Wiser Trader Stocks and Options Newsletter

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Issue No. 72   April 3, 2006                           Prescott, Arizona                       Systems@WiserTrader.com

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1.0   Trading

 

      The NASDAQ and Russell 2000 outperformed the DOW and S&P 500 this week.

 

1.1 Relative Gains

 

        The chart in Figure 1 illustrates relative percentage gains over the past 2 months for the major averages.  The relative percentage gain curves are formed by subtracting out the percentages gains of either the S&P 500 or the DOW.  Over the past week, there has been acceleration in relative movement of the Russell 2000 and the NASDAQ compared to the DOW and S&P 500.  If this continues, it indicates that not only is the retail investor optimistic but also that further opportunities are seen in entrepreneurial stocks.  Earnings warnings have been rather sparse.

 

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. 

     

 

      While the NASDAQ is still within its 2-year rising wedge, it has broken above of its 3-month flag configuration, as seen in Figure 2.  The Russell 2000 in Figure 3 has broken above its 2-year rising wedge. 

    

 

FIGURE 2

 

 

FIGURE 3

 

 

      It should be noted that the DOW and the S&P 500, to a lesser extent, lagged behind the benchmark NYSE Composite index this week. 

 

2.0 Market Analysis

 

      This week bond yields rose and the most interest rate sensitive stocks began to consolidate.  The financially weighted S&P 500 and the large cap weighted DOW pulled back while the technology weighted NASDAQ and small cap Russell 2000 moved ahead.  The Fed policy statement remained intact with the same expectations for at least one or two more rate hikes. 

 

      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

0.8%

-1.5%

0.0%

1.8%

0.5%

NASDAQ Composite Index

1.6%

1.2%

0.3%

2.0%

-1.8%

NYSE Composite Index

0.6%

-0.6%

-0.3%

2.0%

-0.5%

S & P 500 Index

1.4%

-0.2%

-0.2%

2.4%

-0.5%

Russell 2000 Index

3.6%

1.5%

1.0%

2.7%

-1.6%

HGX, Phil. Housing Index

2.9%

-1.7%

-0.3%

7.4%

-2.2%

IYR, Real Estate

5.1%

1.1%

-3.0%

4.4%

2.7%

GLD, GOLD

3.2%

4.3%

1.1%

2.4%

-4.4%

RKH, Banking

0.3%

-1.4%

-0.5%

2.0%

0.2%

IYT, Transportation

1.6%

1.0%

-0.7%

2.4%

-1.1%

SMH, Semiconductors

-4.3%

0.3%

1.8%

-1.1%

-5.3%

BBH, Biotechnology

-0.6%

-0.3%

-2.4%

3.8%

-1.5%

OIH, Oil

2.6%

2.9%

1.0%

5.1%

-6.1%

XLE, Energy

0.5%

1.0%

0.4%

4.4%

-5.1%

XLU, Utilities

-4.6%

-2.1%

-2.1%

1.4%

-1.8%

XLB, Materials

1.9%

0.9%

-0.4%

2.8%

-1.4%

XLI, Industrial

3.2%

0.4%

-0.3%

2.9%

0.3%

XLK, Technology

0.6%

0.2%

-0.1%

1.8%

-1.3%

XLV, Healthcare

-1.2%

-2.1%

-0.1%

0.9%

0.2%

XLF, Financials

0.1%

-1.0%

-0.7%

1.4%

0.4%

XLP, Consumer Staples

0.2%

-1.6%

0.1%

-0.8%

2.5%

XLY, Consumer Discretionary

0.5%

-0.4%

-0.7%

2.0%

-0.4%

 

 

      The VIX and VXN volatility indexes are listed in Table 2B.

 

 

Table 2B

Volatility

Indicator

Current

Last Week

2 Weeks Ago

Complacent

Cautious

VIX **

11.4

11.2

12.1

< 20

> 50

VXN ***

16.3

15.9

15.4

< 30

> 70

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

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

 

 

 

      Figure 4 compares the major averages with key ETF’s and Sector SPDR’s.

 

 

 

FIGURE 4

 

 

 

 

 

Table 2C

Market Summary


 
 
 

 
 Major Indices 
 For the Past Week:
 Dow Jones     -1.5%
 NASDAQ        +1.2%
 S&P500 Index  -0.6%
 Russell 2000  +1.5%
 NYSE          -0.2%
 
 30 Year Bond 4.893%
 10 Year Note 4.853%
 
 Leading Industries
 For the Past Week:
 General Mining 
 Nonferrous Metals 
 Gold Mining 
 Internet 
 Mining 
 Real Estate Holding & Devel 
 Industrial Metals 
 Oil Equipment & Services 
 Basic Resources 
 Gambling                     
 
 Lagging Industries
 For the Past Week:
 Mortgage Finance 
 Pharmaceuticals 
 Home Construction 
 Tobacco 
 Distillers & Vintners 
 Electricity 
 Pharmaceuticals & Biotech 
 Soft Drinks 
 Medical Equipment 
 Nondurable Household Products            
          
 Leading Industries
 For the Past Month:
 Platinum & Precious Metals 
 General Mining 
 Steel 
 Real Estate Holding & Devel 
 Nonferrous Metals 
 Industrial Metals 
 Gambling 
 Basic Resources 
 Waste & Disposal Services 
 Forestry         
 
 Lagging Industries
 For the Past Month:
 Recreational Services 
 Mortgage Finance 
 Water 
 Consumer Finance 
 Electricity 
 Semiconductors 
 Utilities 
 Trucking 
 Nondurable Household Products 
 Transportation Services                        
 
 Crude Oil $66.35
 
 Gold for the past 30 days:
 USD    +3.21%
 CAD    +6.27%
 CHF    +2.47%
 GBP    +3.92%
 EUR    +1.43%
 JPY    +4.63%

 
 
 
 
 

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

12.3%

0.7%

11.0%

0.7%

3.1%

7.6%

-0.9%

Cash Rich Companies

0.1%

0.0%

-3.6%

0.0%

0.1%

0.0%

-3.7%

Price to Free Cash Flow

15.3%

2.6%

6.5%

10.5%

-1.5%

11.4%

-9.6%

Growth Momentum Stocks

15.8%

-0.1%

3.8%

1.9%

0.7%

5.1%

-3.8%

Lynch Stocks

25.0%

-0.1%

3.3%

1.5%

-0.8%

1.6%

1.0%

Buffett Stocks

25.7%

-0.3%

4.0%

1.9%

0.6%

1.9%

-0.5%

Graham Stocks

12.7%

-0.1%

0.3%

-0.1%

-0.5%

2.1%

-1.2%

Templeton Stocks

7.2%

-0.2%

2.6%

0.0%

0.4%

2.5%

-0.2%

 Zweig Stocks

11.6%

0.0%

4.0%

0.9%

1.2%

2.8%

-0.7%

Average Long Stocks

14.0%

0.3%

3.5%

1.9%

0.4%

3.9%

-2.2%

 

 

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

-1.7%

-8.0%

-84

-84

RGN

03/17/06

0.0%

RegeneRx Biopharmaceut.

Health Care

Biotechnology & Drugs

-2.2%

-7.6%

-69

-69

MBRX

03/10/06

0.0%

Metabasis Therapeutics, Inc.

Health Care

Biotechnology & Drugs

-0.8%

-0.7%

-46

-46

FVRL

03/17/06

0.0%

Favrille, Inc.

Health Care

Biotechnology & Drugs

-10.7%

18.4%

-43

-43

MMLP

11/25/05

0.0%

Martin Midstream Partners L.P.

Transportation

Water Transportation

-2.8%

5.0%

-41

-41

CLRT

03/24/06

0.9%