Wiser Trader Stocks and Options Newsletter

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Issue No. 71   March 27, 2006                       Prescott, Arizona                       Systems@WiserTrader.com

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1.0   Trading

 

      While the overall market makes gains, the NASDAQ consolidates.

 

1.1 Consolidation

 

        The DOW, NYSE Composite, S&P 500 and the Russell 2000 continue to make higher highs while the NASDAQ is off its January 2006 high, as shown in Figure 1.  The NASDAQ is still up 4.9% for  the  year  compared  to  the  S&P 500, which  is up 4.4%.  This year is looking slightly

 

FIGURE 1

 

© 2006 Desert Mountain Systems, LLC.  Members of wisertrader.com are neither licensed brokers nor licensed advisors.  Trades discussed represent recommendations made by the editor for the wisertrader.com portfolio.  The newsletter and web site are for information only and should not be considered as personal advice.  While it is believed that the posted information is factual, mistakes can be made in transcription.  Investors should trade stocks only after verifying all information and consulting with a licensed broker or adviser.  Desert Mountain Systems markets third party trading systems but has no other affiliation with trading system companies. 

     

 

better than the past two years.  This year has not seen a strong correction in the first quarter.  The fall off in December 2005 volume, in anticipation of a January 2006 sell off, was followed by a surge in institutional buying.  Now that the sell off did not materialize, the retail investor has returned.

 

      Continued attention is given to the NASDAQ because in the previous two years, a first quarter correction in all the major indices was preceded by lackluster NASDAQ performance.  True, the NASDAQ is not in a sell off mode but its underperformance is a concern.  Given its current trading range, a critical point will be reached within the next 60 days as the 200 day SMA intersects the sideways trading channel. 

    

 

2.0 Market Analysis

 

      Overall, this week the major averages, bond yields and the price of oil were little changed.  Market sentiment is more cautious in the hope that the Fed will not raise rates too far.  Higher than expected existing home sales were followed by lower than expected new home sales.  Overall, there is not much to move the markets until the Fed policy statement this Tuesday.

 

      Key industry ETF’s in Table 2A are Biotech and Semiconductors, which confirm the NASDAQ.  Transportation confirms the Dow Jones Industrial Average according to Dow Theory.  Banking and Financials are confirming indicators for the S&P 500.  Gold and Housing are respective indicators for the inverse health of the currency (inflation) and the capacity for consumer spending. 

 

 

Table 2A

Indices, Key Industry ETF’s and Sector SPDR’s

 

1 month

1 wk ago

2 wks ago

3 wks ago

4 wks ago

Dow Jones Industrial Index

2.0%

0.0%

1.8%

0.5%

-0.4%

NASDAQ Composite Index

1.1%

0.3%

2.0%

-1.8%

0.7%

NYSE Composite Index

1.0%

-0.3%

2.0%

-0.5%

-0.2%

S & P 500 Index

1.6%

-0.2%

2.4%

-0.5%

-0.1%

Russell 2000 Index

2.3%

1.0%

2.7%

-1.6%

0.2%

HGX, Phil. Housing Index

1.4%

-0.3%

7.4%

-2.2%

-3.1%

IYR, Real Estate

3.4%

-3.0%

4.4%

2.7%

-0.6%

GLD, GOLD

0.1%

1.1%

2.4%

-4.4%

1.2%

RKH, Banking

-0.2%

-0.5%

2.0%

0.2%

-1.9%

IYT, Transportation

2.1%

-0.7%

2.4%

-1.1%

1.5%

SMH, Semiconductors

-2.0%

1.8%

-1.1%

-5.3%

2.7%

BBH, Biotechnology

-1.7%

-2.4%

3.8%

-1.5%

-1.4%

OIH, Oil

1.9%

1.0%

5.1%

-6.1%

2.2%

XLE, Energy

0.4%

0.4%

4.4%

-5.1%

0.9%

XLU, Utilities

-3.2%

-2.1%

1.4%

-1.8%

-0.7%

XLB, Materials

1.0%

-0.4%

2.8%

-1.4%

0.1%

XLI, Industrial

3.1%

-0.3%

2.9%

0.3%

0.2%

XLK, Technology

1.8%

-0.1%

1.8%

-1.3%

1.4%

XLV, Healthcare

0.0%

-0.1%

0.9%

0.2%

-1.0%

XLF, Financials

0.0%

-0.7%

1.4%

0.4%

-1.1%

XLP, Consumer Staples

1.3%

0.1%

-0.8%

2.5%

-0.5%

XLY, Consumer Discretionary

1.0%

-0.7%

2.0%

-0.4%

0.1%

 

 

Table 2B

Volatility

Indicator

Current

Last Week

2 Weeks Ago

Complacent

Cautious

VIX **

11.2

12.1

11.9

< 20

> 50

VXN ***

15.9

15.4

17.6

< 30

> 70

**   Below 20 day SMA = Short-term buy signal.

*** Below 20 day SMA = Short-term buy signal.

 

 

 

 

      Figure 2 compares the major averages with key ETF’s and Sector SPDR’s.

 

FIGURE 2

 

 

 

 

Table 2C

Market Summary


 
 
 

 
 Major Indices 
 For the Past Week:
 Dow Jones      0.0%
 NASDAQ        +0.3%
 S&P500 Index  -0.3%
 Russell 2000  +1.0%
 NYSE          -0.2%
 
 30 Year Bond 4.695%
 10 Year Note 4.675%
 
 Leading Industries
 For the Past Week:
 Platinum & Precious Metals 
 Internet 
 Automobiles 
 Coal 
 Steel 
 Automobiles & Parts 
 Aerospace & Defense 
 Clothing & Accessories 
 Mining 
 Semiconductors                    
 
 Lagging Industries
 For the Past Week:
 Recreational Services 
 Distillers & Vintners 
 Real Estate Investment Trusts 
 Reinsurance 
 Consumer Electronics 
 Full Line Insurance 
 Consumer Finance 
 Electricity 
 Property & Casualty Insurance 
 Asset Managers           
          
 Leading Industries
 For the Past Month:
 Platinum & Precious Metals 
 Steel 
 Consumer Electronics 
 Real Estate Holding & Devel 
 Industrial Machinery 
 Forestry 
 Telecommunications Equipt 
 Industrial Metals 
 Mobile Telecommunications 
 Food Retailers & Wholesalers        
 
 Lagging Industries
 For the Past Month:
 Tires 
 Gold Mining 
 Recreational Services 
 Specialized Consumer Services 
 Reinsurance 
 Pipelines 
 Nondurable Household Products 
 Mining 
 Consumer Finance 
 Tires 
 Household Goods                       
 
 Crude Oil $64.26
 
 Gold for the past 30 days:
 USD    +0.32%
 CAD    +1.71%
 CHF    -0.20%
 GBP    +0.36%
 EUR    -1.05%
 JPY    +0.81%

 
 
 
 
 

3.0 Procedure

 

      The following watch lists contain stock candidates for consideration.  They are not necessarily trades.  Categories include checklists for insider buying and cash rich companies, as well as, filters that employ stock picking methods used by master traders.  The information is not meant to imply any endorsement or sponsorship by these master traders.

 

      Current stock rankings are based on the degree to which stocks are overbought or over sold based on the 28-period Williams %R for the past two trading days.  Two columns are labeled “%R1” and “%R2” with “%R2” indicating the Williams %R for the most recent trading day.  Of course, values more negative than -80 are oversold and those less negative than -20 are overbought.

 

      One should keep in mind that oversold stocks are not necessarily ready to move upward.  They could very well be in a condition of continuous decline.  The lists are meant to serve as a starting point for further due diligence. 

 

      A column labeled “Monthly % Gain” was added to show the inverse relationship between price action over the past month and the Williams %R.  The change from a 10-period Williams %R with a weekly percent change to a 28-period Williams %R with a monthly percent change was done to reflect a longer term view.

 

      The “Reference” is the date that a stock passed the indicated filter and was first added to or returned to the list.  The “% Change” is how the price has changed since the reference date.  Stocks that are down 10% or more after being listed are removed for a period of about two months.  The “% from Max” is the percentage the price has declined from the maximum price reached since the reference date.  Stocks that are down 8% from their highs after being listed are flagged in yellow.  Stocks that are down 15% from their highs after being listed are removed for two months.  More information on filters is available on the web site.

 

      A performance summary of filtering techniques for checklists and master trader selection methods is given in Table 3A. 

 

 

Table 3A

Stock Filter Summary

Filter

Avg. % Change Since Listed

Avg. % Change Friday

1 Month

1 Week Ago

2 weeks Ago

3 Weeks Ago

4 Weeks Ago

Net Insider Buying

11.5%

0.5%

10.9%

3.1%

7.6%

-1.3%

1.1%

Cash Rich Companies

1.2%

0.3%

0.0%

0.3%

1.0%

-2.4%

1.1%

Price to Free Cash Flow

6.0%

-0.8%

-7.5%

-2.8%

14.8%

-14.0%

-3.6%

Growth Momentum Stocks

14.6%

0.8%

3.0%

0.7%

5.2%

-3.5%

0.9%

Lynch Stocks

23.1%

0.6%

3.0%

-0.8%

1.6%

1.0%

1.1%

Buffett Stocks

23.8%

0.3%

3.3%

0.7%

2.1%

-0.5%

0.9%

Graham Stocks

11.3%

0.2%

-1.3%

-0.5%

2.0%

-1.2%

-1.6%

Templeton Stocks

6.6%

0.4%

1.5%

0.3%

2.2%

-0.2%

-0.8%

 Zweig Stocks

14.6%

0.7%

2.3%

1.3%

2.4%

-1.4%

0.3%

Average Long Stocks

12.5%

0.3%

1.7%

0.2%

4.3%

-2.6%

-0.1%

 

 

Key

Passed Recent Filter

Price declined by half of stop loss setting

Oversold  based on  Williams %R  (%R2 is most recent)

Overbought based on Williams %R  (%R2 is most recent)

 

 

      Companies that have experienced net insider buying within the past 6 months of 5% or more of issued stock are listed in Table 3B.  These stocks should also appear in one of the master trader screens or meet additional screening criteria before being given serious consideration.  This list is a mixture of stocks that are optionable and those that are not.

 

Table 3B

Net Insider Buying Check List

Stock

Reference

% Chg

Company

Sector

Industry

% from Max

Monthly % Gain

%R1

%R2

NXTM

03/17/06

0.0%

NxStage Medical, Inc.

Health Care

Biotechnology & Drugs

0.0%

-7.7%

-76

-76

RGN

03/17/06

0.0%

RegeneRx Biopharmaceut.

Health Care

Biotechnology & Drugs

0.0%

-1.6%

-61

-61

MBRX

03/10/06

0.0%

Metabasis Therapeutics, Inc.

Health Care

Biotechnology & Drugs

-2.2%

-1.1%

-55

-55

CLRT

03/24/06

0.0%

Clarient, Inc.

Technology

Scientific & Technical Instruments

0.0%

-1.8%

-50

-50

MMLP

11/25/05

0.0%

Martin Midstream Partners L.P.

Transportation

Water Transportation

-2.2%

5.4%

-36

-36

MEMY

03/24/06

0.0%

Memory Pharmaceuticals Corp.

Health Care

Biotechnology & Drugs