Wiser Trader Stocks and Options Newsletter
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Issue No. 96 October 2, 2006 Prescott, Arizona Systems@WiserTrader.com
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1.0 Trading
Recent economic reports have calmed market concerns about economic weakness.
1.1 Economy Strong
This week, the major averages advanced an average of one and a half percent. The S&P 500 in Figure 1A gained 1.8% with healthy volume. Economic growth is clearly slowing, but there is no evidence of a severe slowdown. The inflation data are steady, but that is good enough as it is expected that inflationary pressures will ease in the months ahead in reaction to slower economic growth. Oil prices are down, although they seem to have found support at the current level. The Fed is not expected to raise rates again.
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 NASDAQ in Figure 1B continued to move above its 200 day SMA, gaining 1.8% for the week. Semiconductors and Biotechnology stocks gained for the week.
FIGURE 1B
Friday’s downturn is indicative of an overbought market. The coming month is notorious for seasonal weakness. Pre-earnings announcements so far have been light to inconsequential. Sentiment is upbeat.
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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 |
1.9% |
1.5% |
-0.5% |
1.5% |
-0.6% |
|
NASDAQ Composite Index |
3.0% |
1.8% |
-0.7% |
3.2% |
-1.2% |
|
S & P 500 Index |
1.9% |
1.6% |
-0.4% |
1.6% |
-0.9% |
|
NYSE Composite Index |
0.4% |
1.5% |
-0.2% |
0.8% |
-1.7% |
|
Russell 2000 Index |
0.6% |
1.0% |
-1.5% |
3.0% |
-1.8% |
|
HGX, Phil. Housing Index |
1.2% |
1.2% |
-2.7% |
5.8% |
-2.8% |
|
IYR, Real Estate |
2.0% |
-0.6% |
-0.8% |
2.6% |
0.7% |
|
GLD, GOLD |
-4.3% |
1.7% |
1.9% |
-5.3% |
-2.4% |
|
RKH, Banking |
2.6% |
0.6% |
0.1% |
2.0% |
-0.1% |
|
IYT, Transportation |
3.4% |
2.9% |
-1.8% |
5.1% |
-2.6% |
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SMH, Semiconductors |
1.3% |
2.8% |
-2.9% |
3.1% |
-1.6% |
|
BBH, Biotechnology |
2.4% |
3.6% |
-0.5% |
0.1% |
-0.7% |
|
OIH, Oil Infrastructure |
-6.1% |
5.3% |
-1.5% |
-4.7% |
-4.9% |
|
XLE, Energy |
-5.3% |
4.1% |
-1.0% |
-3.9% |
-4.5% |
|
XLU, Utilities |
-2.3% |
1.3% |
-0.5% |
-1.8% |
-1.3% |
|
XLB, Materials |
-1.7% |
1.7% |
-0.2% |
-1.8% |
-1.4% |
|
XLI, Industrial |
2.6% |
2.9% |
-1.0% |
1.7% |
-0.9% |
|
XLK, Technology |
3.4% |
1.9% |
-0.5% |
2.9% |
-0.9% |
|
XLV, Healthcare |
0.7% |
0.9% |
-0.8% |
1.3% |
-0.8% |
|
XLF, Financials |
3.4% |
1.2% |
0.2% |
2.1% |
-0.2% |
|
XLP, Consumer Staples |
-1.1% |
-0.4% |
-0.4% |
0.2% |
-0.5% |
|
XLY, Consumer Discretionary |
5.3% |
1.7% |
-0.2% |
3.5% |
0.3% |
The VIX and VXN volatility indexes are listed in Table 2B.
Table 2B
Volatility
|
Indicator |
Current |
Last Week |
2 Weeks Ago |
Complacent |
Cautious |
|
VIX ** |
12.0 |
12.6 |
13.2 |
< 20 |
> 50 |
|
VXN *** |
17.7 |
18.2 |
19.8 |
< 30 |
> 70 |
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** Below 20 day SMA = Short-term buy signal. *** Below 20 day SMA = Short-term buy 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
Weekly Industry performance is based on the Yahoo Industry Classification System
Monthly Industry performance is based on the Dow Jones Industry Classification System
Major Indices For the Past Week: Dow Jones +1.5% NASDAQ +1.8% S&P500 Index +1.6% Russell 2000 +1.0% NYSE +1.5% 30 Year Bond 4.767% 10 Year Note 4.633% FOMC Rate 5.250% Leading Industries For the Past Week: Lagging Industries For the Past Week: |
Leading Industries For the Past Month: Recreational Services Broadline Retailers Investment Services Toys Railroads Footwear Specialty Retailers Apparel Retailers Clothing & Accessories Specialty Finance Lagging Industries For the Past Month: Gold Mining Coal Mining Platinum & Precious Metals Tobacco Heavy Construction Exploration & Production General Mining Basic Resources Drug Retailers Crude Oil $62.95 Gold for the past 30 days: USD -3.00% CAD -2.25% CHF -1.26% GBP -1.32% EUR -1.88% JPY -2.24% |
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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.
Watchlist performance is based on weekly closing prices on Friday. 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 |
7.6% |
1.9% |
3.4% |
4.0% |
1.4% |
2.4% |
-3.8% |
|
Cash Rich Companies |
3.0% |
2.2% |
-2.4% |
0.3% |
-3.0% |
0.4% |
-0.1% |
|
Price to Free Cash Flow |
6.0% |
-1.4% |
-0.2% |
-0.6% |
-1.2% |
-1.8% |
3.8% |
|
Growth Momentum |
4.9% |
1.0% |
2.9% |
2.2% |
0.4% |
3.0% |
-2.8% |
|
Lynch |
22.6% |
-0.5% |
1.4% |
-0.9% |
1.2% |
2.0% |
-0.8% |
|
Buffett |
5.9% |
-1.3% |
2.5% |
1.7% |
-0.7% |
3.1% |
-1.5% |
|
Graham |
12.7% |
-0.5% |
-1.2% |
1.7% |
-1.3% |
0.2% |
-1.7% |
|
Templeton |
9.2% |
-1.1% |
3.7% |
0.9% |
-0.5% |
4.1% |
-0.8% |
|
Zweig |
9.0% |
-0.2% |
3.7% |
1.9% |
0.4% |
2.2% |
-0.8% |
|
Average |
9.0% |
0.0% |
1.5% |
1.3% |
-0.4% |
1.7% |
-1.0% |
Key
|
Passed Recent Filter |
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Price declined by half of stop loss setting |
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Oversold based on Williams %R (%R2 is most recent) |
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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 |
-2.9% |
Emerson Radio Corp. |
Consumer Cyclical |
Audio & Video Equipment |
-4.1% |
-0.3% |
-66 |
-76 |
|
PLB |
07/21/06 |
-4.5% |
American Italian Pasta Company |
Consumer Non-Cyclical |
Food Processing |
-6.4% |
-4.7% |
-55 |
-74 |
|
VLNC |
08/04/06 |
17.9% |
Valence Technology, Inc. |
Technology |
Electronic Instruments & Controls |
-12.0% |
-5.4% |
-66 |
-58 |
|
DWRI |
09/15/06 |
2.2% |