Wiser Trader Stocks and Options Newsletter
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Issue No. 86 July 24, 2006 Prescott, Arizona Systems@WiserTrader.com
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1.0 Trading
Uncertainty in the market continues.
1.1 Aimlessness
The major averages continue to retest their recent lows. The S&P 500 shown in Figure 1A has not changes much in the past week, resting within 1% of where it closed last week.
FIGURE 1A
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© 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. |
The same can be said for the NASDAQ, Russell 2000 and NYSE Composite. The DOW managed a 1.2% improvement over the past week due to positive earnings reports. The market as a whole continues in a state of extreme volatility, based on the Williams %R in Figure 1B. After rising from an oversold condition, the market reversed itself and moved downward for the past two trading days.
FIGURE 1B
Market movement over the past 3 months has been sideways to downward, as seen in Figure 1C.
FIGURE 1C
Figure 1D shows the daily percentage volume deviation from average for the NYSE and NASDAQ along with the average daily percentage gain for the five indices. The fact that volume has been above average recently is a reflection of heightened expectations for earnings while the consensus on future direction is low. Many traders have been selling into rallies.
FIGURE 1D
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Polish your skills.
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2.0 Market Analysis
Outside of the technology sector, earnings have not been as bad as many feared. While the market is facing the reality of a slowing economy with reduced earnings, valuations have improved. The sudden flight to quality in the midst of earnings season has led to a little confusion as the full earnings picture is still evolving. Another week of volatility can be expected.
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 |
-1.1% |
1.2% |
-3.2% |
-0.5% |
1.5% |
|
NASDAQ Composite Index |
-4.8% |
-0.8% |
-4.4% |
-1.9% |
2.4% |
|
S & P 500 Index |
-0.3% |
0.3% |
-2.3% |
-0.4% |
2.1% |
|
NYSE Composite Index |
0.4% |
0.0% |
-2.5% |
-0.2% |
3.1% |
|
Russell 2000 Index |
-2.6% |
-1.4% |
-4.0% |
-2.1% |
5.0% |
|
HGX, Phil. Housing Index |
-10.5% |
-2.9% |
-7.5% |
-1.8% |
1.6% |
|
IYR, Real Estate |
4.2% |
0.4% |
-1.5% |
1.6% |
3.7% |
|
GLD, GOLD |
6.4% |
-6.3% |
5.1% |
2.3% |
5.6% |
|
RKH, Banking |
4.1% |
3.2% |
-1.3% |
-0.1% |
2.3% |
|
IYT, Transportation |
-7.1% |
-2.8% |
-5.6% |
-1.7% |
3.0% |
|
SMH, Semiconductors |
-10.1% |
-5.0% |
-3.4% |
-3.4% |
1.4% |
|
BBH, Biotechnology |
0.3% |
-0.4% |
-4.3% |
1.6% |
3.5% |
|
OIH, Oil Infrastructure |
-7.6% |
-11.4% |
1.4% |
-3.1% |
6.1% |
|
XLE, Energy |
2.1% |
-5.8% |
2.0% |
-0.1% |
6.3% |
|
XLU, Utilities |
5.7% |
2.4% |
0.5% |
0.7% |
2.0% |
|
XLB, Materials |
-2.9% |
-2.4% |
-3.2% |
-0.9% |
3.7% |
|
XLI, Industrial |
-4.6% |
-0.9% |
-3.8% |
-1.6% |
1.7% |
|
XLK, Technology |
-5.1% |
-0.5% |
-4.4% |
-1.7% |
1.5% |
|
XLV, Healthcare |
3.3% |
3.3% |
-1.4% |
0.6% |
0.9% |
|
XLF, Financials |
2.1% |
2.1% |
-2.3% |
0.0% |
2.3% |
|
XLP, Consumer Staples |
2.7% |
1.8% |
-1.5% |
0.7% |
1.6% |
|
XLY, Consumer Discretionary |
-4.7% |
-0.2% |
-4.6% |
-1.5% |
1.6% |
The VIX and VXN volatility indexes are listed in Table 2B.
Table 2B
Volatility
|
Indicator |
Current |
Last Week |
2 Weeks Ago |
Complacent |
Cautious |
|
VIX ** |
17.4 |
18.1 |
14.0 |
< 20 |
> 50 |
|
VXN *** |
23.2 |
24.6 |
20.2 |
< 30 |
> 70 |
|
** Above 20 day SMA = Short-term sell signal. *** Above 20 day SMA = Short-term sell signal. |
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Figure 2A compares the major averages with key ETF’s and Sector SPDR’s.
FIGURE 2A
Table 2C
Market Summary
Industries are listed according to the Yahoo Industry Classification System
Major Indices For the Past Week: Dow Jones +1.2% NASDAQ -0.8% S&P500 Index +0.3% Russell 2000 -1.4% NYSE 0.0% 30 Year Bond 5.103% 10 Year Note 5.045% Leading Industries For the Past Week: Lagging Industries For the Past Week: |
Leading Industries For the Past Month: Lagging Industries For the Past Month: Crude Oil $74.57 Gold for the past 30 days: USD +6.42% CAD +8.23% CHF +5.97% GBP +4.73% EUR +5.55% JPY +6.58% |
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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 |
-1.6% |
-0.9% |
-3.6% |
-1.9% |
-2.0% |
-2.2% |
2.5% |
|
Cash Rich Companies |
2.7% |
-0.5% |
-8.2% |
1.1% |
-1.6% |
-6.9% |
-2.1% |
|
Price to Free Cash Flow |
-2.1% |
-1.2% |
-2.8% |
-0.8% |
-3.8% |
-1.6% |
3.6% |
|
Growth Momentum |
0.2% |
-1.4% |
1.8% |
0.5% |
-2.8% |
1.5% |
2.6% |
|
Lynch |
28.1% |
1.5% |
4.8% |
3.9% |
-3.9% |
1.3% |
3.7% |
|
Buffett |
4.8% |
0.1% |
-0.8% |
-0.7% |
-3.5% |
-0.5% |
4.2% |
|
Graham |
9.7% |
0.1% |
4.9% |
2.4% |
-0.7% |
0.1% |
3.2% |
|
Templeton |
4.0% |
-1.0% |
-2.7% |
1.3% |
-4.4% |
-1.0% |
1.2% |
|
Zweig |
-0.3% |
-0.9% |
-0.7% |
-2.2% |
-1.8% |
-1.0% |
4.7% |
|
Average |
5.1% |
-0.4% |
-0.8% |
0.4% |
-2.7% |
-1.1% |
2.6% |
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 |
|
APN |
07/21/06 |
0.0% |
Applica Incorporated |
Consumer Cyclical |
Appliances & Tools |
0.0% |
-7.5% |
-97 |
-97 |
|
MOCC |
05/26/06 |
-8.9% |
Moscow CableCom Corp. |