______________________________________________________________________________
Issue No. 19 – March 28, 2005
Prescott, Arizona Systems@WiserTrader.com
______________________________________________________________________________
1.0
Trading
1.1 Transition
Thank you for subscribing
to the newsletter. It has been a pleasure to provide profitable watch lists
for seven stock filters once a week week. Options information, on the other
hand, is more time sensitive and should be addressed with more timely option
alert email correspondence. Since option alerts began on 1/31/05, 11 alerts
were issued. One expired and two are still pending so that 8 trades have been
made in slightly less than two months. The average alert profit per trade is
22%, as compared with 16% per trade overall.
The last free options alert
was sent today. From this point onward the plan is that any future mention of
specific options in the newsletter will be only historical or educational,
unless there are any serious objections. Meanwhile, continuously increasing
profits are expected from the more timely options alert service. I hope everyone
who trades options can join. To assist in the transition, enrollments by March
31st will receive the previously mentioned 40% discount. In
addition, a month of free service is being added. Details can be seen at the web site.
1.2 NASDAQ 100 Index Tracking Shares
The NADAQ 100 Index
Tracking Shares (Amex: QQQQ) mirror the behavior of the NASADQ Index. The last
alert recommended shorting the index by buying the Jun 36.00 PUT with the
symbol QQQ RJ. Looking at the chart in Figure 1A, the trade is not based on a
TTC-A configuration. The trade was recommended due to a continued fall through
support and overall market conditions. Since the alert was issued, the NASDAQ
attempted to climb back above the psychological 2000 level for two days in a
row and failed each time. Thursday’s close was within 1 point of Wednesday’s
close, both days having lower than average volume. To find the nearest
support, we have to look all the way back to October whereas there is a lot of
recent resistance at 2025, 2050 and 2100. The QQQQ, like the NASDAQ, has
crawled along its lower Bollinger band attempting to break beneath it. Now we
are waiting, before entering the trade, to see if it breaks lower or bounces higher
toward the upper band.
© 2005 Desert Mountain Systems, LLC. Members of wisertrader.com are neither licensed
brokers nor licensed advisors. Trades discussed represent trades 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
FIGURE 1A
1.3 Interest Rates
As 10 year yields increase
to between 5 and 5.5% over the next several months, utilities can be expected
to pull back about 20% because they are so interest rate sensitive. Investors
have piled into them for their high dividend payout. But with steady income
and higher borrowing costs, enthusiasm for rate sensitive vehicles will cool
rapidly. REITs are a particularly vulnerable group operating by borrowing at
low short term rates to finance lending at higher long term rates. As FOMC
activity narrows the yield spread between long and short term rates, profit
margins are being squeezed. Also in peril are many of the limited partnerships
(LPs), closed-end bond funds, bank stocks and many Canadian royalty and income
trusts. Most of these groups have outrun their fundamentals by doubling their
valuations over the last 5 years.
Ten year yields have moved
from 4.535 to 4.591% over the past week. The theoretical status of our TNX
December call TNX LI is shown in figure 1B. A constant Bid/Ask spread is
assumed. Premiums shown are the latest asking price.
FIGURE 1B
2.0 Market Analysis
Industry leadership in
Table 1 below continues to take a short term view. Leading industries are
ranked from highest to lowest.
Table 1
Major Indices:
Dow Jones -1.8%
NASDAQ -0.8%
S&P500 Index -1.5%
Russell 2000 -1.2%
30 Year Bond 4.844%
10 Year Note 4.591%
Industry Leaders
For the Past Week
Drug Retailers
Aerospace & Defense
Food & Drug Retailers
Railroads
Food Retailers & Wholesalers
Computer Services
Biotechnology
Pharmaceuticals & Biotech
Pharmaceuticals
Airlines
Industry Leaders
For the Past Month
Railroads
Drug Retailers
Trucking
Coal
Health Care Providers
Forestry
Commercial Vehicles & Trucks
Industrial Suppliers
Financial Administration
Food & Drug Retailers
Crude Oil $54.84
Gold for the past 30 days:
USD -2.02%
CAD -3.69%
CHF +1.02%
GBP +0.51%
EUR +0.12%
JPY -1.02%
Indices
declined across the board again this week as the market's focus remained on oil
prices, inflation and interest rates. Oil ended last week at $56.72 a barrel
and this week at $54.84.
The
government reported the Consumer Price Index rose 0.4 percent in February as
costs for everything from food and lodging to health care and education inched
higher. Strategists observe that it wasn't so long ago that Wall Street was
worried about deflation. They believe the perception that inflation is directly
linked to soaring oil prices is off-base as energy accounts for less than 3
percent of corporate costs -- a fraction of the 70 percent linked to labor. And
as long as jobs and production can be outsourced, wage inflation is unlikely to
become an issue. In the past, we have not seen inflation run away until it
starts to get embedded into wages. The next government jobs report is due a
week from Friday. In the meantime there are pockets of pricing power.
Strategists further note
that the CPI is interesting in that you can sometimes see the trends before the
stocks begin to move and before analysts are seeing things moving. The 5.6
percent year-over-year increase in dairy products, for example, is a trend
grocery shoppers know all too well. Food away from home, a category essentially
comprised of restaurants, rose 3.2 percent in the last 12 months. This group
includes Yum Brands Inc. (YUM), the parent of the KFC, Pizza Hut and Taco Bell
chains. Education prices rose 6.3 percent overall, year-over-year, and prices
for books and other supplies increased 3.2 percent, including textbook
publisher McGraw-Hill Companies Inc. (MHP). The 7.4 percent year-over-year
price hike in the lodging category also has been hard for professional
investors to ignore. Starwood Hotels & Resorts Worldwide Inc. (HOT) and
Marriott International Inc. (MAR) are in this group. Supply constraints are
helping create pricing power in the lodging industry. It takes years to acquire
permits and to build new hotels, which limits the number of rooms available. An
investment in Marriott would play right into that, he said. Pricing power also
comes into play in the energy industry. While rising demand from the United States and China is driving oil prices, the real issue is that the industry can't increase
supplies fast enough. That favors oil field services companies like Cooper
Cameron Corp. (CAM).
Extracted from Bureau of Labor Statistics
Table A. Percent changes in CPI for Urban Consumers (CPI-U)
Un-adjusted 12-mos. Ended Feb.'05
All Items 3.0
Food and beverages 2.6
Housing 3.0
Apparel 0.1
Transportation 4.6
Medical care 4.3
Recreation 0.6
Education and communication 1.4
Other goods and services 2.8
Energy 10.4
Food 2.6
All items less food and energy 2.4
The 5 day RSI for the DOW,
S&P500 and the NASDAQ are very oversold. The 5 week RSI for the DOW and NASDAQ
are oversold while for the S&P500 it is neutral. Other sentiment indicators
are given in Table 2.
Table 2
Sentiment
Indicators 03/26/05
|
Sentiment Indicator
|
Value
|
Last Week
|
2 Weeks Ago
|
Complacent
|
Cautious
|
|
VIX
|
13.42
|
13.14
|
12.80
|
< 20
|
> 50
|
|
VXN
|
17.15
|
17.88
|
18.57
|
< 30
|
> 70
|
|
Put/Call Ratio
|
0.500
|
0.721
|
0.621
|
< 0.6
|
> 0.7
|
|
%Bulls - %Bears
|
25.8
|
30.2
|
34.1
|
> 29%
|
< 25%
|
3.0 Procedure
The following stock screens
were generated with tools from AAII. The short term trading filter used for
Table 3A looks for optionable stocks whose percentage relative strength over
the past 6 months is greater than 90%, EPS Growth over the past 12 months is
greater than 80% and are within 5% of their 52 week high with a minimum price
of $50. When a trigger, price gap up or unusually high up volume occurs,
call options are supplied.
Key
|
Open
Trade
|
|
Passed
Recent Filter
|
|
"0"
= No discernable trend
|
|
"GAP"
= Price gap
|
|
"V"
= Higher than average volume
|
|
"+T"
= Positive trend
|
|
"-T"
= Negative trend
|
|
"TT"
= Trigger received
|
|
"TTC"
= Confirmation received
|
BRY and CDIS were removed
due to weak price action. It should be noted that the only stock to filter
through the screen this week was PCO. The large number of stocks showing a
trigger is due to poor market conditions.
Table 3A
Stephen Cooper
Stock Candidate Watch List 03/26/05
|
Stock
|
Reference
|
% Chg
|
Company
|
Sector
|
Industry
|
OPTION
|
Key
|
|
AAPL
|
01/10/05
|
23.3%
|
Apple
Computer, Inc.
|
Technology
|
Computer
Hardware
|
-
|
+T
|
|
AEOS
|
02/07/05
|
1.6%
|
American
Eagle Outfitters
|
Services
|
Retail
(Apparel)
|
AQU HK AUG
55.00 CALL
|
+TT
|
|
AET
|
01/03/05
|
18.8%
|
Aetna Inc.
|
Financial
|
Insurance
(Accident & Health)
|
AET JK AUG
155.00 CALL
|
+TT
|
|
APA
|
03/10/05
|
-1.8%
|
Apache
Corporation
|
Energy
|
Oil &
Gas Operations
|
YWA AL JAN 60.00 CALL
|
+TT
|
|
BHP
|
02/24/05
|
-4.6%
|
BHP
Billiton Limited (ADR)
|
Basic
Materials
|
Metal
Mining
|
BHP HF AUG
30.00 CALL
|
+TT
|
|
BTU
|
11/22/04
|
19.3%
|
Peabody
Energy Corporation
|
Energy
|
Coal
|
BTU IT SEP
100.00 CALL
|
+TT
|
|
BYD
|
02/21/05
|
8.8%
|
Boyd
Gaming Corporation
|
Services
|
Casinos
& Gaming
|
-
|
+T
|
|
CRS
|
02/14/05
|
-6.0%
|
Carpenter
Technology Corp
|
Basic
Materials
|
Iron &
Steel
|
CRS IN
SEPT 70.00 CALL
|
+TT
|
|
DO
|
03/04/05
|
-4.0%
|
Diamond
Offshore Drilling Inc.
|
Energy
|
Oil Well
Services & Equipment
|
DO IJ SEP
50.00 CALL
|
+TT
|
|
FFIV
|
02/14/05
|
-2.7%
|
F5
Networks Inc.
|
Technology
|
Computer
Networks
|
FLK JK OCT
55.00 CALL
|
+TT
|
|
GMR
|
02/25/05
|
-7.9%
|
General
Maritime Corp.
|
Transportation
|
Water
Transportation
|
-
|
+T
|
|
MGG
|
12/27/04
|
5.7%
|
MGM MIRAGE
|
Services
|
Casinos
& Gaming
|
MGG IO SEP
75.00 CALL
|
+TT
|
|
MON
|
12/20/04
|
12.8%
|
Monsanto
Company
|
Basic
Materials
|
Chemical
Manufacturing
|
MON JM OCT
65.00 CALL
|
+TT
|
|
PCO
|
02/14/05
|
11.3%
|
Premcor
Inc.
|
Energy
|
Oil &
Gas Operations
|
PCO IL SEP
60.00 CALL
|
+TTC
|
|
PCU
|
03/10/05
|
-3.8%
|
Southern
Peru Copper Corp (USA)
|
Basic
Materials
|
Metal
Mining
|
PCU IL AEP
60.00 CALL
|
+TT
|
|
POT
|
12/20/04
|
1.0%
|
Potash
Corp./Saskatchewan (USA)
|
Basic
Materials
|
Non-Metallic
Mining
|
POT FQ JUN
85.00 CALL
|
+TT
|
|
SIE
|
02/14/05
|
7.4%
|
Sierra
Health Services, Inc.
|
Financial
|
Insurance
(Accident & Health)
|
SIE IL SEP
60.00 CALL
|
+TTC
|
|
SM
|
03/10/05
|
-1.1%
|
St. Mary
Land & Exploration Co.
|
Energy
|
Oil &
Gas Operations
|
SM HJ AUG
50.00 CALL
|
+TT
|
|
SUN
|
03/04/05
|
-2.4%
|
Sunoco,
Inc.
|
Energy
|
Oil &
Gas Operations
|
-
|
+T
|
|
SWN
|
11/22/04
|
12.9%
|
Southwestern
Energy Company
|
Energy
|
Oil &
Gas Operations
|
SWN IL SEP
60.00 CALL
|
+TT
|
|
TS
|
01/10/05
|
31.8%
|
Tenaris S.A. (ADR)
|
Capital
Goods
|
Construction
- Supplies and Fixtures
|
QAA GT JUL
100.00 CALL
|
+TT
|
|
TXI
|
12/20/04
|
3.9%
|
Texas
Industries, Inc.
|
Capital
Goods
|
Construction
- Raw Materials
|
TXI JM OCT
65.00 CALL
|
+TT
|
|
TXU
|
11/22/04
|
22.2%
|
TXU
Corporation
|
Utilities
|
Electric
Utilities
|
-
|
+T
|
|
VLO
|
02/07/05
|
23.8%
|
Valero
Energy Corp.
|
Energy
|
Oil &
Gas Operations
|
YGY AP JAN
80.00 CALL
|
+TTC
|
|
X
|
12/20/04
|
4.8%
|
United
States Steel Corp.
|
Basic Materials
|
Iron &
Steel
|
X JM OCT
65.00 CALL
|
+TT
|
|
YELL
|
03/10/05
|
-3.3%
|
Yellow
Roadway Corp.
|
Transportation
|
Trucking
|
YBQ AL JAN 60.00 CALL
|
+TTC
|
Stocks selected by the put
option filter are listed in Table 3B. This filter looks for stocks having the
potential to decline in a down market. They are optionable stocks priced above
$30 having less than 20% year over year EPS growth, a 26 week %Rank Relative
Strength of less than 20% and are within 5% of their 52 week lows. The status
of this experimental filter is discussed in Section 4. BUD was removed due to its
price action and relative strength being too strong for this filter. It is
observed that these stocks do not necessarily deteriorate quickly when the
market turns down. Their declines seem to be consistently gradual.
Table 3B
Put Option Candidate
Watch List as of 03/26/05
|
Stock
|
Reference
|
% Chg
|
Company
|
Sector
|
Industry
|
OPTION
|
Key
|
|
BMET
|
03/25/05
|
0
|
Biomet,
Inc.
|
Health
Care
|
Medical
Equipment & Supplies
|
-
|
-T
|
|
CPS
|
03/04/05
|
6.3%
|
ChoicePoint
Inc.
|
Services
|
Business
Services
|
-
|
-T
|
|
DJ
|
02/24/05
|
-1.9%
|
Dow Jones
& Co.
|
Services
|
Printing
& Publishing
|
-
|
-T
|
|
FITB
|
02/21/05
|
-8.0%
|
Fifth
Third Bancorp
|
Financial
|
Regional
Banks
|
-
|
-T
|
|
FRX
|
03/18/05
|
0.5%
|
Forest
Laboratories, Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-
|
-T
|
|
GM
|
02/07/05
|
-22.5%
|
General
Motors Corporation
|
Consumer
Cyclical
|
Auto &
Truck Manufacturers
|
-
|
-T
|
|
LLY
|
03/18/05
|
0.7%
|
Eli Lilly
& Co.
|
Health
Care
|
Major
Drugs
|
-
|
-T
|
|
MIL
|
02/07/05
|
0.2%
|
Millipore
Corporation
|
Technology
|
Scientific
& Technical Instruments
|
-
|
0
|
|
NYT
|
02/21/05
|
-4.4%
|
The New
York Times Company
|
Services
|
Printing
& Publishing
|
-
|