System Update

Well it looks like we found out where were at with the past weeks trading. My opinion is that were going to be in a range bound enviorment for the next 3-4 months. The markets decline the past week was not a hiccup it was a major move that is going to take sometime before it can get digested. I think the Dow still has a 100-200 point move higher in the near term but will likely turn lower from there. The system remains bullish and I'll update you should there be any changes.

Trading Plan for 7/26

Well we got a huge sell off that I was scared of on Tuesday but managed to recover some of the losses today. I think we'll learn in the next few days where we stand. If the market is going to continue to march higher earnings are going to be the catalyst. Apple's earning report is going to be key. The company leaped higher in after hours trading but the real test will be tomorrow when trading resumes. Anything but a strong close in the stock price would send a signal to me that from a pshycologial point of view the market is simply not ready to move forward. The system is still in buy mode but I must stay it's getting close to a sell signal. In the meantime I've sold my NTGR option for a loss of 18%. I still own 500 shares of DO.

Market wrap and Tuesday Trading Plan 7/23

The markets did manage to rebound from the big losses they took on Friday but the closing numbers left much to be desired as the NASDAQ gave up a 10+ point gain late in the afternoon. DO one of the stocks I highlighted in the weekend post below did manage to breakout today $4.64 or 4.28%. I purchased 300 shares at 112.75 hope you were able to get in on some of the gains as well.

For tomorrow I'm expecting continued weakness in the market. I'm going to look for a good entry point to STAR tomorrow the other stock I highlighted yesterday. Remember to cut your losses early and don't ride any losers.

Market wrap and Monday Trading Plan 7/22

The markets fell hard on Friday due to a lackluster earnings report from Google. The Dow backed of it's all time high of 14000 and Nasdaq fell 20 points for the week. My personal opinion is that it's time to become a bit cautious here. The markets have been in bullish mode for quite some time now and I would not be suprised if we go sideways for a while now. Earnings will be the big factor next week as more and more companies report for the quarter.

Still, the system remians in bullish mode and we are still long the QLD. I still own my NTGR August 40 call contracts, and have been really suprised by the way the stock held up on Friday despite the market weakness. I'll most likely look to exit the position this week.

Below are some charts of stocks that I feel are about to break out. These are stocks I wana focuse on for the comming week.

Trading plan for 7/19

Markets are rebounding today after a selling of yesterday. Several positive earning reports are pushing the market higher today. The system remains bullish, and I continue to hold my NTGR option.

Trading plan for 7/17

Dow is hitting a new all time high as I'm writing this. Were just over 14000 now. I expect the uptrend to continue volume is strong and adv/dec. is at a very strong reading right now. The system remains bullish.

As for my NTGR position I bought the contract at 2.10 and it's now trading at 2.85. The stock will continue to trade higher so I will continue to hold my position with a target price of $3.25 where I will sell half my position.

Trading plan for 7/16

Markets are turning higher after a lower opening today. The market is expecting a lot of earning numbers today from big firms. These earning reports could be the next boost the market needs to trade higher. The system remains bullish.

It appears that NTGR is attempting to break out today as I'm writing this it's trading over $40 a share on heavy volume. I have the following option trade for today:

Buy NTGR $40 call at 2.20 or better.

Market wrap up 7/13

The NASDAQ managed to shake over early morning weakness and close up .2%, the Dow was up .3%, and S&P closed up .3% as well. Overall, this was a very strong week for the bulls with a new all time high set by the Dow. The system portfolios has a nice week as well up 5%. I sold my NTGR option today for 1.7 and took the 8% loss. Something just doesn't smell right, with the huge move the markets had yesterday a breakout stock should have really taken of but instead it traded lower. I believe that can mean a couple of things, it's either basing a bit more before the brake out, or it's gonna breakdown from here. I'll be keeping a close eye on it next week. Have a great weekend everybody!

Trading plan for 7/12

The big news today will be the retail numbers that we will get out from the major retailors. JCP, Wal Mart, and Target are just some of the companies reporting. The markets closed on thier highs yesterday which usually means a up opening today. I still own my NTGR option from yesterday at $1.80.

FAQ

A couple of people have asked me questions on the system, what this blog is all about so I've decided to do write this FAQ post for new readers.

Q: What is the system?

A: The system is an investment strategy that give trading signal based on a number of variables. It tells you went you should be long and when you should stay out of the market all together. I love trading but my job and school were getting in the way so I developed this mechanical system to trade the market.

Q: Have you back tested the system, and what were the results?

A: Yes, I've personally back tested every buy signal given. Over my 12 year research period the system has beaten the S&P 500 every single year. Not only did it provide better returns it did so with less risk because half the time we are out of the market.

Q: How are you tracking performance? What position do you take when you are long? What position do you take when your short?

A: I've set up two portfolios on Marketocracy. One is a long only fund that will only be in the market when we have a buy signal and in cash when we don't. The other is a long/short fund that will go short when ever a buy singal is not in effect. You can find a link in the lower right hand side under potfolios, this will show you how the system is performing.

When we are long we will be buying the Nasdaq Ultra leveraged ETF this symbod is QLD. The investment seeks daily investment results that correspond to twice the daily performance of the NASDAQ 100 Index. So if the Nasdaq is up 1% we will be up 2%.

When we are short we take a position in QID which is opposite of QLD and moves twice the inverse of the daily performance of the NASDAQ 100 Index. So, if the Nasdaq is down 1% we are up 2%.

Q: What are your personal tardes?

A: This month I decided to become a full time trader. My job was OK but I loved the markets too much. So along with the system signal I'll also post any trades I make throughout the day. Most of my trades will be in options but from titme to time I may recommend a stock. I choose my positions based on technical analysis, and I mostly look for stcoks that are ready to breakout or breakdown. I'd like to add that option trading is an extremely risky endavor and should not be used by most traders. My picks are for my own personal track record.

Q: What else is this blog about?

A: I'll also be posting intresting commentary, research, and trading ideas from time to time.

Well I think that covers everything if you have any more question please feel free to post them.

Thankss!

Mid day update for 7/11

Well markets opened lower but rebounded in morning trade on merger activity. I sold my STP August option for 1.25. that's a 70% gain! I have the following option plays open.

Buy NTGR August 40 Call at 1.80. NetGear is looking to break out here.

I had a comment asking what exactly the system is and for some new readers my posts might be a bit confusing so I'll be back later with a long and hopefully clear explanation of what this blog is all about.

Market wrap up 7/10

Well we got the correction I was expecting today. I'd look for more profit taking in early morning trading tomorrow with a turnaround in late afternoon. Almost all the sectors were weak today but the solar energy stocks I mentioned to you yesterday all held up and in fact some even finished on the upside. I got filled for my STP option at .73 and will most likely be get out of the position by tomorrow.

Trading plan for 7/10

I'm still looking for a slight consolidation here in the market, so I expect choppy trading for at least the next couple of days. One sector that has really caught my eye is the solar energy sector. Stocks such as STP, WFR, and TSL are all poised to go higher. I have the following trades open for today:

Buy STP August 45 Call option at $1 or better.

No trades today

No option trades today. The market looks a bit choppy and some consolidation can be expected here after the long run up we've had. I want to play this market from the long side so I'm waiting for that pull back or a break out in some of the stocks I'm following before I place a trade.

Sectors to watch this week

It looks like it's going to be an intresting week. We have the Nasdaq near 2660, the S&P above 1530 and the Dow above 13600. Some secots to keep and eye on the comming week include the Oil Service (OHI), Semiconducters, and the internet sector. These secotrs have all recently broken out and are making new highs. I'll come later tonight with my option trade ideas.

The system remians long, hope you have a good weekend.

Closing Position and AVG fill price for QLD

I got filled on my GOOG option trade at 4.7 and I've just closed that position at 6.7 for a nice 42% gain. The market action is a bit bothersome that's why I'm selling now and not holding on. Bond yields are 9 basis points, and there is a lot of concern that the Fed is going to have raise short term borrowing rates to fight of inflation. Unfortunately, my AAPL option trade never got filled, too bad as the stock is up 5% today.

The system remains bullish and the AVG fill I got on marketocracy was 98.70.

Trading Plan for the Day 7/5

I'm gona try to make a post like this everyday before the market opens basically I wanna have a trading plan ready before the action starts. Above you'll see a chart of the Nasdaq. I wanna trade from the long side today and have the following option orders in.

GOOG July 560 Calls 4.70 or better
APPL August 140 Calls 3.1 or better
In addtion the remainder of my portfolio will be long QLD shares.

A couple of interesting stocks to keep an eye on include RIMM, AKAM, NKE.

Just a reminder my trade recommendations are not being followed, only the system which is long is being tracked by marketocracy. Options trading is a very risky investment veichle and is not suitable for most investors.

New Funds Set up and system Update

I've created two new funds and updated the links on the side where it says track the systems performance. The system is currenlt bullish and I'll place an order at the open to buy full account positions of QLD. This is the Ultra QQQ ProShares which seeks to double the results of the QQQ. For the short side we will continue to use QID.

Readrers may remeber that I used to use IWO Russel 2K for the long side. However, after testing results QLD offers us much better rewards on the long side so it has become one of my favorite assets to use to go long.

Good to be back

Hi Everyone! I know it's been a while since I gave you guys an update. During these two months I've quit my job and have decided to take up trading full time. I will delete the current portfolio and start a new one on Marketocracy. I'll post a link here right away once it's set up. For the record the system did turn bullish in mid June and did catch up most of the markets run but would still have underperomed it by a couple of percentage points because it was bearish for most of May. In addtion, to the system updates that I will post here I will also give you my trades (feel free to ignore them of course) as a way to keep track of my own perforamnce. You can expect a lot more updates, charts, intresdting articles as the markets will now be a full time job for me. Wish me luck!

Update 5/10

It's been a while since I updated this blog, but it's tough to show your face when your losing capital day in and day out so I guess that's why I haven't posted much, I'll try to avoid that in the future. The system remains short.

System update 4/23

Well the market continues to make a fool of our short signal.Interestingly, from its recent reaction high at 85.25 (1-26-07), the Dollar Index has lost 4.6% of its value. Meanwhile, the DJIA has gained 3.4% from that same 1-26-07 date, leaving foreign investors scratching their heads, what rally? Truth be told the Dow would actually need to be sitting at 13,700 before it can even match it dollar value index. So what does that mean for us, well again trying to remain unbiased I will will continue to follow the system until it gives us a buy signal.

Interesting Commentary by Jeffrey Saut

If you don't know by now, I love Jeffrey Saut commentary. I find his opinion on the market realistic at all times when greed or fear are moving the market. Here is this weeks commentary.

“Risk versus Reward”

“Psychologists have uncovered a surprising number of idiosyncrasies from making the soundest choices in many situations. These lapses explain some of the mysterious up and downdrafts that can lift and lower stock prices. Understanding them can make successful investing easier. The most important findings arise from answers to a pair of questions.

The First: If faced with the prospect of two possible gains, which would you choose?

A 100% chance to win $3,000.

An 80% chance to win $4,000.

Asked this question, most people choose the guaranteed $3,000, even though the second choice has a higher value according to probability theory. The value is determined by multiplying the chance of winning, or 80%, by the $4,000 the winner stands to gain (80% of $4,000 is $3,200). So in the long run you come out ahead by making the second choice consistently. Most people are bothered by the 20% chance of getting nothing in the second choice, which tells psychologists what stock market theorists knew all along: That investors in general prize certainty and abhor risk.

It’s not that simple, however. When people are confronted with prospective losses, quirky psychology turns them into riverboat gamblers. That fresh discovery became clear from another question: Which would you choose?

A certain loss of $3,000.

An 80% chance of losing $4,000 and a 20% chance of losing nothing.

Most people will gamble on the second choice, which offers a 20% chance of going unscathed, even though it is riskier (again, 80% of $4,000 is $3,200). Because people’s horror of losses exceeds even their aversion to risks, they are willing to take risks – even bad risks. Contrary to what’s been believed, risk aversion is not always the guiding light of decision-making.

To measure just how deep the fear of loss runs, psychologists follow up this pair of questions with another. Students were invited to wager on a hypothetical coin toss: Heads, you win $150; tails, you lose $100. Though the potential payoff is 1½ times the possible, most students refused to bet.

How can otherwise rational people act so unwisely in the face of promising moneymaking opportunities? Despite the outsize reward for taking this risk, the researchers say, most people are put off by the 50% chance of losing. Loss aversion is a surprisingly powerful emotion. So great, in fact, that it keeps people from accepting good bets, both in coin flipping and in selecting stocks.

. . . John J. Curran, 1987 INVESTORS’ GUIDE

A lot of people have missed the rally over the past nine months. Those investors view missing the rally as opportunity lost. Accordingly, we are getting the sense that investors, confronted with these “prospective” losses, are turning into catch-up “riverboat” speculators. A case in point was last Monday’s “rush” into the shares of Dow Chemical (DOW/$45.88) on takeover rumors. By the end of the week, however, Dow had fired the two top officials that had been posturing for a buyout, leaving Monday’s speculators sitting with losses.

More confirmation of this bullish abandon can be found in the record margin debt at brokerage firms. And the little guy is not alone, for Wall Street strategists are collectively recommending the heaviest stocks mix in years. In fact, some strategists are actually forecasting a “melt up” for stocks. While we have learned that markets can do anything, we have also learned that there are times to be aggressively bullish and times to be cautious. Currently, we are obviously cautious on the major market indices even though it feels to us like they are going to trade higher. Our caution stems from that fact that despite what many pundits suggest, stocks, in the aggregate, are not particularly cheap at 17.8x trailing earnings, 3.2x book value, and sporting a dividend yield of 1.9% (basis the S&P 500). Moreover, we are concerned about the dearth of capital spending. More specifically, the report that nondefense capital goods (ex-aircraft) has fallen from near double-digit growth in mid-2006 to zero is concerning to us because it is now tracking into recessionary territory. In fact, the last time its six-month rate of change, and its year-over-year rate of change, were poised like this we were but a mere few months in front of a recession.

Meanwhile, the “productivity miracle” seems to be waning. As our economist Scott Brown, Ph.D. notes: “Nonfarm business productivity has risen at a 1.5% annual rate since 2Q04. The preliminary estimate of 1Q07 productivity growth won't be reported until May 3. However, it seems clear that output per worker grew at a meager pace. A protracted slowing in productivity growth would have enormous consequences for the outlook for economic growth, inflation, corporate profits, the dollar, and the long-term federal budget picture.” And, last week the U.S. dollar may have sensed such consequences because the Dollar Index (@DX.1/81.81) broke below its December 2006 reaction low, making its next target the December 2004 low of 80.60 (basis the June 2007 future). Failing that level would suggest another leg down for the greenback (see chart).

Maybe last week’s dollar dive was driven by the government’s report showing a 19% downward revision to the nonfarm payroll numbers through 3Q06. If that trend holds for the 4Q06, it could imply a downward benchmark revision of about 450,000 jobs according to Merrill Lynch’s economist David Rosenberg. Or maybe the weakness is attributable to the recent GDP report that showed the growth in corporate profits has stopped. Indeed, after the capital consumption (CCA) and inventory valuation (IVA) adjustments, profits before taxes declined 0.3% in the 4Q06. While it is likely that oil inventories played a roll in these figures, it is a developing profits trend that bears watching. Also worth watching is the government’s increasing movement toward protectionism and regulation/intervention.

In such an environment, where we can’t decide if the economy is slowing into recession, slowing to a muddle, or reaccelerating (although recent figures have a decided slowing tint), we have tried to focus on themes, and special situations, that make sense to us. Energy is one such theme, for while the U.S. seems to be slowing economically, the rest of the world is not, as demonstrated by China’s roughly 13% increase in crude oil demand. To take advantage of that demand we have recommended most of the Canadian oil sands complex, which had a fairly big rally last week. This is particularly impressive in light of the Canadian Dollar’s recent strength (we remain bullish on the Canadian Dollar). We have also recommended a number of energy names that presented at the Raymond James Institutional Conference in March. Accordingly, ideas like Petrohawk (HK/$14.36/Strong Buy), Kodiak (KOG/$5.14/Strong Buy), 6.7%-yielding NGP Resources (NGPC/$15.85/Outperform), and Helix (HLX/$39.40/Strong Buy) have performed well over the last few months. Yet for non-stock-specific investors, our recommendation of the 5%-yielding Blackrock Global Energy (BGR/$29.83) ETF has been a risk-adjusted way to participate in the energy theme, whose shares broke out to the upside in the charts last week. We have also embraced non-economic-sensitive themes like homeland security using L-1 Identity Solutions (ID/$18.86/Strong Buy), which recently received a large contact. Then too is our non-economic-sensitive “water theme.” While the non-stock-specific investor may want to consider the Water PowerShares (PHO/$19.00), our Canadian-based analysts have been recommending Laperrier & Verreault (GLV.A/$29.44/Outperform) as a way to participate in the water theme. As always, Canadian securities should be checked for Blue Sky laws in this country.

The call for this week: Last week the DJIA rallied 0.4%, but the Dollar Index declined 1.0%, begging the question, “Did stocks really rally, or did the measuring stick decline (aka; the U.S. dollar). Meanwhile gold, at $690.60/ounce (also an anti-dollar bet), is challenging its reaction high of $692.50/ounce and we remain bullish as we have been since gold’s October 2001 lows of $280/ounce. While we have recommended MANY gold stocks since then, most investors will be best served buying the shares of a precious metals mutual fund. Currently, we are using the shares of OCM Gold Fund (OCMGX/$18.77). As for our trading position in the Financial SPDRs (XLF/$35.70), while we are profitable in this position, and are using a stop-loss point slightly below $34.00, we have been disappointed in the financials’ performance over the past few weeks and subsequently have raised our stop-loss point. That said, even though we expect stocks to trade higher, there may be more risk than reward at this point.

System update 4/17

The system remains in sell mode and I'm taking a hit in my QID position, but I guess you gotta take the good with the bad. That can be tough when the market continues to climb and you see your portfolio loosing value, but I gotta keep following what I know works.

Fills

Sorry for the dealy. Blogger seemed to be down Monday evening and I was unable to post until today. Our IWO position was exited at 80.55 and we are long QID in the aggresive portfolio at an avg price of 53.15.

Update

Marketocracy seems to be not working. I can not login to my account, and the market has turned lower. So our fills since I posted my orginal signal will unfortunatley not reflect correct prices.

System update 4/2

I've received a sell signal, and will exit my position in IWO in both portfolios. I will also enter a long position in QID in the Aggressive portfolio. Once my ticket gets filled I will come back here and give you closed prices.

System update 3/28

Not much to update you on. Market volatility has picked up quite a bit this past week as can be seen by the fluctuations in the VIX index. Short term bias seems negative as home foreclosures and a slowing economy weigh on investors confidence.

The system remains in buy mode.

Chart

Here's a chart of how my aggresive portfolio is performing. As you can see we have returned 11% YTD. This chart is updated daily just follow the links on the left to see performace of both our portfolios.

System update 3/21

Since our buy signal was gives over a week ago we've enjoyed some healthy returns. Today's rally after the fed comments is very encouraging, to continued market strength. I guess some of the best trades we make are the ones we feel the most uncomfortable taking.

System remains in buy mode.

Fills

We sold our QID position at 55.73 and entered a long position in IWO at 78.10.

System update 3/13 Buy signal given

Hello everyone, the system have given us a buy signal today. We will look to exit our QID position in our aggressive portfolio and go long the IWO ETF in both portfolios.

This move is particularly hard for me to make as I continue to believe market weakness will prevail for the short term, but none the less I have faith in the system and it's great long run record. I will come back here and post fill prices as soon as the order is processed.

System update 3/5

Markets across the world tumbled last week on concerns of a slowing economy here and abroad in China. Although this is what most talking heads keep saying on TV, IMHO is not the reason. Rather, the trigger was pulled a couple weeks back when the BOJ raised interest rates for the first time in a decade. This ended the carry trade that most hedge funds have been taking. Borrowing cheap money and investing it abroad.

So are we out of the woods yet? I don't think so and to tell you the truth I'm expecting another big sell off before the market stabilizes. Either way, my opinion will not effect my trading decisions. The system is currently in sell mode but is getting close to giving us a buy signal, if that signal materializes I will take it. Last week our aggressive portfolio was up close to 10%. You can view performance of both portfolios by clicking on the links on the right side of this page titled 'Track the system performance'.

The system remains in sell mode.

Markets plunge in early morning trade

NEW YORK (AP) -- Wall Street fell sharply in early trading Tuesday, joining a global stock decline on growing concerns about slowing economies in the U.S. and China. Worries that U.S. stocks are about to embark on a major correction fed the drop, which took the Dow Jones industrials down more than 120 points.

A 9 percent slide in Chinese stocks earlier set the tone for U.S. trading. Concerns that China's economy will slow sent many investors selling just a day after they sent Shanghai's benchmark index to a record high close.

A warning from former Federal Reserve Chairman Alan Greenspan Monday that the U.S. economy may be headed for a recession also took a toll. A Commerce Department that orders for durable goods in January dropped by the largest amoung in three months exacerbated concerns about the economy, as did a Standard & Poor's index showing single-family home prices across the nation were flat in December.

A suicide bomber attack on the main U.S. military base in Afghanistan where Vice President Dick Cheney was visiting also rattled the market.
In the first hour of trading, the Dow Jones industrial average dropped 122.57, or 0.97 percent, to 12,509.69.

Broader stock indicators also fell sharply. The Standard & Poor's 500 index was down 16.87, or 1.16 percent, to 1,431.41, and the Nasdaq composite index was down 46.07, or 1.84 percent, to 2,458.45.

China's stock market plummeted Tuesday from record highs as investors took profits when concerns arose that the Chinese government may try to cool its ballooning economy by raising interest rates again or reducing more of the money available for lending. The Shanghai Composite Index tumbled 8.8 percent to close at 2.771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997.

Japan's Nikkei stock average fell a more moderate 0.52 percent. But European markets were clearly rattled -- in afternoon trading, Britain's FTSE 100 was down 2.28 percent, Germany's DAX index was down 2.44 percent, and France's CAC-40 was down 2.87 percent.
Bond prices rose as investors bought into the safe-haven Treasury market, with the yield on the benchmark 10-year Treasury note dropping to 4.60 percent from 4.63 percent late Monday.
Oil prices dropped $1.03 to $60.36 a barrel on the New York Mercantile Exchange on worries that Chinese demand could be dampened should its economy cool off.

The Dow has been climbing at an extremely steady rate since last summer, but over the past few trading sessions, stocks have pulled back on the worry that the market is due for a correction. Many analysts noted that the Dow hadn't seen a 2 percent decline in 121 sessions.
Other data that could affect the market Tuesday are the Conference Board's consumer confidence data, and the National Association of Realtors' existing home sales figures, which are expected to show a slight rise for January,

The Russell 2000 index of smaller companies was down 17.60, or 2.14 percent, at 806.09.

The system remains in sell mode and we show a nice profit so far today.

Interesting Commentary by Jeffrey Saut

“Kong Hei Fat Choi”
“Kong Hei Fat Choi” as the Chinese say, or as we say Happy New Year, for the Chinese New Year officially began on February 18th. And, with the DJIA, gold, corn, et al. at their recent price highs, isn’t it appropriate that this is the “Year of the Pig?” According to the Chinese Zodiac, as reprised by chiff.com, Pig personality traits include:

“Intellectually curious, honest and tolerant, those born in the Year of the Pig can be relied upon for their loyalty and often make true friends for life. The Pig can be very naive, however, and may easily fall victim to the unscrupulous who take advantage of their idealistic nature - as Pigs see everyone as loyal and caring as they are. Although forced to play the fool many times, they will just as likely hold fast to the notion that everyone is at heart decent and admirable. . . . Stubbornly optimistic, the Pig will not tolerate those with well-meaning advice on how to be a Pig, but since they dislike quarreling and discord their anger usually cools quickly.”

And last week the “Pigs” rushed into technology stocks emboldened by a report from one of Wall Street’s best and brightest who trumpeted the upcoming capital expenditure (capex) cycle that is going to be driven by the upgrade to IPv6 (Internet Protocol version 6) from version 4. The capex “surge” argument centers on the notion that with the switch to IPv6 the number of internet addresses will need to expand exponentially, network usage will triple, the efficiency of broadband will have to be increased, etc. While all of this is no doubt true over the long cycle, we are suspect that it will drive a huge capex cycle in the short/intermediate term. Indeed, as we understand it there are actually two separate themes afoot in said capex argument.

The first theme refers to the wireless 3G network, which in many cases is already built-out or nearly built-out (Cingular would be a good example). While attention was drawn to the 3G architecture last week when a number of operators announced new handheld devices (cell phones, Blackberry, Palm, etc.), it is difficult for us to envision a capex surge given that much of the 3G network is already in place. That said, we do believe that 3G will provide a tremendous boost to the desirability of handheld devices by making them more robust. Manifestly, one of our major themes for the past few years has been that the hottest thing going in technology is delivering more content (audio, video, data, etc.) to the handheld device. This is one of the reasons we have been bullish on the tower stocks since if you don’t have the “real estate in the sky” (aka towers) you can’t deliver the content. The two tower names from our telecom analyst’s coverage list we have been using are American Tower (AMT/$40.32/Strong Buy) and Crown Castle (CCI/$34.88/Strong Buy). As for names playing to the 3G theme, our analysts like Motorola (MOT/$19.26/Strong Buy) and RF Micro Devices (RFMD/$8.19/Strong Buy).
Separate, and apart, from the first theme is the argument that IPv6 will require a large deployment of additional routers, servers, switching systems, etc. While this is true in the long-term (four to five years), it is unlikely to be a near-term driver for a surge in capex and therefore is not a short/intermediate-term investable theme. For example, Raymond James (RJF/$31.82) won’t do anything for the IPv6 rollout other than upgrade our handheld devices to 3G as the old ones wear out.

Another “Kong Hei Fat Choi” phenomenon that has been occurring was reflected in a recent headline that read, “Golden Pigs Disappearing Off of the Shelves Faster than They Can Be Replaced.” The article went on to say that this particular Chinese lunar New Year is believed to be especially auspicious because it is a “Golden Pig Year,” which only comes around every 60 years. And maybe, just maybe, that is one of the things responsible for gold’s 12.4% rise from its January 5, 2007 low of $603 per ounce to last week’s upside breakout high of $677.80. Interestingly, however, while gold has broken out the gold stocks have not, as reflected in the price charts of the Gold Bugs Index (HUI/347.09) and the Gold/Silver Index (XAU/143.12). Historically, such a divergence has been a signal for caution and we see no reason to view it differently this time. Therefore, while we remain adamant that precious metals are in a secular bull market that will eventually see gold’s 1980 price peak of $868/ounce bettered, in the short-term we are getting cautious on gold and the gold stocks. There is another “Year of the Pig” theme centered on the burgeoning baby-boom that is occurring as couples try to ensure their newborns get a happy, wealthy life by being born in the “Year of the Pig,” but we can’t figure out how to make money off of that one.

Yet by far the most important inferential event we observed last week came not from China, but from China’s neighbor . . . Japan. We have been bullish on Japanese stocks since the spring of 2003. Not so the Japanese Yen, which we have viewed negatively due to Japan’s low interest rate environment. However, that view changed last week, leaving us now with a yen for the Yen. This strategy change was driven by Japan’s recent GDP figures that showed an annualized growth rate of 4.8% (the fastest pace in three years), strong personal consumption (+1.1% y/y), and an attendant 2.2% “pop” in capex spending (+2.2% y/y). Such ebullient figures suggest that the era of Japan’s ZIRP (zero interest rate policy) is likely drawing to a close and with it the weakness in the Yen. If correct, we could be seeing the beginning of the unwinding of the now ubiquitous “Yen carry trade.”

Recall that in past missives we have spoken of the Yen carry trade in that it was a wonderful trade to borrow in Japan at zero percent interest rates, leverage that money, and buy something else that was either going up in price or that yielded more than your cost of money. Everything worked great as long as the Yen held steady relative to the U.S. dollar, or even better . . . declined. But, given the popularity of the Yen “carry trade” by the hedge fund community, the short-position now prevalent in the Yen could produce a protracted Yen rally. The “lift off” for the potential rally in the Yen can be seen in the Yen’s chart formation attached to the end of this report. The chart shows a low at 0.8249 followed by a subsequent throwback rally to 0.8382, leading to an “undercut” low of 0.8241 on February 12, 2007. We have seen a lot of “major lows” made by such undercut moves, especially when they are followed by upside breakaway “gaps” like the one seen in the nearby chart. To capitalize on this inference, we recommended long Yen positions in our verbal strategy comments in the newly created Currency Shares Japanese Yen (FXY/83.92) that began trading last Wednesday at 82.69. While we only have a one-third long position “on” for the trading account, we see de minimis downside for the Yen from here and would add to long positions on pullbacks.

As for our markets, it was another new all-time high for the DJIA last week, so we thought we would take a look at the Dow’s components to see just how many of them had exceeded their respective all-time highs, most of which occurred in the spring of 2000. Amazingly, of the Dow’s 30 components only seven, yes a mere seven, are above their all-time highs! General Electric (GE/$35.87) is typical of this eerie phenomena and GE has historically been a precursor of the stock market’s future direction. To wit, GE made its price high at $60.50 per share in August 2000 and currently resides 40.7% below that high water mark. Most recently, GE’s shares have broken down in the price charts and if they trade below their reaction low of $35.48 they should be viewed with negative implications for the overall stock market. While we have clearly been too ambivalent on the major market indices, we still find ourselves “long” an awful lot of stocks since we have been able to find numerous situations that are just plain “cheap.” Case in point, our January 8, 2007 recommendation at $38.57 per share on Strong Buy-rated Williams Partners L.P. (WPZ/$42.19) where our fundamental analyst expects this MLP’s EBITDA to increase from $59 million to $217 million and its cash distributions (read: dividends) to ramp from $1.73 per share to $2.41. We continue to invest accordingly.

The call for this week: The current rally is now the third longest in duration since 1900 without so much as a 10% correction. Moreover, recent surveys show that hedge funds are about as long stocks as they ever get (read: a bearish indication). Further, we don’t like the tone from Capitol Hill, where Congressional Democrats are leaning more and more toward an activist tone on trade tariffs and regulation on just about everything. Combine this with the slowing foreign purchases of U.S. assets (TIC flows) and we remain cautious. Remember, BULLS make money, BEARS make money, but PIGS often get slaughtered!

Filled

We exited our position in IWO at $81.41, and entered a long position in QID at an average price of $52.01. Remember you can see how both portfolios are doing by clicking on the links to the side marked conservative and aggressive portfolio.

Sell Signal Given 2/13

I just received a sell signal from the system. I will place an order to liquidate IWO position at market, and take a fully invested position in QID in the agressive portfolio. I will come back with fill prices as soon as they are confirmed.

System update 2/13

Market volatility has picked up a great deal, this can be seen by the recent movement in the VIX index. Where a 6% move in either direction has become quite normal. The NASDAQ in particular had a strong reversal day on Friday turning what seemed to be a quiet session into an important one. So where does that leave us? Well our IWO position has held up nicely in this downturn and managing to hold relatively well when compared to other index's Looking forward couple of things to keep an eye will be takeovers on Wall Street, Interest rate talk, and earnings. Surprisingly, a huge number of put options entered the market last as they were making new highs. From a contrarian point of view this bodes well for continued gains as it points out the most people are feeling the market is overvalued. The system remains in buy mode.

System update 2/7

Markets can get an early boost today as upbeat numbers by Cisco Systems and a better then expected productivity report were released this morning. We are still long IWO, and the system remains in buy mode.

The following in a great article about reversal time by Prisitne.com, a great resource if your a trader.

Reversal Times
Anytime I am talking to a group of people that are not PTTs (Pristine Trained Traders), I will ask how many of them are familiar with intra-day reversal times. I estimate less than 10% of the people raise their hand on average, and those that do are only familiar because they remember reading about them in "Tools and Tactics for the Master Day Trader", by Oliver L. Velez and Greg Capra. When I tell the group that I consider trading intra-day without being intimately familiar with Reversal Times a 'huge disadvantage', most people get interested. Reversal Times are times during the trading day that the market is likely to stall or reverse the most recent pattern. They can occur because of the way Wall Street functions, and Market Maker or Specialist activity. For example, at 3:00 PM EST, the bond market closes. The remaining hour of the stock market may take a direction based on the finality of having bonds closed. Another example is during the first five minutes of the trading day, from 9:00-9:35 AM EST. During this time the public's orders to buy and sell 'at market' are being handled by Market Makers and Specialists. It is not unusual to see big swings in a stock's price during the first 5 minutes. A high or low may be set in the stock's price that lasts for most or even all of the trading day. Another example is the beginning and ending of lunch. The reason is as simple as the fact that the Market Makers and Specialists go to lunch, leaving junior people in charge to watch things while they are gone. Not only does this lead to reversal times going into and out of lunch, but also a phenomenon known as the 'doldrums', where you will find on most days, break outs and break downs will fail during the lunch doldrums. The list of times that should be watched are as follows, all Eastern Standard Time (EST): 9:35, 9:50-10:10, 10:25-10:35, 11:15, 12:00, 1:30, 2:15, 3:00, 3:30. Of these, the major ones to watch are 9.50-10:10, 11:15, 1:30, 2:15 and 3:00.

Filled at $80.99

I got filled with an average price of $80.99 on IWO. Please note that since this buy signal was just given we might exit due to whipsaw with the market. Lets see what happens.

System update 2/5 Buy Signal Given

We have received a buy signal today. We are now long the Ishares 2K growth ETF. The symbol is IWO. We are now 100% invested in both portfolios. I will come back to post the avg price paid as soon as my fills go through.

Some Interesting Commentary

I found the following commentary from the stockmarketalmanac.com site very interesting. It seems that the most important to watch for are the December lows not how the markets perform in January.

“When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. Jeffrey D. Saut, Managing Director of Research, and Chief Investment Strategist at Raymond James, brought this to our attention a few years ago. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January’s first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday-shortened week. Instead, said Hooper, ‘Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!’
Thirteen of the 27 occurrences were followed by gains for the rest of the year – and twelve full-year gains – after the low for the year was reached. For perspective we’ve included the January Barometer readings for the selected years. Hooper’s ‘Watch Out’ warning was absolutely correct, though. All but one of the instances since 1952 experienced further declines, as the Dow fell an additional 10.5% on average when December’s low was breached in Q1.
Only three significant drops occurred (not shown) when December’s low was not breached in Q1 (1974, 1981 and 1987). Both indicators were wrong only three times and six years ended flat. If the December low is not crossed, turn to our January Barometer for guidance. It has been virtually perfect, right nearly 100% of these times (view the complete results at www.stocktradersalmanac.com).”

System update 1/29

Did we just top?

Clearly that's the question everyone on Wall Street is asking. Last weeks market action definitely looks similar to prior short to intermediate term tops. So when will we know if there's a top? After it's a top, of course! This means, it's a top when there's a confirmed (technically speaking) breakdown under support. With so many opinions about the market's direction and whether a top is at hand, it can lead to confusion. As self-directed traders and/or investors, we must have an objective method of analysis based on price patterns and historical measurements of breadth and sentiment to guide us. My objective method is the system I follow, and right now it tells me I want to be out of the market or short the market. I hope all of you have objective to use when making your decisions as well.

The system remains in sell mode.

System update 1/22

Markets opened today with slight losses. The Nasdaq though continues to sell off heavily as earnings and oil prices continue to be key issues for investors. Oil seems to be attempting to bottom here, as last weeks break of the $50 psychological area proved to be enough to turn prices sharply around.

The system remains in sell mode.

System update 1/18

The NASDAQ sold of sharply today as disappointing earnings from Apple and Intel dashed hopes of a healthy consumer spending which has so far helped the economy grow even in a tough interest rate environment. Comments from Fed chairman dashed hopes of any near term rate cuts.

The system remains in sell mode. Just a reminder you can view how the two portfolios are doing by clicking on the links on right hand side titled 'track the systems performance'

End of the energy bull market?

The following is some very intresting market commentary from my favorite market analyst Jeffrey Saut. Please see my post below this one for current system status.

“Continuity of Thought”
Bernard Baruch, in his autobiography “BARUCH: My Own Story,” discusses “the curious psychology of crowds which has been demonstrated again and again in history.” He refers to Charles MacKay’s book “Extraordinary Popular Delusions and the Madness of Crowds” as:

“. . . a remarkable documentation of the unbelievable crazes that have swept mankind down through the ages. No nation has been immune to these frenzies. . . . These crowd madnesses recur so frequently in human history that they must reflect some deeply rooted trait of human nature. Perhaps it is the same kind of force that motivates the migration of birds or the mass performance of whole species of ocean eels. There seems to be a cyclical rhythm in these movements. A bull market, for example, will be sweeping along and then something will happen – trivial or important – and first one man will sell and then others will sell and the continuity of thought towards higher prices is broken.”

Greetings from Vancouver, where obviously the Canadians don’t recognize the Martin Luther King holiday, since our Monday was spent in meetings with portfolio managers and conducting seminars for our financial advisors north of the boarder. And by far the most recurring question has been, “What do you think about energy, as well as your so called stuff-stocks?!” Therefore, the question we pose today is, “Will the recent collapse in crude oil prices break the “continuity of bullish thought on energy?” You say “collapse” is too harsh a word to describe the new year’s commodity crashette. Well consider this, last week crude oil lost another 5.9%, leaving it down 15.8% from its January 2, 2007 intra-day high.

Turning to the chart shows crude oil peaking in price last July at $78.40 per barrel and sliding into its November 2006 low of $55.92 before a recoil rebound lifted “black gold” back to $64 in mid-December. A similar collapse occurred in gasoline over that same timeframe, driven by Goldman Sachs’s (GS/$213.99) surprising reduction in the gasoline component of its institutionally indexed commodity index (from 7.3% to 2.5%) staged in incremental reductions right into the November elections, but that’s a discussion for another time. Nevertheless, as 2007 began crude’s price decline accelerated, punctuated by last week’s slide that broke oil below its $55 chart support. Hereto, while warm weather lent a hand, Goldman Sachs once again surprisingly reduced the energy component of its commodity index by 50%, causing one Wall Street wag to ask, “Why, in an energy-centric economy, would Goldman cut the gasoline and crude oil components in the GSCI so dramatically?!” As a sidebar, even with said reductions the Goldman Sachs Commodity Index (GSCI) looks to be breaking down, as can be seen in the chart at the end of this report.

Still the question remains, “Will the price collapse break the continuity of bullish thought on energy?” Our resounding response is, “Well maybe.” Clearly the new year’s price plunge has shaken the bullish consensus, yet our feeling is that it is going to take an eventual “shake out” below $50 per barrel to turn the crowd negative enough to give us the “footings” for a major bottom. Whether a sub-$50 price point is in the offing, however, is debatable given the weatherman’s recent claim that, “El Nino is breaking down.” Combining that statement with the attendant cold front that is currently sweeping across the nation, and we are likely to see a rally attempt this week. Yet, our sense is that it will take a number of “failed rallies” before the bulls are worn out, capitulate, and make the bottom that leads to the second leg of the secular bull market.

As readers of these reports know, we have been shy of energy, and stuff-stocks in general, after having pared-back on those positions during their 2006 January-to-May parabolic upside blow-off. And even though we sold 25%-to-50% of each one of those positions, the declines from their respective highs for our remaining positions has hurt our overall portfolio performance. Still, perusing the long-term charts in preparation for this report suggests that while commodity markets are having their inevitable cyclical corrections, our belief in the secular bull case for “stuff” continues. Indeed, the latest crude oil prices are reaching the point of being overdone with respect to the fundamentals. As the Kiplinger organization notes, “By 2030, figure on world oil consumption in the neighborhood of 118 million barrels a day, up 40% from today. . . . So no let up in global competition for reliable supplies of oil, natural gas and coal as discoveries of new sources come less frequently.”

We urge you to read the aforementioned Kiplinger quote, reread it, and then think about long-life oil reserves (50+ years worth of reserves). Ladies and gentlemen, to our knowledge there are only two long-life oil reserves left on the planet. The Orinoco Tar Sands is one such reserve, but it is located in eastern Venezuela and is currently the subject of nationalization by “Tsar” Hugo Chavez. The other long-life reserve is located up here in Canada. Verily, the Alberta Tar Sands have 1.7 trillion proven/probable barrels of oil and they are in a geographically, and politically, attractive place. We have invested in the Alberta Tar Sands for more than five years and continue to embrace the tar sands theme. Our Canadian energy analyst has recently penned a 190-page research report on the oil sands with a number of buy recommendations on individual companies. As always, Blue Sky laws should be checked for U.S. investors, but a few names mentioned in our reports, and in the recent 190-page Tar Sands report, include: Canadian Oil Sands Trust (COS.UN/C$28.27/Outperform); Opti Canada (OPC.T/C$18.48/Strong Buy); Synenco Energy (SYN.T/C$12.40/Strong Buy). For dually listed names, we suggest considering Suncor (SU/$73.12/Outperform) and EnCana (ECA/$46.15/Outperform).

Other themes include: Agricultural products; financial revolution; healthcare; media; infrastructure; emerging markets; changes in business models; lifestyle revolutions; aging populations; water shortages; global outsourcing and Internet hub; the restructuring of Japan; education; and the list goes on . . .

The call for this week: As the Bank Credit Analyst folks point out, “The equity advance has entered a more dangerous phase, which will be characterized by slowing profit growth yet expanding valuation multiples and increased volatility.” Moreover, the recent economic data has had a definitely stronger “tilt” that has seen yields break out to the upside, reinforcing our 2007 mantra that, “The surprise for the new year could be that the economy actually reaccelerates and the Fed raises interest rates, not lowers them.”

System update 1/16

First I'd like to apologize for not updating this blog. I've had many things on my plate recently and simply did not have the time to post. I hope this will change. Since my last update, the market has continued to climb making look like, well an idiot. Still, I must stick to my guns and go with what I know has worked in the past. The system remains in sell mode, but I will add that it's getting close to giving a buy signal. Until it does though, we remain in sell mode.

System Update 1/7

I'm sorry I haven't had much time to update the blog. The system remains in sell mode. I'll be back later with some more thoughts.