Newsletter Outline

Text Box: Wiser Trader Stocks and Options Newsletter
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Issue No. 42 – September 5, 2005 Prescott, Arizona Systems@WiserTrader.com

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1.0 Trading

Large scale construction should flourish from the disaster on the Gulf coast.

1.1 Nature’s Sell Signal

Our hearts go out to those in distress on the southern coasts. A dozen or so subscribers seem to have been affected based on the unusually high number of undeliverable emails this past week. I hope that all affected will come out of it well.

Nature just presented the city of New Orleans with a strong sell signal. For the first time in memory a major US city was evacuated. This is entirely different from other natural disasters. Normally the government sends food and water, nurtures the injured, recovers the dead, cleans up and rebuilds. On rare occasions rebuilding is restricted to certain areas but always with future safety in mind. In this case nature said that nowhere in the city is safe from her, including pockets of dry land that are isolated from the outside.

The first impulse is to bring things back to normal by reclaiming the city from the sea. But there is something questionable about the long term economic and cultural viability of a city resting on the status quo several feet below sea level in a hurricane corridor between an ocean, an untamable river and a large lake. The cost of allowing the sea to permanently claim the area would be high as an environmental cleanup will be needed in any case. An incalculable investment in lives, culture, family institutions, industry and infrastructure is tied up with the city. To successfully reclaim the city there is much to be learned from the Dutch who have replaced earthen dikes with reinforced concrete structures, flood control gates and highly sophisticated warning systems. They view these as part of the cost of living there.

It is doubtful if one could ever separate the economics of surrendering such a city to the sea from the emotional investment in its human hopes and activities. As traders we are more fortunate to be able to easily weigh the importance of emotions and economics. In trading we are forced to recognize that emotions must be given no weight at all.

© 2005 WiserTrader.com, 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. WiserTrader.commarkets third party trading systems but has no other affiliation with trading system companies.

2.0 Market Analysis

Major indices continue their alternating up and down movement on successive days with net sideways movement. September is historically the worst month of the year. Yet before the disaster along the southern coast, some analysts expected a short term bounce to begin after Labor Day. It isn’t clear whether the net upward movement in the major averages this week after the hurricane was a corroboration of that opinion or something different entirely. The rise in energy prices and associated stocks did much to move the major averages. Anticipation of electrical, drilling, pipeline and transportation infrastructure rebuilding affected others. Overall, investors are primed for a fourth quarter rally.

Figure 1 compares index tracking stocks for the major averages with Sector SPDR’s.

FIGURE 1

Market sentiment is shown in Table 2A.

Table 2A

VTO Market Sentiment Indicators

Sentiment Indicator	Current	Last Week	2 Weeks Ago	Complacent	Cautious
VIX **	13.57	13.72	13.42	< 20	> 50
VXN ***	15.67	15.37	16.16	< 30	> 70
Put/Call Ratio	0.612	0.814	0.576	< 0.6	> 0.7
%Bulls - %Bears	23.8%	31.9%	34.8%	> 29%	< 20%
Above 20 day SMA = Sell signal. * Above 20 day SMA = Sell signal.

Figure 2 compares index tracking stocks with five leading ETF’s for the week.

FIGURE 2

In Table 2B, the broader market edged upward for the week. Key industry ETF’s in Table 2B 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 consumer spending.

Table 2B

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)	-2.4%	-1.4%	-0.5%	0.1%	-0.7%
DIA (DOW)	-2.6%	-1.7%	-0.3%	0.3%	-0.9%
QQQQ (NASDAQ 100)	-2.8%	-0.9%	-1.0%	-0.7%	-0.3%
IWM (Russell 2000)	-5.0%	-0.9%	-0.6%	-0.7%	-2.8%
GLD, GOLD	1.8%	0.0%	-2.0%	2.0%	1.8%
RKH, Banking	-2.9%	-2.4%	0.6%	0.2%	-1.3%
IYT, Transportation	-3.2%	-1.1%	-0.9%	0.5%	-1.8%
SMH, Semiconductors	-2.9%	0.1%	-0.3%	-1.5%	-1.2%
BBH, Biotechnology	-1.2%	-0.3%	-0.3%	-0.3%	-0.3%
IYR, Real Estate	-5.9%	0.4%	-0.8%	-0.9%	-4.7%
OIH, Oil	-0.2%	-0.1%	-3.5%	1.2%	2.3%
XLE, Energy	0.8%	-0.4%	-4.0%	3.7%	1.7%
XLU, Utilities	-0.4%	1.6%	-0.3%	-0.5%	-1.1%
XLB, Materials	-4.8%	-3.0%	-2.7%	1.0%	-0.2%
XLI, Industrial	-2.9%	-1.4%	-0.7%	0.8%	-1.6%
XLK, Technology	-2.1%	-0.8%	-0.1%	-1.7%	0.5%
XLV, Healthcare	-2.2%	-1.2%	-1.1%	0.6%	-0.6%
XLF, Financials	-2.6%	-2.1%	0.1%	0.2%	-1.0%
XLP, Consumer Staples	-2.3%	-1.0%	0.4%	-0.3%	-1.4%
XLY, Consumer Discretionary	-3.4%	-1.2%	-1.7%	1.0%	-1.5%

3.0 Procedure

The following watch lists contain stock candidates for consideration. They are not necessarily trades. Categories include check lists for insider buying and cash rich companies, as well as, filters that employ stock picking methods used by six important master traders. Stocks are ranked by where their current price falls in the range defined by their 4 week highs and lows. Stocks at their 4 week highs are ranked 100% while those at their 4 week lows are ranked 0%.

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 the reference date. 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 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. More information on filters is available on the web site.

A performance summary of filtering techniques for check lists 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	5.3%	0.1%	5.9%	1.7%	4.6%	1.8%	-1.8%
Cash Rich Companies	0.0%	-0.1%	4.9%	-0.2%	1.1%	2.8%	1.1%
Growth Momentum Stocks	11.5%	-0.4%	0.1%	3.8%	-2.1%	-2.1%	0.8%
Lynch Stocks	11.2%	0.2%	2.2%	3.4%	-0.9%	-2.5%	2.3%
Buffett Stocks	24.1%	-0.1%	1.4%	3.2%	-0.9%	-1.5%	0.7%
Graham Stocks	9.5%	-0.1%	2.9%	2.9%	1.1%	-0.8%	-0.3%
Templeton Stocks	5.3%	0.1%	1.0%	1.6%	-1.4%	0.2%	0.6%
Zweig Stocks	13.5%	-0.8%	8.3%	6.2%	3.4%	-2.6%	1.4%
Average	10.1%	-0.1%	3.3%	2.8%	0.6%	-0.6%	0.6%

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 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