.S. housing bubble continued a few years beyond when it became obvious (say, in 2005), so can the excesses in the Chinese economy.
The potential catalysts for a correction in China are many, but the most likely would be continued escalation of trade protectionism. This protectionist trend could offer several attractive short ideas in 2010. For example, on Dec. 30, The U.S. International Trade Commission ruled that growth in imports of Chinese-made drill pipe and casing materially injured the U.S. steel industry. The commission imposed 10%-15% tariffs on imports of Chinese steel pipes, with the possibility of further tariffs in the coming months. The Chinese government is allegedly subsidizing its steel industry. This is probably true, but China will likely respond with its own protectionist measures anyway.
The interference of governments into free trade — in the form of both subsidies and tariffs — is not good for the future of globalization. Many of today’s big transnational corporations are built on the assumption of unending globalization. These big corporations are establishing closer ties to politicians around the globe, and many are seeking to game the system or pursue government subsidies rather than serve their customers.
Regards,
Dan Amoss
January 15, 2010
Monday, January 11, 2010
Correction coming?
We expect the cycle crest to be formed around January 15th 2010 which is also 45 weeks or 225 trading days after the March 2009 bottom. In Gann terms this point in time is typically a hard angle that typically come in as a high. We expect the market to continue its trend towards this important mid point in time.
Friday, January 8, 2010
2010 Biotech
2010: A Huge Year for Biotech
I expect biotech to have an outstanding 2010, especially the small-caps.
Despite a very difficult year for the U.S. economy, biotech companies still managed to raise nearly $50 billion in 2009, the second highest total in the industry's history.
Last year also saw three biotech companies go public, but over the first six months of 2010 alone, a further five are expected to make their stock market debuts. And Steven Burrill, CEO of Burrill & Company, a merchant bank specializing in the biotech sector, projects 15 biotech IPOs in 2010.
Now, I typically don't recommend buying IPOs right out of the gate - especially in the biotech sector, where companies will likely have to raise money again in another year or so. But the fact that we've seen some hit the market already - and should to be able to continue raising capital and land partnerships - shows that demand is strong for biotech companies and their products.
I also expect many small-cap biotech stocks to start popping up on Wall Street's radar. In fact, over the last day or so, several prominent biotech analysts have stated that they'll be increasing their focus on smaller-cap names. This could be for a couple of reasons...
1. They honestly believe small-cap biotech stocks will be the best place to make money in 2010.
2. With the expected deal flow this year, analysts want to be sure they're positioning their banks to get in on the offerings and mergers and acquisition activity.
But whatever the reasons are, the increased attention could have a dramatic effect on stocks that typically garner attention from a select group of investors. And while individual stocks could soar as a result of new coverage by an analyst, the whole sector should rise on the newfound interest.
And here's another boost for biotech...
Two Big Problems for Big Pharma... And One Simple Solution
It's well-known that many Big Pharma firms face the prospect of huge patents expiring over the next few years. And with the time, effort and money it takes to develop new drugs from scratch, it's often better for them to spend their money on biotech acquisitions instead.
In 2010, large pharmaceutical firms are likely to continue partnering with smaller biotech firms on drug development. Even a partnership where they pay a biotech firm tens of millions of dollars up front is a worthwhile investment because if the biotech firm's new cancer drug works, the larger drug company will make millions (if not billions) in profit.
So it's not hard to figure out what one of my top goals at the conference will be...
Biotech's Biggest Turnaround Story of 2010?
Amid the presentations, seminars, and meetings, I'll be trying to sniff out the biotech companies that have the best drugs in the pipeline... but who need financial help to bring them to the market.
This strategy worked out superbly for subscribers to my small-cap healthcare and biotech investing service, Access, in 2009, as we bagged a 103% on Nektar Therapeutics (Nasdaq: NKTR).
After meeting with the company's management team at the conference, talking to a few smart investors, and conducting my own research, I recommended the stock. My theory at the time was that Nektar would soon sign a partnership deal for its opioid induced constipation drug. Sure enough, in September 2009, AstraZeneca (NYSE: AZN) paid $125 million upfront for rights to the drug. Access subscribers doubled their money in the position and we locked in the gains shortly thereafter.
So next week, I'll be doing more of the same - meeting with the management teams of many small companies that are on the verge of medical breakthroughs and important deals.
In addition, I'll be taking in the presentations of some of the larger biotech companies. One firm that I'm very interested in is Genzyme (Nasdaq: GENZ). The company has endured a very difficult year, marked by manufacturing glitches and FDA rejections. But I believe GENZ could be one of the turnaround stories of 2010, so I'm keen to hear what the executives have to say.
Of course, I'll also be speaking with fund managers, analysts and other professionals about healthcare reform, generic drugs and everything else going on in the industry.
So be sure to check my column next week, as I recap some of the presentations and conversations at the most important healthcare event of the year.
Marc Lichtenfeld
P.S: If I gave you $50, would you be able to turn it into over $200,000? Seems unbelievable on the surface, I know. But it's possible when you know about an "exclusive" investment class that notched up a cumulative 1,896% gain in 2008 and a massive 17,263% gain in 2009. An outstanding performance, given the huge volatility in the broader stock market.
The Wall Street elite don't want you to know about this opportunity... but we do. So to read more about it - and how you can get started with just $50 - take a look at this report.
Click here to leave your comments on this article.
I expect biotech to have an outstanding 2010, especially the small-caps.
Despite a very difficult year for the U.S. economy, biotech companies still managed to raise nearly $50 billion in 2009, the second highest total in the industry's history.
Last year also saw three biotech companies go public, but over the first six months of 2010 alone, a further five are expected to make their stock market debuts. And Steven Burrill, CEO of Burrill & Company, a merchant bank specializing in the biotech sector, projects 15 biotech IPOs in 2010.
Now, I typically don't recommend buying IPOs right out of the gate - especially in the biotech sector, where companies will likely have to raise money again in another year or so. But the fact that we've seen some hit the market already - and should to be able to continue raising capital and land partnerships - shows that demand is strong for biotech companies and their products.
I also expect many small-cap biotech stocks to start popping up on Wall Street's radar. In fact, over the last day or so, several prominent biotech analysts have stated that they'll be increasing their focus on smaller-cap names. This could be for a couple of reasons...
1. They honestly believe small-cap biotech stocks will be the best place to make money in 2010.
2. With the expected deal flow this year, analysts want to be sure they're positioning their banks to get in on the offerings and mergers and acquisition activity.
But whatever the reasons are, the increased attention could have a dramatic effect on stocks that typically garner attention from a select group of investors. And while individual stocks could soar as a result of new coverage by an analyst, the whole sector should rise on the newfound interest.
And here's another boost for biotech...
Two Big Problems for Big Pharma... And One Simple Solution
It's well-known that many Big Pharma firms face the prospect of huge patents expiring over the next few years. And with the time, effort and money it takes to develop new drugs from scratch, it's often better for them to spend their money on biotech acquisitions instead.
In 2010, large pharmaceutical firms are likely to continue partnering with smaller biotech firms on drug development. Even a partnership where they pay a biotech firm tens of millions of dollars up front is a worthwhile investment because if the biotech firm's new cancer drug works, the larger drug company will make millions (if not billions) in profit.
So it's not hard to figure out what one of my top goals at the conference will be...
Biotech's Biggest Turnaround Story of 2010?
Amid the presentations, seminars, and meetings, I'll be trying to sniff out the biotech companies that have the best drugs in the pipeline... but who need financial help to bring them to the market.
This strategy worked out superbly for subscribers to my small-cap healthcare and biotech investing service, Access, in 2009, as we bagged a 103% on Nektar Therapeutics (Nasdaq: NKTR).
After meeting with the company's management team at the conference, talking to a few smart investors, and conducting my own research, I recommended the stock. My theory at the time was that Nektar would soon sign a partnership deal for its opioid induced constipation drug. Sure enough, in September 2009, AstraZeneca (NYSE: AZN) paid $125 million upfront for rights to the drug. Access subscribers doubled their money in the position and we locked in the gains shortly thereafter.
So next week, I'll be doing more of the same - meeting with the management teams of many small companies that are on the verge of medical breakthroughs and important deals.
In addition, I'll be taking in the presentations of some of the larger biotech companies. One firm that I'm very interested in is Genzyme (Nasdaq: GENZ). The company has endured a very difficult year, marked by manufacturing glitches and FDA rejections. But I believe GENZ could be one of the turnaround stories of 2010, so I'm keen to hear what the executives have to say.
Of course, I'll also be speaking with fund managers, analysts and other professionals about healthcare reform, generic drugs and everything else going on in the industry.
So be sure to check my column next week, as I recap some of the presentations and conversations at the most important healthcare event of the year.
Marc Lichtenfeld
P.S: If I gave you $50, would you be able to turn it into over $200,000? Seems unbelievable on the surface, I know. But it's possible when you know about an "exclusive" investment class that notched up a cumulative 1,896% gain in 2008 and a massive 17,263% gain in 2009. An outstanding performance, given the huge volatility in the broader stock market.
The Wall Street elite don't want you to know about this opportunity... but we do. So to read more about it - and how you can get started with just $50 - take a look at this report.
Click here to leave your comments on this article.
Next 11 countries
Dear Anthony,
Ron Rowland
Everyone is making 2010 forecasts. So today I'll jump on the bandwagon and share one of mine with you:
In 2010 you'll hear a lot more
about the "Next 11."
The Next 11 (N-11) is a list of fast-growing countries identified by Goldman Sachs as potentially good investments in the coming years. However, before I tell you where in the world can you find them, I should probably tell you about the First 4 — the so-called "BRIC" countries.
BRIC is an acronym coined by Goldman Sachs a few years ago to describe four top emerging markets: Brazil, Russia, India, and China. These countries have a huge part of the world's economy and natural resources. And together, they account for about 25 percent of the world's land mass and 40 percent of the global population.
You can read more about the BRICs in our free Special Report, Get Ready For The New World Order, by clicking here.
As big and influential as they are, however, the BRICs are already well-known among professional investors. And that's where the Next 11 countries come in ... they're the next big growth stories.
The Next 11 countries are the next big growth stories.
The Next 11 countries are the next big growth stories.
While they aren't on the scale of the BRIC nations, the Next 11 countries all have large populations. Indonesia is the largest at about 229 million, while South Korea is the smallest with around 48 million.
More important, their populations are growing — not shrinking as is the case in many developed nations. Other things being equal, more people usually means more business opportunities ...
When you combine a good-size, growing population with a modern industrial base you get a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too.
All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!
Here is a complete list of the Next 11, from West to East:
* Mexico
* Nigeria
* Egypt
* Turkey
* Iran
* Pakistan
* Bangladesh
* Indonesia
* Vietnam
* South Korea
* Philippines
I'm surprised that Mexico is the only country in the Americas present on the Next 11 list. I personally believe some countries like Chile, Peru, and Argentina are also capable of showing tremendous growth in the decades ahead. But then again, it's Goldman Sach's list — not mine.
Are the Next 11 countries "Emerging Markets?" That depends how you define the term. South Korea, for instance, is as modernized as the U.S. and France. The same holds true for parts of the others. The point isn't where they are now. The point is where they are going in the long run — and from everything I'm seeing, the answer is bound to be up!
How to Invest in the Next 11
ETFs are opening new markets to U.S. investors.
ETFs are opening new markets to U.S. investors.
I wish I could tell you about an exchange traded fund (ETF) that gives you easy access to the top companies in the Next 11 countries.
Unfortunately, none exists at the moment. Although, an index provider for fund sponsors, Structured Solutions AG, already has three Next-11 related indexes up and running. So we're sure to see ETFs based on these indexes hit the market soon.
Meanwhile, you can get part way there with single-country ETFs that provide exposure to some of the Next 11 markets. Consider checking out funds like ...
* iShares MSCI Mexico (EWW)
* iShares MSCI South Korea (EWY)
* iShares MSCI Turkey (TUR)
* Market Vectors Indonesia (IDX)
* Market Vectors Vietnam (VNM)
If you buy any of these ETFs, be sure to invest only a small slice of your portfolio. The long-term prospects are great for all of them, but in the meantime you could see some huge short-term swings.
Until next time, Happy New Year and welcome to 2010!
Best wishes,
Ron
P.S. We cover the BRIC countries, the Next 11, and other international ETF trends in our 21st Century Superpower Trader premium service. Subscribers receive specific buy and sell recommendations for the fastest-moving global markets. Click here for more information.
Ron Rowland
Everyone is making 2010 forecasts. So today I'll jump on the bandwagon and share one of mine with you:
In 2010 you'll hear a lot more
about the "Next 11."
The Next 11 (N-11) is a list of fast-growing countries identified by Goldman Sachs as potentially good investments in the coming years. However, before I tell you where in the world can you find them, I should probably tell you about the First 4 — the so-called "BRIC" countries.
BRIC is an acronym coined by Goldman Sachs a few years ago to describe four top emerging markets: Brazil, Russia, India, and China. These countries have a huge part of the world's economy and natural resources. And together, they account for about 25 percent of the world's land mass and 40 percent of the global population.
You can read more about the BRICs in our free Special Report, Get Ready For The New World Order, by clicking here.
As big and influential as they are, however, the BRICs are already well-known among professional investors. And that's where the Next 11 countries come in ... they're the next big growth stories.
The Next 11 countries are the next big growth stories.
The Next 11 countries are the next big growth stories.
While they aren't on the scale of the BRIC nations, the Next 11 countries all have large populations. Indonesia is the largest at about 229 million, while South Korea is the smallest with around 48 million.
More important, their populations are growing — not shrinking as is the case in many developed nations. Other things being equal, more people usually means more business opportunities ...
When you combine a good-size, growing population with a modern industrial base you get a critical mass: The ability to produce consumer goods, and the consumers who can afford to buy them. Having natural resources, such as oil, in your back yard helps too.
All of this creates the potential for major consumer and business growth. And the investment opportunities — for those who are patient and do their homework — could be enormous!
Here is a complete list of the Next 11, from West to East:
* Mexico
* Nigeria
* Egypt
* Turkey
* Iran
* Pakistan
* Bangladesh
* Indonesia
* Vietnam
* South Korea
* Philippines
I'm surprised that Mexico is the only country in the Americas present on the Next 11 list. I personally believe some countries like Chile, Peru, and Argentina are also capable of showing tremendous growth in the decades ahead. But then again, it's Goldman Sach's list — not mine.
Are the Next 11 countries "Emerging Markets?" That depends how you define the term. South Korea, for instance, is as modernized as the U.S. and France. The same holds true for parts of the others. The point isn't where they are now. The point is where they are going in the long run — and from everything I'm seeing, the answer is bound to be up!
How to Invest in the Next 11
ETFs are opening new markets to U.S. investors.
ETFs are opening new markets to U.S. investors.
I wish I could tell you about an exchange traded fund (ETF) that gives you easy access to the top companies in the Next 11 countries.
Unfortunately, none exists at the moment. Although, an index provider for fund sponsors, Structured Solutions AG, already has three Next-11 related indexes up and running. So we're sure to see ETFs based on these indexes hit the market soon.
Meanwhile, you can get part way there with single-country ETFs that provide exposure to some of the Next 11 markets. Consider checking out funds like ...
* iShares MSCI Mexico (EWW)
* iShares MSCI South Korea (EWY)
* iShares MSCI Turkey (TUR)
* Market Vectors Indonesia (IDX)
* Market Vectors Vietnam (VNM)
If you buy any of these ETFs, be sure to invest only a small slice of your portfolio. The long-term prospects are great for all of them, but in the meantime you could see some huge short-term swings.
Until next time, Happy New Year and welcome to 2010!
Best wishes,
Ron
P.S. We cover the BRIC countries, the Next 11, and other international ETF trends in our 21st Century Superpower Trader premium service. Subscribers receive specific buy and sell recommendations for the fastest-moving global markets. Click here for more information.
Thursday, January 7, 2010
Seeking Alpha
I mainly follow Phil, David Brown, David Fry and TraderMark.....but look in on many others. I thought some might be interested in this perfmance tracking I have done on David Brown's 4 picks per week. It is actually quite astonishing (for me).
11/9 SeekingAlpha article:
CYOU +8.04%
IDCC +17.98%
NAFC +24.55%
NTL +7.5%
Total +14.13% (11/9/09-today)
11/16 Seeking Alpha article:
AMMD +10.88%
AMX +.53%
PBR -3.83% (of course, the one I liked)
UVV +7.6%
Total +3.30% (11/16/09-today)
11/23 Seeking Alpha article:
CFN -5.15%
JST +27.4%
K -1.49%
TU +.03%
Total +5.6% (11/23/09-today)
12/1 Seeking Alpha article
UNS +8.98%
VIV +4.02%
VR -.58%
WCRX +14.56%
Total +6.79% (12/1/09-today)
12/8 Seeking Alpha article (this is my favorite one because I liked NEP)
CCOI +16.67%
MED +6.36%
NEP +87.15%
RHB +2.67%
Total +24.48% (12/8/09-today)
12/15 Seeking Alpha article
CYBX +5.23%
KIRK -5.58% (finally one I didn't like that went down :-) )
WRLD +10.77%
YUII +25.87%
Total +8.96% (12/15/09-today)
12/22 Seeking Alpha article
CORE +5.18%
JRCC +17%
NIHD +7.69%
RGA +2.8%
Total +8.17% (12/22/09-today)
1/4/10 Seeking Alpha article
ARCC +1.36%
FFG -4.08%
JST +2.18%
PCX +8.89% (in 2 days!)
Total +2.09% (1/4/10-today)
And it is all free to us here on Seeking Alpha. I just like to give props where and when due. 32 stock picks in 8 weeks of posting on Seeking Alpha.....only 4 have gone down and of course NEP at +80% in a month. Phil Davis rocks and David Brown rolls......so I am rocking and rolling.
11/9 SeekingAlpha article:
CYOU +8.04%
IDCC +17.98%
NAFC +24.55%
NTL +7.5%
Total +14.13% (11/9/09-today)
11/16 Seeking Alpha article:
AMMD +10.88%
AMX +.53%
PBR -3.83% (of course, the one I liked)
UVV +7.6%
Total +3.30% (11/16/09-today)
11/23 Seeking Alpha article:
CFN -5.15%
JST +27.4%
K -1.49%
TU +.03%
Total +5.6% (11/23/09-today)
12/1 Seeking Alpha article
UNS +8.98%
VIV +4.02%
VR -.58%
WCRX +14.56%
Total +6.79% (12/1/09-today)
12/8 Seeking Alpha article (this is my favorite one because I liked NEP)
CCOI +16.67%
MED +6.36%
NEP +87.15%
RHB +2.67%
Total +24.48% (12/8/09-today)
12/15 Seeking Alpha article
CYBX +5.23%
KIRK -5.58% (finally one I didn't like that went down :-) )
WRLD +10.77%
YUII +25.87%
Total +8.96% (12/15/09-today)
12/22 Seeking Alpha article
CORE +5.18%
JRCC +17%
NIHD +7.69%
RGA +2.8%
Total +8.17% (12/22/09-today)
1/4/10 Seeking Alpha article
ARCC +1.36%
FFG -4.08%
JST +2.18%
PCX +8.89% (in 2 days!)
Total +2.09% (1/4/10-today)
And it is all free to us here on Seeking Alpha. I just like to give props where and when due. 32 stock picks in 8 weeks of posting on Seeking Alpha.....only 4 have gone down and of course NEP at +80% in a month. Phil Davis rocks and David Brown rolls......so I am rocking and rolling.
Wednesday, January 6, 2010
Marcus Trading System
I think the secret is cutting down on the number of trades you make. The best trades are the ones in which you have all three things going for you: fundamentals, technicals, and market tone. First, the fundamentals should suggest that there is an imbalance of supply and demand, which could result in a major move. Second, the chart must show that the market is moving in the direction that the fundamentals suggest. Third, when news comes out, the market should act in a way that reflects the right psychological tone. For example, a bull market should shrug off bearish news and respond vigorously to bullish news. If you can restrict your activity to only those types of trades, you have to make money, in any market, under any circumstances.
Marcus himself would trade more frequently than his strict guidelines suggested. But the thing that "saved" him, he said, was a willingness to "enter five to six times the position size" when all his criteria were met, versus other trades that "broke even and kept me amused."
The Marcus Grading System
Your humble editor is determined to improve as a trader every single year (if not every single month, week or day). One 2010 resolution is to make fuller use of Michael Marcus' wisdom in terms of trade selection... and to implement that wisdom in a specific, concrete way.
To that end, yours truly now introduces the "Marcus Grading System." The Marcus Grading system - inspired by the Market Wizards interview - is a simple means of "grading" potential new trades, based on the key factors Marcus cited: fundamentals, technicals and market tone.
The below table shows how it works:
The Marcus Grading System
Fundamentals
Technicals
Market Tone
• Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish • Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish • Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish
Max Bearish Example: 111
Neutral
Example: 555
Max Bullish
Example: 999
The Marcus Grading System uses a simple zip-code type approach. The "grade" itself is just a three-digit number... each digit corresponding to fundamental, technical and market tone rank (in that order).
As you can see from the table, "1" is maximum bearish and "9" is maximum bullish. If you are looking to go short, you want a grade tilted toward low (bearish) numbers. If you are looking to go long, you want a trade tilted toward high (bullish) numbers.
A "9" is not necessarily better than a "1" in this regard (unless you have a problem with going short). The thing to avoid, though, is the muddle in the middle. A "5" is the equivalent of saying "hard to say either way."
Let's walk through some quick examples.
Max Bearish Example: 111
A trade with a rating of "111" (three ones) would be maximum bearish. The fundamentals would be coyote ugly - huge oversupply, grossly overbought, disaster looming, et cetera - and technicals and market tone would be correspondingly ominous. For instance, imagine a clear breakdown from a rolling top formation as uneasy hope morphs into dull panic.
This type of shorting opportunity is rare indeed... like pocket aces on the button in a poker tournament.
Neutral Example: 555
A trade with a Marcus rating of "555" would be pure blah (and best avoided).
With neutral fundamentals, neutral technicals and neutral market tone, the next directional move becomes a coinflip proposition... more or less anyone's guess. You want to stay away from trades that wind up in this neutrality "dead zone," because there is little point participating in the market (and incurring transaction costs and slippage) without a clear edge. The more fuzzy (i.e. neutral) the trade, the smaller the size... if you even play it at all.
Max Bullish Example: 999
A trade with a Marcus rating of "999" would be maximum bullish. An example of this type of trade might be a deeply oversold market, having just registered a high-volume breakout from a consolidated base, with some type of aggressive fundamental catalyst fueling a radical shift in investor perceptions.
Again, max bullish trades are not very common... but when they come along, you want to back up the truck (within the context of risk management parameters of course).
As Seen on T.V...
Pulitzer Prize journalist goes underground to expose an $80 billion boondoggle created by our government and the "Green Mafia."
This $80 billion environmental mistake is almost guaranteed to bring your taxes up and your quality of life down, BUT...
It could also make you $110,000 richer in the next year. Here's how...
Rare Extremes and Intuitive Feel
If you elect to use the Marcus Grading System on a regular basis, you will not see very many "max bullish" or "max bearish" opportunities. A more realistic grade might be something like "876," where fundamentals are strong but not screamingly so, the chart looks decent but not fantastic, and market tone is modestly positive.
The idea is not to assign an overly precise number to every trade. Instead, the Marcus Grading System acts more like a filter... a means of expressing intuitive feel. If one of the numbers looks especially off, then maybe that is a sign to not take the trade... or to wait things out a bit and see if conditions improve.
On the whole, the Marcus Grading System could improve your trade selection (if you choose to use it) by reminding you to always check in on the "big three" factors - fundamentals, technicals, and market tone - and also by acting as a sort of pre-flight checklist, filtering out potentially hasty or unwise trades.
Last but not least, it's important to note that conditions change. An open position can see its Marcus Rating change too, perhaps significantly so, over time. By routinely assessing open positions with a fresh eye via the Marcus Grading System, the trader has better odds of spotting a problem early. If you want to see it in action, Macro Trader will be applying the Marcus Grading System to all open positions in 2010.
Marcus himself would trade more frequently than his strict guidelines suggested. But the thing that "saved" him, he said, was a willingness to "enter five to six times the position size" when all his criteria were met, versus other trades that "broke even and kept me amused."
The Marcus Grading System
Your humble editor is determined to improve as a trader every single year (if not every single month, week or day). One 2010 resolution is to make fuller use of Michael Marcus' wisdom in terms of trade selection... and to implement that wisdom in a specific, concrete way.
To that end, yours truly now introduces the "Marcus Grading System." The Marcus Grading system - inspired by the Market Wizards interview - is a simple means of "grading" potential new trades, based on the key factors Marcus cited: fundamentals, technicals and market tone.
The below table shows how it works:
The Marcus Grading System
Fundamentals
Technicals
Market Tone
• Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish • Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish • Rate 1-9
• 1 = max bearish
• 5 = neutral
• 9 = max bullish
Max Bearish Example: 111
Neutral
Example: 555
Max Bullish
Example: 999
The Marcus Grading System uses a simple zip-code type approach. The "grade" itself is just a three-digit number... each digit corresponding to fundamental, technical and market tone rank (in that order).
As you can see from the table, "1" is maximum bearish and "9" is maximum bullish. If you are looking to go short, you want a grade tilted toward low (bearish) numbers. If you are looking to go long, you want a trade tilted toward high (bullish) numbers.
A "9" is not necessarily better than a "1" in this regard (unless you have a problem with going short). The thing to avoid, though, is the muddle in the middle. A "5" is the equivalent of saying "hard to say either way."
Let's walk through some quick examples.
Max Bearish Example: 111
A trade with a rating of "111" (three ones) would be maximum bearish. The fundamentals would be coyote ugly - huge oversupply, grossly overbought, disaster looming, et cetera - and technicals and market tone would be correspondingly ominous. For instance, imagine a clear breakdown from a rolling top formation as uneasy hope morphs into dull panic.
This type of shorting opportunity is rare indeed... like pocket aces on the button in a poker tournament.
Neutral Example: 555
A trade with a Marcus rating of "555" would be pure blah (and best avoided).
With neutral fundamentals, neutral technicals and neutral market tone, the next directional move becomes a coinflip proposition... more or less anyone's guess. You want to stay away from trades that wind up in this neutrality "dead zone," because there is little point participating in the market (and incurring transaction costs and slippage) without a clear edge. The more fuzzy (i.e. neutral) the trade, the smaller the size... if you even play it at all.
Max Bullish Example: 999
A trade with a Marcus rating of "999" would be maximum bullish. An example of this type of trade might be a deeply oversold market, having just registered a high-volume breakout from a consolidated base, with some type of aggressive fundamental catalyst fueling a radical shift in investor perceptions.
Again, max bullish trades are not very common... but when they come along, you want to back up the truck (within the context of risk management parameters of course).
As Seen on T.V...
Pulitzer Prize journalist goes underground to expose an $80 billion boondoggle created by our government and the "Green Mafia."
This $80 billion environmental mistake is almost guaranteed to bring your taxes up and your quality of life down, BUT...
It could also make you $110,000 richer in the next year. Here's how...
Rare Extremes and Intuitive Feel
If you elect to use the Marcus Grading System on a regular basis, you will not see very many "max bullish" or "max bearish" opportunities. A more realistic grade might be something like "876," where fundamentals are strong but not screamingly so, the chart looks decent but not fantastic, and market tone is modestly positive.
The idea is not to assign an overly precise number to every trade. Instead, the Marcus Grading System acts more like a filter... a means of expressing intuitive feel. If one of the numbers looks especially off, then maybe that is a sign to not take the trade... or to wait things out a bit and see if conditions improve.
On the whole, the Marcus Grading System could improve your trade selection (if you choose to use it) by reminding you to always check in on the "big three" factors - fundamentals, technicals, and market tone - and also by acting as a sort of pre-flight checklist, filtering out potentially hasty or unwise trades.
Last but not least, it's important to note that conditions change. An open position can see its Marcus Rating change too, perhaps significantly so, over time. By routinely assessing open positions with a fresh eye via the Marcus Grading System, the trader has better odds of spotting a problem early. If you want to see it in action, Macro Trader will be applying the Marcus Grading System to all open positions in 2010.
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