Wiser Trader Stocks and Options Newsletter
______________________________________________________________________________
Issue No. 90 August 21, 2006 Prescott, Arizona Systems@WiserTrader.com
______________________________________________________________________________
1.0 Trading
A number of factors contributed to the market getting a lift this past week.
1.1 Uplift
Market sentiment has turned sharply upward, mainly due to moderating inflation. Tame PPI and CPI inflation data, lower oil prices, fewer housing starts, respectable earnings reports, the fact that the Middle East cease-fire is holding and a reduction in treasury yields all contributed to the improved outlook. The S&P 500 in Figure 1A turned sharply upward, instead of retesting its recent lows. Transportation and housing did particularly well this week. Financials advanced but were not outstanding. Energy and gold were notable decliners.
FIGURE 1A
|
© 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 NASDAQ in Figure 1B actually led the rally with technology, particularly semiconductors taking the point position. The NASDAQ, however, has been moving sideways for the past year.
FIGURE 1B
The market is still caught between welcoming poor economic data, expecting the FOMC to see it as a reason to refrain from further rate hikes, and fears that poor economic data may lead to reduced earnings and a possible recession. As mentioned last week, this sentiment points to sharp spikes on news that has a bearing on inflation and economic growth. We certainly saw a sharp upward spike this week.
________________________________________________________________________________
Monitor an unlimited amount of market data from a single Excel window.
XLQPlus
XLQPlus can be used as a stand-alone tool. However, I use it to import market data into Microsoft Excel where the data is updated automatically and continuously for use in unlimited computations and charts. Stocks, options and currency data are imported effortlessly from Yahoo and MSN. Data is can be collected in historic, real time, delayed, and intraday quote formats. XLQPlus Interfaces with the AAII Stock Investor Pro database and is recommended by The Oxford Club, Investment U e-letter and The American Association of Individual Investors, a non-profit organization. I highly recommend XLQPlus also. I have used it with Excel and the AAII Stock Investor Pro database for a number of years to monitor all the stock data one could ever need. It is simple to install.
Download for a 45-day free evaluation
Order License comes with 1 year of upgrades and personalized support - $114
________________________________________________________________________________
2.0 Market Analysis
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 |
4.7% |
2.6% |
-1.4% |
0.2% |
3.2% |
|
NASDAQ Composite Index |
7.1% |
5.2% |
-1.3% |
-0.4% |
3.7% |
|
S & P 500 Index |
5.0% |
2.8% |
-1.0% |
0.1% |
3.1% |
|
NYSE Composite Index |
5.4% |
2.7% |
-1.3% |
0.2% |
3.8% |
|
Russell 2000 Index |
5.9% |
4.8% |
-3.2% |
0.2% |
4.2% |
|
HGX, Phil. Housing Index |
7.6% |
5.7% |
-6.0% |
3.2% |
5.0% |
|
IYR, Real Estate |
3.4% |
2.5% |
-4.2% |
1.6% |
3.6% |
|
GLD, GOLD |
-1.1% |
-2.7% |
-2.4% |
1.9% |
2.3% |
|
RKH, Banking |
3.2% |
2.0% |
-2.2% |
1.1% |
2.3% |
|
IYT, Transportation |
-1.5% |
5.9% |
-5.4% |
-0.9% |
-0.7% |
|
SMH, Semiconductors |
13.6% |
8.2% |
-2.1% |
-0.4% |
7.7% |
|
BBH, Biotechnology |
4.7% |
2.8% |
-2.1% |
0.4% |
3.7% |
|
OIH, Oil Infrastructure |
7.1% |
1.1% |
-2.1% |
-0.7% |
8.9% |
|
XLE, Energy |
5.5% |
-1.2% |
0.5% |
0.1% |
6.0% |
|
XLU, Utilities |
2.6% |
1.4% |
-0.6% |
0.2% |
1.6% |
|
XLB, Materials |
5.4% |
3.0% |
-1.3% |
1.3% |
2.4% |
|
XLI, Industrial |
2.6% |
4.2% |
-2.6% |
0.1% |
1.0% |
|
XLK, Technology |
9.6% |
5.7% |
-0.3% |
-0.4% |
4.4% |
|
XLV, Healthcare |
4.3% |
2.4% |
-0.8% |
-0.6% |
3.3% |
|
XLF, Financials |
3.9% |
2.9% |
-1.9% |
0.4% |
2.6% |
|
XLP, Consumer Staples |
3.1% |
1.4% |
0.4% |
0.2% |
1.0% |
|
XLY, Consumer Discretionary |
5.6% |
3.3% |
-1.3% |
0.6% |
2.9% |
The VIX and VXN volatility indexes are listed in Table 2B.
Table 2B
Volatility
|
Indicator |
Current |
Last Week |
2 Weeks Ago |
Complacent |
Cautious |
|
VIX ** |
11.6 |
14.3 |
14.3 |
< 20 |
> 50 |
|
VXN *** |
18.5 |
20.1 |
21.6 |
< 30 |
> 70 |
|
** Below 20 day SMA = Short-term buy signal. *** Below 20 day SMA = Short-term buy signal. |
|||||
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 +2.6% NASDAQ +5.2% S&P500 Index +2.8% Russell 2000 +4.8% NYSE +2.7% 30 Year Bond 4.973% 10 Year Note 4.835% 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 $71.09 Gold for the past 30 days: USD -4.66% CAD -5.30% CHF -5.62% GBP -6.63% EUR -6.35% JPY -5.42% |
_________________________________________________________________________
_________________________________________________________________________
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 |
6.0% |
0.2% |
4.5% |
3.9% |
-1.1% |
1.1% |
0.2% |
|
Cash Rich Companies |
4.2% |
-0.5% |
-5.6% |
-1.1% |
-4.4% |
0.1% |
-0.8% |
|
Price to Free Cash Flow |
3.4% |
-0.3% |
7.5% |
2.9% |
-1.5% |
1.0% |
4.8% |
|
Growth Momentum |
1.5% |
1.7% |
6.9% |
1.4% |
-0.9% |
2.2% |
4.3% |
|
Lynch |
14.5% |
0.5% |
6.4% |
1.5% |
-1.4% |
0.6% |
5.7% |
|
Buffett |
5.7% |
0.5% |
4.6% |
1.8% |
-2.5% |
0.4% |
5.1% |
|
Graham |
13.0% |
0.6% |
3.1% |
1.6% |
-0.9% |
-0.7% |
3.1% |
|
Templeton |
9.1% |
0.3% |
7.3% |
4.5% |
-2.2% |
2.3% |
2.8% |
|
Zweig |
6.1% |
0.4% |
10.9% |
1.8% |
-1.4% |
1.9% |
8.4% |
|
Average |
7.0% |
0.4% |
5.1% |
2.0% |
-1.8% |
1.0% |
3.7% |
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 |
|
ULBI |
08/18/06 |
0.0% |
Ultralife Batteries, Inc. |
Technology |
Electronic Instruments & Controls |
0.0% |
-1.1% |
-77 |
-87 |
|
MOBE |
08/11/06 |