______________________________________________________________________________
Issue No. 25 – May 9, 2005
Prescott, Arizona Systems@WiserTrader.com
______________________________________________________________________________
1.0
Trading
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1.1
Trends
A minor bounce this past
week has left the major indices over-bought with respect to the Williams %R.
Volume on Friday was relatively low. We need to be careful here. There has
been a lot of discussion about sector rotation lately. Yet it has been
difficult even for professional investors to follow market momentum. REITs’
that fell out of favor in the first quarter due to fears of higher interest
rates have since rebounded. Energy stocks that surged in the first quarter
have slumped due to fears of a slowing economy. Fears about the outlook for
the economy have sent investors into defensive stocks such as health care and
consumer staples. It is natural to expect rotation out of industrials and
materials and movement into defensive plays, such as health care, as the
maturing economic recovery heads cyclically towards recession. However, the
market is churning rather than having an orderly sector rotation.
Rather than follow the
evolving leadership too closely, it is better for investors to diversify. Information
recently added to the web site takes a queue from the Oxford Club’s concept of
balanced asset allocation. The Oxford Club model proposes 30% domestic
stocks, 30% foreign stocks, 10% high grade bonds, 10% junk bonds, 10% inflation
adjusted treasuries, 5% gold and 5% real estate. Diversification reduces
risk.
Based on Standard & Poor's Depositary Receipts (SPDRS) in Figure
1, all sectors were stable to slightly up over the past week. Basic Materials
(+2.7%), Consumer Discretionary (+2.4%), Energy (+1.4%) and Technology (+1.4%)
lead the field. The leaders slightly outperformed the S&P 500, which is a
broader indicator than either the DOW or the NASDAQ.
© 2005 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.
FIGURE 1
The
energy sector did not appear to have formed even a short term trend. Coal is a
leader. A few coal companies with their Friday percentage gains are
Westmorland Coal (WLB +6.92%), Natural Resource Partners (NRP +3.49%), Alpha
Natural Resources (ANR + 2.90%) and Peabody Energy (BTU +2.74%).
Jewelry
and Silverware was a leading Consumer Discretionary industry. Companies that
lead on Friday are LJ International (JADE +3.81%), Movado Group (MOV +2.88%)
and Charles & Colvard (CTHR +1.82%)
Computer
Storage Devices in the Technology Sector included MTI Technology (MTIC +5.67%),
Seagate (STX +5.43%), Sandisk (SNDK +4.45%) and Dataram Corp (DRAM +3.75%).
Last week’s newsletter
discussed closed end sector and industry funds as an alternative to specific
stocks. These come in the form of Sector SPDR’s mentioned above, as well as,
ETF’s that also trade like stocks. A few of the leaders for the past week
appear in Figure 2 along with the S&P 500. The preponderance of Asian and
Emerging Market funds could be significant.
FIGURE 2
2.0 Market Analysis
Industry leaders in Table 1
rank from highest to lowest.
The Federal Reserve raised
overnight bank loan rates to 3% for the 8th consecutive increase of
¼%. The move was expected. The Fed stated that inflation expectations remain
well contained and that the current “accommodative” stance can be removed at a measured
pace. This reduced fears of inflation and surging interest rates.
The April employment report
showed an increase of 274,000 in non-farm payrolls, well ahead of the expected
175,000 increase. This helped raise confidence that payroll growth can sustain
3.1% average GDP growth. There is still a little concern about consumer
spending, however.
The sudden confidence in GM
by investors was followed by a downgrade to junk status. Overall, though,
market action was positive for the week. The S&P notched its third
straight weekly gain. It is now up 3.1% from the lows this year set in
April. But it is still down 3.3% for the year. The excessive
pessimism from April has been wrung out of the market, but there are few
expectations of a major rally in the summer months ahead. This Thursday
is the April retail sales report. Also reporting are CISCO on Tuesday and Dell
on Thursday.
The 5 day and 5 week RSI
for the DOW, S&P500 and NASDAQ are neutral. Other sentiment indicators are
in Table 2.
Table 2
VTO Report on Market Sentiment
Indicators
|
Sentiment Indicator
|
Value
|
Last Week
|
2 Weeks Ago
|
Complacent
|
Cautious
|
|
VIX
|
14.05
|
15.31
|
15.38
|
< 20
|
> 50
|
|
VXN
|
17.58
|
18.54
|
19.04
|
< 30
|
> 70
|
|
Put/Call Ratio
|
0.802
|
0.738
|
0.669
|
< 0.6
|
> 0.7
|
|
%Bulls - %Bears
|
13.1%
|
14.3%
|
21.5%
|
> 29
|
< 20
|
Selected industry and
sector performance over the past month are in Table 3.
Table 3
Selected Industry
ETF's and Sector SPDR's 05/07/05
|
Industry or Sector
|
1 month
|
1 wk
ago
|
2 wks
ago
|
3 wks
ago
|
4 wks
ago
|
|
GOLD
|
-0.4%
|
-1.9%
|
-0.1%
|
2.3%
|
-0.7%
|
|
Transportation
|
-2.0%
|
3.0%
|
0.1%
|
1.3%
|
-6.1%
|
|
Semiconductors
|
-1.4%
|
3.9%
|
0.6%
|
2.5%
|
-7.9%
|
|
Real
Estate
|
6.9%
|
0.6%
|
3.1%
|
1.2%
|
1.8%
|
|
Oil
|
-4.6%
|
2.9%
|
-6.3%
|
6.2%
|
-6.8%
|
|
Financials
|
1.5%
|
1.1%
|
2.5%
|
0.0%
|
-2.1%
|
|
Utilities
|
1.3%
|
-0.8%
|
1.1%
|
2.4%
|
-1.5%
|
|
Healthcare
|
2.3%
|
0.9%
|
1.3%
|
-1.0%
|
1.1%
|
|
Consumer
Staples
|
-0.1%
|
1.3%
|
0.7%
|
-1.0%
|
-1.0%
|
|
Energy
|
-3.8%
|
1.4%
|
-3.5%
|
5.8%
|
-7.0%
|
|
Materials
|
-4.1%
|
2.7%
|
-0.2%
|
2.0%
|
-8.2%
|
|
Industrial
|
-2.1%
|
0.9%
|
0.1%
|
1.2%
|
-4.2%
|
|
Technology
|
-2.3%
|
1.4%
|
0.3%
|
1.9%
|
-5.7%
|
|
Consumer
Discretionary
|
-3.4%
|
2.4%
|
-0.9%
|
-0.4%
|
-4.5%
|
|
Telecommunications
|
-2.2%
|
-1.3%
|
1.2%
|
0.7%
|
-2.8%
|
3.0 Procedure
The following watch lists contain
stock candidates for consideration. They are not necessarily recommended
trades. The “Reference” is the date that a stock was added to the list. The “%
Change” is how the price has changed since a stock was added to the list. Stocks
that are down 10% or more after being listed are removed. The “% from Max” is
the last price relative to the maximum price reached after a stock was added to
the list. 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. More information on each of these filters is available on
the web site. Send me an email
if you want more details on a filter.
Key
Companies that have
experienced net insider buying within the past 6 months of 5% or more of issued
stock are listed in Table 3A. IPSU declined more than 10% since being listed
and was removed.
Table 3A
Net Insider Buying Stock Filter as
of 05/07/05
|
Stock
|
Reference
|
% Chg
|
Company
|
Sector
|
Industry
|
% from Max
|
|
ACAD
|
04/29/05
|
-0.8%
|
ACADIA
Pharmaceuticals Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-3.9%
|
|
CNST
|
04/29/05
|
0.2%
|
Constar
International, Inc.
|
Basic Materials
|
Containters
& Packaging
|
0.0%
|
|
FTD
|
04/08/05
|
-3.9%
|
FTD Group,
Inc.
|
Services
|
Retail
(Catalog & Mail Order)
|
-4.1%
|
|
FVRL
|
04/22/05
|
2.1%
|
Favrille,
Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-5.1%
|
|
INHX
|
04/08/05
|
-4.2%
|
Inhibitex,
Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-9.6%
|
|
IPXLE
|
04/29/05
|
3.7%
|
Impax
Laboratories Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-0.6%
|
|
IRN
|
05/06/05
|
0.0%
|
Rewards
Network Inc.
|
Services
|
Business
Services
|
0.0%
|
|
ITMN
|
04/08/05
|
-1.6%
|
InterMune,
Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
-1.7%
|
|
MERCS
|
04/08/05
|
-8.4%
|
Mercer
International Inc.
|
Basic
Materials
|
Paper
& Paper Products
|
-8.4%
|
|
MWY
|
04/08/05
|
-9.2%
|
Midway
Games Inc.
|
Technology
|
Software
& Programming
|
-11.1%
|
|
OSHC
|
04/08/05
|
-3.7%
|
Ocean
Shore Holding Co.
|
Financial
|
S&Ls/Savings
Banks
|
-3.8%
|
|
THLD
|
05/06/05
|
0.0%
|
Threshold
Pharmaceuticals, Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
0.0%
|
|
TRCA
|
04/29/05
|
13.1%
|
Tercica,
Inc.
|
Health
Care
|
Biotechnology
& Drugs
|
0.0%
|
|
VSTA
|
04/08/05
|
-3.7%
|
VistaCare,
Inc.
|
Health
Care
|
Healthcare
Facilities
|
-7.8%
|
|
ZHNE
|
05/06/05
|
0.0%
|
Zhone
Technologies, Inc.
|
Technology
|
Communications
Equipment
|
0.0%
|
Companies with net cash
positions that comprise at least 40% of their share price are listed in Table
3B.
Table 3B
Capital Rich Companies Filter as
of 05/07/05
|
Stock
|
Reference
|
% Chg
|
Company
|
Sector
|
Industry
|
% from Max
|
|
ACP
|
04/08/05
|
4.3%
|
American
Real Estate Partners, L.P.
|
Services
|
Casinos
& Gaming
|
0.0%
|
|
ADZA
|
04/08/05
|
11.8%
|
Adeza
Biomedical Corporation
|
Health
Care
|
Biotechnology
& Drugs
|
0.0%
|
|
BCGI
|
05/06/05
|
0.0%
|
Boston
Communications Group Inc
|
Services
|
Communications
Services
|
0.0%
|
|
CDCO
|
04/22/05
|
-4.4%
|
COMDISCO
HLDG CO INC
|
Services
|
Rental
& Leasing
|
-4.4%
|
|
EXAR
|
04/29/05
|
3.7%
|
Exar
Corporation
|
Technology
|
Semiconductors
|
0.0%
|
|
FDRY
|
04/29/05
|
-1.2%
|
Foundry
Networks, Inc.
|
Technology
|
Communications
Equipment
|
-1.2%
|
|
NCTY
|
04/08/05
|
35.6%
|
The9
Limited
|
Services
|
Business
Services
|
0.0%
|
|
VNUS
|
05/06/05
|
0.0%
|
VNUS
Medical Technologies, Inc.
|
Health
Care
|
Medical
Equipment & Supplies
|
0.0%
|
|
WSC
|
04/08/05
|
-4.1%
|
Wesco
Financial Corp.
|
Conglomerates
|
Conglomerates
|
-5.3%
|
|
WZEN
|
04/22/05
|
-1.9%
|
Webzen
Inc. (ADR)
|
Technology
|
Computer
Services
|
-3.8%
|
For the screen in
Table 3C, the number of selections is reduced by eliminating stocks having
P/E’s greater than 30.
Table 3C
Growth Momentum Watch List as of 05/07/05
|
Stock
|
Reference
|
% Chg
|
Company
|
Sector
|
Industry
|
% from Max
|
|
BDK
|
04/29/05
|
0.6%
|
The Black
& Decker Corporation
|
Consumer
Cyclical
|
Appliances
& Tools
|
-0.2%
|
|
CHE
|