Wiser Trader Stocks and Options Newsletter

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Issue No. 93   September 11, 2006                  Prescott, Arizona                       Systems@WiserTrader.com

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1.0   Trading

     

      Low volume and low volatility mark the past week.

 

1.1 Uncertainty

 

      This week, the major averages gave back half of last week’s gains.  Volume remains low.  The S&P 500 in Figure 1A slipped back below 1,300.  There is a growing concern that the drop in new and existing home sales points to a substantial slowing of consumer spending and of the economy as a whole.  However, a Fed chairperson recently commented that inflation is a greater risk than a slowing economy.  Consumer discretionary was the only major sector that gained this week. 

 

 

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 bounced off resistance at its 200 day SMA. 

 

 

FIGURE 1B

 

 

      The market now awaits further evidence of inflation and economic growth with an employment report on 9/14 and the CPI report on 9/15.  The FOMC meets on September 20th.  Recent employment and inflation data supported prospects for a soft landing.  Lower treasury yields anticipate moderating economic growth with modestly reduced earnings for the 3rd quarter.

 

 

 

 

 

 

 

 

 

 

 

 

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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

2.7%

-0.6%

1.6%

-0.9%

2.6%

NASDAQ Composite Index

5.3%

-1.2%

2.5%

-1.1%

5.2%

S & P 500 Index

2.5%

-0.9%

1.2%

-0.6%

2.8%

NYSE Composite Index

1.6%

-1.7%

1.4%

-0.7%

2.7%

Russell 2000 Index

4.3%

-1.8%

3.2%

-1.7%

4.8%

HGX, Phil. Housing Index

3.5%

-2.8%

2.7%

-1.8%

5.7%

IYR, Real Estate

5.5%

0.7%

1.5%

0.7%

2.5%

GLD, GOLD

-3.3%

-2.4%

0.6%

1.2%

-2.7%

RKH, Banking

0.9%

-0.1%

-0.2%

-0.8%

2.0%

IYT, Transportation

1.5%

-2.6%

2.0%

-3.5%

5.9%

SMH, Semiconductors

8.7%

-1.6%

3.3%

-1.1%

8.2%

BBH, Biotechnology

2.9%

-0.7%

2.0%

-1.1%

2.8%

OIH, Oil Infrastructure

-4.5%

-4.9%

-1.2%

0.5%

1.1%

XLE, Energy

-7.2%

-4.5%

-3.0%

1.3%

-1.2%

XLU, Utilities

1.4%

-1.3%

1.4%

-0.1%

1.4%

XLB, Materials

3.2%

-1.4%

2.0%

-0.3%

3.0%

XLI, Industrial

3.1%

-0.9%

1.7%

-1.8%

4.2%

XLK, Technology

7.0%

-0.9%

2.6%

-0.4%

5.7%

XLV, Healthcare

3.7%

-0.8%

1.4%

0.6%

2.4%

XLF, Financials

2.6%

-0.2%

0.9%

-0.9%

2.9%

XLP, Consumer Staples

2.8%

-0.5%

1.7%

0.2%

1.4%

XLY, Consumer Discretionary

3.9%

0.3%

2.9%

-2.6%

3.3%

 

 

 

 

      The VIX and VXN volatility indexes are listed in Table 2B.

 

 

Table 2B

Volatility

Indicator

Current

Last Week

2 Weeks Ago

Complacent

Cautious

VIX **

13.2

12.0

12.3

< 20

> 50

VXN ***

19.8

16.8

17.0

< 30

> 70

**   Above 20 day SMA = Short-term sell signal.

*** Above 20 day SMA = Short-term sell 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 Dow Jones Classification System

 

 

 

 Major Indices 
 For the Past Week:
 Dow Jones     -0.6%
 NASDAQ        -1.2%
 S&P500 Index  -0.9%
 Russell 2000  -1.8%
 NYSE          -1.7%
 
 30 Year Bond 4.916%
 10 Year Note 4.771%
 
 Leading Industries
 For the Past Week:
 Tires
 Automobiles
 Aerospace & Defense
 Broadline Retailers
 Hotels
 Drug Retailers
 Forestry
 Toys
 Automobiles & Parts
 Clothing & Accessories
 
 Lagging Industries
 For the Past Week:
 Coal 
 Mining
 Exploration & Production 
 Platinum & Precious Metals
 Gold Mining
 Consumer Electronics
 Oil Equipment & Services
 Oil Equipment, Services & Dis
 Marine Transportation
 Business Training & Employment 
 
 
 Leading Industries
 For the Past Month:
 Tires 
 Recreational Services 
 Forestry 
 Food Retailers & Wholesalers 
 Automobiles 
 Computer Hardware 
 Full Line Insurance 
 Hotels 
 Restaurants & Bars 
 Toys   
 
 Lagging Industries
 For the Past Month:
 Coal  
 Platinum & Precious Metals 
 Exploration & Production 
 Mining 
 Gold Mining  
 Oil & Gas Producers 
 Oil & Gas 
 Oil Equipment & Services  
 Integrated Oil & Gas 
 Oil Equipment, Services & Dis. 
  
 Crude Oil $66.18
 
 Gold for the past 30 days:
 USD    -6.29%
 CAD    -6.22%
 CHF    -4.50%
 GBP    -4.18%
 EUR    -4.73%
 JPY    -4.85%

 

 

 

 

 

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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

5.2%

-1.0%

5.5%

-3.6%

4.4%

3.0%

1.7%

Cash Rich Companies

7.1%

0.7%

11.7%

0.5%

5.8%

0.9%

3.6%

Price to Free Cash Flow

6.8%

1.0%

6.6%

2.5%

1.5%

-1.7%

4.4%

Growth Momentum

-0.7%

0.0%

-0.6%

-2.8%

1.3%

-2.0%

2.9%

Lynch

15.6%

-0.2%

5.1%

-1.3%

4.4%

-0.1%

2.2%

Buffett

3.5%

-0.2%

0.3%

-2.7%

2.7%

-2.5%

3.0%

Graham

12.2%

0.5%

0.8%

-1.7%

2.1%

-1.1%

1.6%

Templeton

6.2%

0.4%

2.4%

-0.7%

2.3%

-3.4%

4.4%

 Zweig

2.5%

-0.1%

-1.2%

-2.0%

0.5%

-1.7%

2.1%

Average

6.5%

0.1%

3.4%

-1.3%

2.8%

-1.0%

2.9%

 

 

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

MSN

07/07/06

-4.8%

Emerson Radio Corp.

Consumer Cyclical

Audio & Video Equipment

-6.0%

-5.7%

-93

-97

CYTX

09/08/06

0.0%

Cytori Therapeutics Inc.

Health Care

Biotechnology & Drugs

0.0%

-16.9%

-83

-85

ULBI

08/18/06

2.1%

Ultralife Batteries, Inc.

Technology

Electronic Instruments & Controls

-3.2%

-1.0%

-76

-68

TWI

06/16/06

-2.1%

Titan International, Inc.

Consumer Cyclical

Auto & Truck Parts

-7.4%

2.0%

-39

-51

TELK

08/04/06

4.2%

Telik, Inc.

Health Care

Biotechnology & Drugs

-4.8%

8.7%

-25

-37

PHRM

07/07/06

7.5%

Pharmion Corporation