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Issue No. 34 – July 11, 2005 Prescott, Arizona Systems@WiserTrader.com

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1.0 Trading

      It is useful to know when money is moving into or out of a stock, industry or sector.   Below is a method for estimating relative money movement on an intraday and daily basis without relying on proprietary services.

1.1 Money Movement

      Major movement of money depends mostly on what large fund managers are doing.  The trading volume of individual investors is smaller by comparison.  It is commonly accepted that when a stock’s price is increasing, money is flowing into the stock.  While the price is rising, more money is being paid for a given number of shares traded.  Likewise, when a stock’s price is decreasing, money is flowing out of the stock.  The strength of money flow is modulated by the daily trading volume.  By multiplying the percentage price change by the percent of average daily trading volume, one has a relative measure of money flow.  The larger the percentage change in price times the percent of average volume, the greater the relative money flow. 

      This measurement works not just for individual stocks, but also for various domestic stock and bond indices, foreign stock indices, industries and sectors that are tracked by Exchange Traded Funds (ETF’s).  Most ETF’s are traded on the American Stock Exchange.  A comprehensive list of ETF’s can be found at the NASDAQ website by clicking on the link http://quotes.nasdaq.com/asp/ETFsCompare.asp.  Here one can download the entire list of 175 or so ETF’s in a spreadsheet format. 

      If one uses Microsoft Excel, an application named XLQ can be added to update price and volume continuously and automatically from Yahoo.com and MSN.com.  The spreadsheet can then be sorted by rows according to the size of the resulting %price x %volume product.  Shifts in money flow are indicated by positive inflows in one area matched by negative outflows in other areas.  Strong movements in the broader market are reflected by nearly all the %price x %volume products having the same algebraic sign.

© 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.

2.0 Market Analysis

The market is euphoric about a number of things - jobs, the swift recovery after the London terrorist attacks, a few dollars pull back in oil prices, G8 solidarity, etc.  Earnings got off to a good initial start.  If oil traders read this as an economic spurt in demand, oil prices may surge once again causing stocks to turn south.  It’s more a matter of when than if.

      Industry leaders in Table 2A rank from highest to lowest.   Relative strength is given in Table 2B and VTO market sentiment in Table 2C.

Table 2A - Market Summary

 Major Indices for the Week:
 Dow Jones     +1.7%
 NASDAQ        +2.7%
 S&P500 Index  +1.7%
 Russell 2000  +3.5%
 
 30 Year Bond 4.361%
 10 Year Note 4.109%
 
 Industry Leaders
 For the Past Week:
 Biotechnology 
 Auto Parts 
 Steel 
 Semiconductors 
 Computer Services 
 Coal 
 Home Construction 
 Industrial Metals 
 Nonferrous Metals 
 Aluminum  
 
 Industry Leaders
 For the Past Month:
 Platinum & Precious Metals 
 Exploration & Production 
 Coal 
 Home Construction 
 Biotechnology 
 General Mining 
 Oil Equipment & Services 
 Oil Equipment, Services & Distr 
 Nonferrous Metals 
 Mining 
 
 Crude Oil $59.63
 
 Gold for the past 30 days:
 USD    -0.17%
 CAD    -2.96%
 CHF    +3.78%
 GBP    +4.81%
 EUR    +2.26%
 JPY    +4.22%

Table 2B

Relative Strength Index

	5 Day RSI
DOW	Neutral
S&P 500	Neutral
NASDAQ	Neutral

Table 2C

VTO Market Sentiment Indicators

Sentiment Indicator	Value	Last Week	2 Weeks Ago	Complacent	Cautious
VIX **	11.45	11.40	12.18	< 20	> 50
VXN ***	13.80	14.27	15.30	< 30	> 70
Put/Call Ratio	0.424	0.554	0.578	< 0.6	> 0.7
%Bulls - %Bears	32.1%	36.0%	33.7%	> 29%	< 20%
**   Below 20 day SMA = Buy signal. *** Below 20 day SMA = Buy signal.

      Taking a look from the top down in Table 2D, the broader market rose during the week.

Table 2D

Index Tracking Stocks, Key Industry ETF’s and Sector SPDR’s

	1 month	1 wk ago	2 wks ago	3 wks ago	4 wks ago
SPY (S&P 500)	0.9%	1.5%	0.5%	-2.0%	1.0%
DIA (DOW)	-0.6%	1.4%	0.3%	-3.0%	0.8%
QQQQ (NASDAQ 100)	0.6%	2.8%	-0.6%	-2.4%	0.9%
IWM (Russell 2000)	5.6%	3.1%	2.8%	-2.8%	2.5%
GLD, GOLD	-0.8%	-1.0%	-2.7%	0.6%	2.4%
RKH, Banking	0.3%	0.8%	-0.4%	-1.4%	1.3%
IYT, Transportation	1.2%	2.2%	2.6%	-5.2%	1.9%
SMH, Semiconductors	2.7%	5.1%	-0.9%	-1.0%	-0.5%
BBH, Biotechnology	5.9%	5.5%	0.6%	-2.2%	2.0%
IYR, Real Estate	3.8%	2.5%	2.1%	-3.4%	2.7%
OIH, Oil	4.9%	1.2%	0.0%	-1.0%	4.7%
XLE, Energy	5.9%	1.8%	1.1%	-2.0%	5.0%
XLB, Materials	-1.6%	2.1%	-0.8%	-5.1%	2.4%
XLU, Utilities	4.1%	0.4%	2.3%	0.8%	0.5%
XLI, Industrial	-1.1%	1.2%	0.6%	-3.5%	0.7%
XLK, Technology	1.4%	2.4%	-0.1%	-1.5%	0.6%
XLV, Healthcare	0.4%	0.9%	-0.4%	-1.8%	1.7%
XLF, Financials	1.8%	1.3%	0.6%	-1.1%	1.0%
XLP, Consumer Staples	-1.6%	0.7%	0.4%	-2.4%	-0.3%
XLY, Consumer Discretionary	1.1%	1.9%	0.1%	-2.5%	1.7%

      Figure 1 compares index tracking stocks for the major averages with Sector SPDR’s. Figure 2 compares index tracking stocks with key industry ETF’s and the five leading ETF’s for the week.  Key industry ETF’s 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 Real Estate are respective indicators for the inverse health of the currency and the economy in general. 

FIGURE 1

FIGURE 2

3.0 Procedure

      The following watch lists contain stock candidates for consideration.  They are not necessarily trades.  The “Reference” is the date that a stock passed the indicated filter and was added to or returned to the list.  The “% Change” is how the price has changed since a stock first passed the filter.  Stocks that are down 10% or more after being listed are removed.  The “% from Max” is the percentage the price has declined from the maximum price reached after a stock first passed the filter.  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 filters is available on the web site.  Send an email if you need more details.

Key

Passed Recent Filter

      Companies that have experienced net insider buying within the past 6 months of 5% or more of issued stock are listed in Table 3A.  These stocks should also appear in one of the master trader screens or meet additional screening criteria before being given serious consideration.  ZHNE was removed because it decline more than 15% from its highest price after being listed.

Table 3A

Net Insider Buying Check List

Stock	Reference	% Chg	Company	Sector	Industry	% from Max
ACAD	04/29/05	20.6%	ACADIA Pharmaceuticals Inc.	Health Care	Biotechnology & Drugs	-3.4%
AETH	06/17/05	7.4%	Aether Systems, Inc.	Technology	Software & Programming	0.0%
AFT	05/20/05	-8.2%	Axesstel, Inc.	Technology	Communications Equipment	-11.8%
ASPV	05/27/05	3.7%	Aspreva Pharmaceuticals Corporation	Health Care	Biotechnology & Drugs	-11.4%
ATPL	07/01/05	0.5%	Atlantis Plastics, Inc.	Basic Materials	Fabricated Plastic & Rubber	-2.7%
CRTX	07/01/05	0.6%	Critical Therapeutics, Inc.	Health Care	Biotechnology & Drugs	-2.9%
FTD	04/08/05	-0.4%	FTD Group, Inc.	Services	Retail (Catalog & Mail Order)	-0.6%
FVRL	04/22/05	15.5%	Favrille, Inc.	Health Care	Biotechnology & Drugs	-2.9%
IPSU	05/20/05	-7.0%	Imperial Sugar Company	Consumer Non-Cyclical	Food Processing	-10.7%
IRN	05/20/05	4.4%	Rewards Network Inc.	Services	Business Services	0.0%
ITMN	04/08/05	36.0%	InterMune, Inc.	Health Care	Biotechnology & Drugs	0.0%
KIRK	05/27/05	2.6%	Kirkland's, Inc.	Services	Retail (Specialty Non-Apparel)	-2.0%
MERCS	05/20/05	-6.1%	Mercer International Inc.	Basic Materials	Paper & Paper Products	-6.1%
PCTY	07/08/05	0.0%	Party City Corporation	Services	Retail (Specialty Non-Apparel)	0.0%
RGN	07/01/05	-1.7%	RegeneRx Biopharmaceut.	Health Care	Biotechnology & Drugs	-3.1%
SCLN	07/01/05	-0.2%	SciClone Pharmaceuticals	Health Care	Biotechnology & Drugs	-0.2%
STLW	07/08/05	0.0%	Stratos International, Inc.	Technology	Semiconductors	0.0%
THLD	07/08/05	0.0%	Threshold Pharmaceuticals, Inc.	Health Care	Biotechnology & Drugs	0.0%

      Companies with net cash positions that comprise at least 40% of their share price 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.   CDCO was removed because of its Over the Counter status making it difficult to update the data.  Its price performance is still in line with requirements for being listed here.  EXM declined more than 15% from its highest price after being listed and was removed.

Table 3B

Capital Rich Companies Check List

Stock	Reference	% Chg	Company	Sector	Industry	% from Max
CLCT	05/20/05	3.4%	Collectors Universe, Inc.	Services	Business Services	-3.1%
DITC	06/03/05	-1.3%	Ditech Communications	Technology	Communications Equipment	-4.4%
HWG	06/03/05	16.6%	The Hallwood Group Incorporated	Consumer Cyclical	Textiles - Non-Apparel	-3.8%