Wiser Trader Stocks and Options Newsletter

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Issue No. 198  October 6, 2008                         Prescott, Arizona                                               Contact Editor

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Contents

Editorial
Trading Short Term
Trading Review for the Week	ó . . .  options +25.5%, stocks +5.2%
Candidate List
Trading the Coming Week
Investing Long Term
Growth-Value Portfolio
Top-Down Portfolio
Price Channel Portfolio	ó . . .  new rebound watch list added
Portfolio Trailing Stop Settings	ó . . .  bearish
Watch Lists
Net Insider Buying Checklist
Capital Rich Companies Checklist
Low Price to Free Cash Flow Check List
Peter Lynch Value Watch List
Growth Momentum Watch List
Warren Buffett Value Watch List
Benjamin Graham Utility Watch List
John Templeton Watch List
Martin Zweig Watch List
Micro Cap Value Watch List
The Week in Review
The Major Averages	ó. . .  Down 10.0% for the week
Market Analysis	ó . . .  bearish
Industries	ó . . . leading and trailing industries
Investment Conference Schedule

Published Weekly              Annual  Subscription  $98               Members Archive

Interesting Times

Jim Andrews, Editor

     The major averages have reached new 52 week lows.  The market has not seen the current 10-day rate of decline in more than 4 years.  Few were around when panic and deflation dominated the markets in the early 20^th century.  Aside from those who have made a study of that era, no one knows what to expect.  Important differences between then and now include a proactive government that understands the need to loosen credit and also we now have bank account guarantees from the FDIC. 

     There is nothing more likely to make one squeamish than to peer into the inner workings of mechanisms that have always been taken for granted.  When one sees that solid companies rely on frequent loans in order to conduct day to day operations, the fragility of the modern economic world becomes apparent.  On a personal level it is akin to taking out a payday loan every payday.  This approaches chronic desperation of a kind that is ill advised if for no other reason than the high interest rates charged.  Although the rate seems small on a short term basis, it becomes astronomical when annualized and credit tightening can blow financial operations out of the water.

     In good economic times loans are taken out with expectations that growth and prosperity will out pace debt and interest charges.  However, with the projected economic slowing a fair certainty, it leaves much doubt whether the rate of borrowing will be followed by anything but further borrowing.  As banks peer into this abyss, they see that it can not continue indefinitely.  So they prudently try to apply the brakes.  Hence the credit crisis.  Congress has authorized that personal debt be transferred from banks to the federal government, effectively printing money.

     Moreover, this credit crisis is global.  The EU is unlikely to duplicate what the congress has done because there are so many sovereign governments involved.  The present decline in commodity prices should be temporary because the next likely step is for central banks to lower interest rates.  If that does not unfreeze credit they will print money in other ways, lots of money.  That should send the price of hard commodities moving upward once again . . . but not yet.

     For now we are on the look out for high quality beaten down stocks to form a watch list for when the market recovers.  Little of interest in either direction is currently being captured by the normal long term filters.  As Warren Buffett said, “. . . in the short term the market is like a polling machine and in the long term it is like a scale”.  

1.0 Trading Short Term

     Short term trading is based on a list of 8 options candidates.  To enter a short term trade we look for an alignment where the Wilshire 5000, the stock price and the daily MACD (12,26,9) histogram bar all move in the direction of trade.  The direction is up for calls (and longs) and down for puts (and shorts).  The move in the Wilshire 5000 should be significant, more than a few tenths of a percent.  Also important is that the index does not meander back and forth across the unchanged level, as happens occasionally in Figure 4C. 

     The signal to exit a trade occurs when the %K, fast line, of the daily slow stochastic (5,5) reverses more than 5 units from its farthest advance after entry.  When the major averages appear about to reverse, a reversal of less than 5 units for the daily slow stochastic %K can be used as an exit signal.  Alternatively, a switch can be made to an hourly slow stochastic chart. 

1.1  Trading Review

Options

     Options details from last week are listed in Table 1A.  Prices are delayed up to 20 minutes at http://www.wisertrader.com/newsletter_sub/optionstracking.php.  The number of times the Wilshire 5000 crossed the unchanged level on an intraday basis decreased sharply as the market plunged.  Panic buying and selling increased.  The trades recorded below were early in the week.  Better opportunities may have occurred for puts toward the latter part of the week.  The average profit per trade this week for options was 25.5% and 5.2% for stocks.

Table 1A

Details from Last Week

Option	Week	Hour	Min	Stock	Option	Option	P/L	P/L
	Day	(ET)		Price	Bid	Ask	OPTION	STOCK
JPM NOV 50.00 CALL	Tuesday	9	49	$44.28	$2.05	$2.14	89.3%	10.3%
	Friday	14	20	48.86	4.05	4.35
NKE NOV 65.00 CALL	Tuesday	9	49	$65.79	$4.20	$4.60	6.5%	1.4%
	Wednesday	10	24	$66.73	$4.90	$5.30
VRTX NOV 30.00 CALL	No Trade
INTU JAN 30.00 CALL	No Trade
MHP NOV 35.00 PUT	Monday	9	51	$33.22	$3.80	$4.30	18.6%	5.3%
	Monday	14	5	$31.47	$5.10	$7.00
CENX DEC 35.00 PUT	Monday	9	51	$29.44	$7.50	$7.90	20.3%	8.6%
	Tuesday	10	25	$26.92	$9.50	$10.00
RS DEC 45.00 PUT	Monday	9	51	$40.11	$7.40	$7.90	12.7%	5.2%
	Tuesday	13	25	$38.04	$8.90	$9.40
CMI NOV 45.00 PUT	Monday	9	51	$42.75	$6.70	$7.10	5.6%	0.6%
	Tuesday	11	37	$42.51	$7.50	$7.80

     Recent options results are shown in Table 1B.  Holding periods range from a few hours to a week. 

Table 1B

Recent Options Activity

Options for 33 Weeks

Weekly Trading

13% Average Profit

74% winning trades

Total of 133 trades

Profit excluding fees 511%

Stocks

The stock trade involves long positions for call candidates and short positions for put candidates.  Broker commissions become much more of a factor for short term stock trading, making the size of the trade important.  Recent weekly stock trading gave the results in Table 1C.  For the results in the Table 1C, the minimum position size to break even each week is $606.  Brokerage fees ($9.99 per trade) exceed profits for smaller positions.  The breakeven position size changes with the average profit per trade. 

Table 1C

Recent Stock Activity

Stocks for 33 Weeks

Weekly Trading

3.3% Average Profit

80% winning trades

Total of 133 trades

Profit excluding fees 49%

House Advantage

      Gaming houses need only a very small advantage to make a profit.  Their profit comes through a large number of transactions.  In terms of risk management we look at the net profit but also the probability of running out of capital.  A risk calculator is available to make these computations in the Members Area The model is explained in the April 2007 monthly newsletter on “Managing Risk”.  

Short Term Trading Results Since 2/11/08

(Fees are not included)

Input:

Options Stocks

Expectancy, average profit per trade, F_P =              13.8%                         3.0%

Fraction of winning trades, F_C =                              74.4%                        79.7%                         

Average gain for winning trades, F_G =                     19.6%                         4.9%                            

Average loss for losing trades, F_L =                        -3.3%                        -4.2%                         

Fraction of total risk capital per trade F_T =             10%                            10%

Number of trades, N  =                                         133                              133

Output:

Profit as a percentage of initial risk capital =            511%                          49%                           

Probability of running out of capital =                    < 0.01%                       0.11%                          

1.2 Candidate List

      Option candidates for the coming week are listed in Table 1D.  They have the potential for trading but should not be bought blindly.  Trades should be made in the direction of the MACD histogram, the stock price and significant movement of the major averages.  Entry and exit signals are based on the stock filters used.

Table 1D

Simple Options

No.^1	Company	Option	Rationale ^2,3	Entry Signal ^4	Exit Signal ^4
08-279	CAMPBELL SOUP CO Symbol: CPB Price: $39.63	JAN 40.00 CALL Symbol: CPB AH Price: $2.45 Bid: $2.40 Ask: $2.65 Fair value: $2.02	Up move Open Interest: 1,643 Delta: 0.504 Theta: -$0.011/week Industry: Processed & Packaged Goods	Enter with positive MACD histogram bar becoming more positive.	Exit if slow stochastic %K turns down. Exit by 12/19
08-280	Procter & Gamble Company, The Symbol: PG Price: $71.02	JAN 70.00 CALL Symbol: PG AN Price: $4.10 Bid: $4.20 Ask: $4.50 Fair value: $4.71	Up move Open Interest: 34,939 Delta: 0.572 Theta: -$0.020/week Industry: Personal Products	Enter with positive MACD histogram bar becoming more positive.	Exit if slow stochastic %K turns down. Exit by 12/19
08-281	Hansen Natural Corporation Symbol: HANS Price: $31.96	DEC 30.00 CALL Symbol: QHO LF Price: $7.00 Bid: $6.30 Ask: $7.00 Fair value: $6.86	Up move Open Interest: 2,284 Delta: 0.645 Theta: -$0.037/week Industry: Beverages - Soft Drinks	Enter with positive MACD histogram bar becoming more positive.	Exit if slow stochastic %K turns down. Exit by 11/21
08-282	Bunge Limited Symbol: BG Price: $50.31	JAN 50.00 PUT Symbol: BGW MJ Price: $8.60 Bid: $8.50 Ask: $8.90 Fair value: $10.86	Down move, increased volume Open Interest: 892 Delta: -0.385 Theta: -$0.103/week Industry: Farm Products	Enter with positive MACD histogram bar becoming more positive.	Exit if slow stochastic %K turns down. Exit by 12/19
08-283	Freeport-McMoRan Copper & Gold Symbol: FCX Price: $44.86	JAN 45.00 PUT Symbol: FCX MI Price: $9.25 Bid: $8.80 Ask: $9.10 Fair value: $10.54	Down move, increased volume Open Interest: 3,037 Delta: -0.384 Theta: -$0.048/week Industry: Copper	Enter with negative MACD histogram bar becoming more negative	Exit if slow stochastic %K turns up. Exit by 12/19
08-284	Schnitzer Steel Industries, In Symbol: SCHN Price: $32.65	JAN 35.00 PUT Symbol: SQQ MG Price: $6.40 Bid: $7.30 Ask: $7.80 Fair value: $8.64	Down move, increased volume Open Interest: 313 Delta: -0.438 Theta: -$0.034/week Industry: Steel & Iron	Enter with negative MACD histogram bar becoming more negative	Exit if slow stochastic %K turns up. Exit by 12/19
08-285	AGCO Corporation Symbol: AG Price: $35.62	JAN 35.00 PUT Symbol: AG MG Price: $4.30 Bid: $5.30 Ask: $5.70 Fair value: $5.22	Down move, increased volume Open Interest: 297 Delta: -0.403 Theta: -$0.026/week Industry: Farm & Construction Machinery	Enter with negative MACD histogram bar becoming more negative	Exit if slow stochastic %K turns up. Exit by 12/19
08-286	Electronic Arts Inc. Symbol: ERTS Price: $32.68	DEC 35.00 PUT Symbol: EZQ XG Price: $4.60 Bid: $4.70 Ask: $5.00 Fair value: $4.61	Down move, increased volume Open Interest: 1,156 Delta: -0.559 Theta: -$0.021/week Industry: Multimedia & Graphics Software	Enter with negative MACD histogram bar becoming more negative	Exit if slow stochastic %K turns up. Exit by 11/21

Notes:

1. Light blue g indicates simple calls and light orange g indicates simple puts.  Turquoise g indicates Long-Term Equity Anticipation Securities (LEAPS) calls which have expirations in excess of 1 year.  Dark orange g indicates LEAPS puts.
2. Delta is a measure of the relationship between an option price and the underlying stock price.  For a call option, a Delta of 0.50 means a $0.50 rise in premium for every dollar that the stock goes up.  For a put option contract, the premium rises as stock prices fall.  As options near expiration, in the money contracts approach a Delta of 1.
3. Theta indicates the change in an option’s value for a 1-week reduction in time to expiration. 
4. Indicator references are with respect to charts found at http://bigcharts.com .  Since there are discrepancies between indicators charted with different tools, we will try to stay with relative references rather than absolute values whenever possible.

1.3 Trading the Coming Week

      A 4-week snapshot of underlying stocks for the candidates in Table 1D is plotted in Figure 1A. 

FIGURE 1A

     The average 10-period Williams-%R for five major indices is -98.  It is at the statistical norm.  The 5-index average rose 3 of the past 10 days for a change of -1.38% per day.  Volume has been mostly at or above average.  Over the past 5 days, the major averages crossed the unchanged level an average of once a day.  The average correlation between industry composite values and the major indices is currently 63%. 

Notes

• This trend-following system attempts to trade in the direction of significant moves in the major indices.  The move in the Wilshire 5000 should be significant, more than a few tenths of a percent.  Also important is that the index does not meander back and forth across the unchanged level, as happens occasionally in Figure 4C. 
• Over a range from -100% to +100%, the degree of correlation between a stock and the major indices can vary widely over a short period.  Volatility is proportional to the correlation between the average of composite values for the 215 Yahoo industries and the major indices.  A correlation of around 35% implies moderate volatility.  When the correlation coefficient is high, stocks react sharply to directional changes in the major averages, making it more likely to trigger stops.  When the correlation coefficient is moderate to low, trades are less likely to get stopped out.  A sudden drop in the correlation coefficient signals an imminent change in market character.
• Traders need to watch real time bid/ask quotes in order to get good price fills.  Unless you are entering a very long term trade, try to avoid trading when the bid-ask spread is greater than 10% of the asking price.
• Orders are best submitted when you actually see the price that you want.  This implies spending a little time watching the real time spread and price action.  If you do place a static sell order, enter a price above your desired sell price and submit a change limit order when you see a bid at your price.  When placing a static buy order, enter a bid below your desired buy price.  Again, submit a change limit order when you see your desired buy price.  Always use limit orders.
• Trading templates are summarized in Table 1E

Table 1E

Trading Templates

Template	Trend	Trigger	Entry Signal	Exit Signal
TTC-A	30 day SMA	W%R at extreme	Price crosses  7 day SMA	Price reverses across  7 day SMA
TTC-B	40 day SMA	Slow Stochastic crossing at extreme	MACD (12, 26, 9) crossing in direction of trade	Price reverses across  7 day SMA
Up Move	Monthly advance	Price advances with major averages	MACD (12, 26, 9) histogram bar grows more positive.	Slow stochastic (5, 5) moves down
Down Move	Monthly decline	Price declines with major averages	MACD (12, 26, 9) histogram bar grows more negative.	Slow stochastic (5, 5)   moves up
Up Breakout	Rise above channel	25% volume increase	MACD (12, 26, 9) histogram bar grows more positive.	Slow stochastic (5, 5) moves down
Down Breakout	Fall below channel	25% volume increase	MACD (12, 26, 9) histogram bar grows more negative.	Slow stochastic  (5, 5) moves up

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Tables and charts in the newsletter are produced from Excel spreadsheets where data is automatically retrieved from online portals, formatted, copied and pasted as presented. This is made possible with . . . XLQPlus      Live market data is continuously updated into Excel to create up to date market indicators.  Free spreadsheets are available to get you started.  XLQPlus is recommended by The Oxford Club, Investment U e-letter and The American Association of Individual Investors.  It is simple to install. Download 45-day free evaluation. Order 1-year license $139

Stock Lists - 10 or more stocks- Weekly & Daily Lists are from 5 groups · Up-trending stocks · Up-breakout stocks · Momentum Stocks · Down-trending stocks · Down-breakout stocks 3 months of weekly lists - $9.95 3 months of daily lists - $29.85 Filter Details

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2.0 Investing Long Term

     This section describes three stock portfolios that use equal dollar weighted positions.  The status of each portfolio is updated daily in the Members Archive after the market close. 

Key

Passed Recent Filter

Declined by half of trailing stop setting

2.1 Growth-Value Portfolio

     The Growth-Value Portfolio is listed in Table 2A.  The basic criteria for buying growth stocks are earnings growth, percentage rank relative strength and the price as a percentage of a stock’s 52 week high.  Value stock filtering is based on absolute metrics or those relative to an industry.  Earnings consistency and dividends are also considered.  Filter details are explained on the website. 

Table 2A

Growth-Value Portfolio

Growth - Value Portfolio Open Positions						As of Market close on		10/3/08
Stock	Begin Date	Begin Price	Last Date	Last Price	Gross P/L (%)	Status	Sell stop	Metrics	Indicated Dividend
CNMD	07/11/08	27.73	10/3/08	30.05	8.4%	Hold	29.69	Rel Value	0.0%
MYGN	08/29/08	68.20	10/3/08	61.70	-9.5%	Hold	61.51	Growth	0.0%
Trailing Stop Settings are Bearish					Tspi (inverse) = -20%			Tspi (long) = -10%
Net capital for 2008 =			-21.0%		f (inverse) = 50%			f (long) = 25%

     Table 2B contains a profit-loss summary for 2008 that includes commissions and fees. 

Table 2B

Growth-Value Portfolio Performance

Growth-Value Trading in 2008 ($11972.75 Initial Capital)		% Initial Capital
Closed trades in 2008 =	34
Average Trade Size =	$1,000.00
Total Closed Position Share costs =	$34,000.00
Gross Profit on Closed Positions =	-$1,843.36	-15.40%
Number of Open Positions =	2
Cost of Open Positions =	$2,000.00
Gross Profit on Open Positions in 2008 =	-$11.64	-0.10%
Total Gross Profit =	-$1,855.00	-15.49%
Broker Commission ($9.99/trade) =	-$609.39
Subscription Cost to date =	-$50.00
Net 2008 Profit After Expenses =	-$2,514.39	-21.00%
Cash =	$7,470.00
Current Capital =	$9,458.36	10/3/08

Alerts:  . . . CNMD and MYGN are Holds.

New Position . . .  Nothing filtered this week.

Current Holdings:

CONMED Corp. (NASDAQ: CNMD) provides surgical devices and equipment for minimally invasive procedures and monitoring.  

Myriad Genetics Inc. (NASDAQ: MYGN) engages in the development and marketing of molecular diagnostic and therapeutic products.

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Industry Relative Value Metrics *
Stock	PB	PE	PS	ROE	P-FCF
CNMD	0.80	0.84	0.62	5.31	0.89

* Industry relative value metrics measure the ratio of company metrics to those of its industry

   PB is price to book ratio

   PE is price to earnings ratio

   PS is price to sales ratio

   ROE is return on equity

   P-FCF is price to free cash flow

Growth Metrics
Symbol	% of 52 Week High	% Rank Relative Strength	EPS Growth (YoY)
MYGN	89.0%	98.0%	192.3%

`

2.2 Top-Down Portfolio

     Table 2C contains the Top-Down Portfolio that began on September 18^th in the monthly newsletter.  The strategy is to select stocks from leading sectors over the past month.  Strongly considered are companies that pay dividends and are growing their market share with substantial growth in earnings and sales.  Relative rank and percentage gains for the month are also considered but are secondary.  Recently this portfolio has sought to smooth out some of the volatility of individual stocks by investing in ETF’s.

     New selections are added, summarized and reviewed in the monthly newsletter which is due in the 3^rd week of the month.  Gross P/L excludes dividends. 

Table 2C

Top-Down Monthly Investment Portfolio

Top - Down Portfolio Open Positions						As of Market close on		10/3/08
Stock	Begin Date	Begin Price	Last Date	Last Price	Gross P/L (%)	Status	Sell stop	Metrics	Indicated Dividend
TIP	12/31/07	101.32	10/3/08	101.86	0.5%	Hold	97.07	Income	5.91%
JNJ	08/19/08	70.69	10/3/08	66.16	-6.4%	Hold	65.00	Income	1.84%
CASY	08/19/08	28.73	10/3/08	28.67	-0.2%	Hold	27.25	Income	0.30%
Trailing Stop Settings are Bearish							Tspi (long) = -10%
Net capital for 2008 =			-21.8%				f (long) = 25%

     Table 2D contains a profit-loss summary for 2008 that includes brokerage commissions. 

Table 2D

Top-Down Portfolio Performance

Top-Down Trading in 2008 ($9809.07 Initial Capital)		% Initial Capital
Closed trades in 2008 =	25
Average Trade Size =	$1,000.00
Total Closed Position Share costs =	$25,000.00
Gross Profit on Closed Positions =	-$1,605.72	-16.37%
Number of Open Positions =	3
Cost of Open Positions =	$3,000.00
Gross Profit on Open Positions in 2008 =	-$60.84	-0.62%
Total Gross Profit =	-$1,666.57	-16.99%
Broker Commission ($9.99/trade) =	-$469.53
Subscription Cost to date =	$0.00
Net 2008 Profit After Expenses =	-$2,136.10	-21.78%
Cash =	$4,733.82
Current Capital =	$7,672.97	10/3/08

Alerts: . . . TIP, JNJ and CASY are Holds.

Current Holdings:

iShares Lehman TIPS Bond (NYSE: TIP) is an inflation-protected US Treasury ETF.  Dividends are distributed monthly.  While the indicated annual dividend is 5.9%, the current annual distribution rate is 9.42%. 

Johnson & Johnson (NYSE: JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide.  The indicated dividend is 1.8%.

Casey's General Stores Inc. (NASDAQ: CASY) operate convenience stores under the Casey's General Stores' name in the Midwest states.  The indicated dividend is 0.3%.

2.3 Price Channel Portfolio

     To avoid long periods of inactivity, a trending filter is used for long and short positions.  The filter is designed to find stocks that are trending within a price channel.  The price channel is defined by a ±5% to ±10% price change over 4 weeks, a ±15% to ±30% price change over 13 weeks and a ±30% to ±60% price change over 26 weeks.  EPS growth performance is seen as sustaining a stock’s trend.  For long positions, the filter looks for companies whose year over year EPS growth and EPS for the most recent quarter are positive.  For short positions, the year over year EPS growth and EPS for the most recent quarter are negative.  These stocks are all optionable with a minimum stock price of $20.  The portfolio is provided in Table 2E. 

Table 2E

Price Channel Portfolio

Price Channel Portfolio Open Positions						As of Market close on		10/3/08
Stock	Begin Date	Begin Price	Last Date	Last Price	Gross P/L (%)	Direction of Trade	Status	Trailing  Stop	Indicated Dividend
Open Short Positions
none
Open Long Positions
none
Trailing Stop Settings are Bearish					Tspi (short) = -20%			Tspi (long) = -10%
Net capital for 2008 =			-17.2%		f (short) = 50%			f (long) = 25%

     Table 2F contains a profit-loss summary for 2008 that includes brokerage commissions. 

Table 2F

Price Channel Portfolio Performance

Price Channel Trading in 2008 ($11000 Initial Capital)		% Initial Capital
Closed trades in 2008 =	47
Average Trade Size =	$1,000
Total Closed Position Share costs =	$47,000
Gross Profit on Closed Positions =	-$939.70	-8.5%
Number of Open Positions =	0
Cost of Open Positions =	$0
Gross Profit on Open Positions in 2008 =	$0.00	0.0%
Total Gross Profit =	-$939.70	-8.54%
Broker Commission ($9.99/trade) =	-$899.10
Subscription Cost to date =	-$50.00
Net 2008 Profit After Expenses =	-$1,888.80	-17.2%
Cash =	$9,161.20
Current Capital =	$9,161.20	10/3/08

Alerts . . . none

Current Holdings: . . .

Growth Metrics
Stock	% Above 52 wk Low (Short)	% of 52 wk High (Long)	% Rank Relative Strength	EPS Growth (YoY)
none

New Position. . .  Nothing from the regular filter this week. 

New Watch List. . . .  However, there is a need to keep an eye on beaten down stocks, specifically those that meet the following criteria:

1. Price has declined more than 50% from 52-week high

2. 12 month EPS growth greater than 25%

3. 12 month Sales growth greater than 10%

4. Price to free cash flow per share less than 25

5. Pays a dividend

6. Priced above $20 per share

7. Not an Over the Counter stock

     These criteria are reflected in a rebound watch list in Table 2G.  Unlike the watch lists in Section 3, price action is not used as a criterion for remaining on the list.  We may waive the $20 minimum share price.  Some are expected to decline further as the market declines before they rebound.  Stocks are listed in no particular order.

Table 2G

Rebound Watch List

Ticker	Company name	Industry	Price ($)	Price as % of 52 Week High (%)	EPS-Growth 12m (%)	Sales-Growth 12m (%)	Price/FCFPS	Yield (%)
MT	ArcelorMittal (ADR)	Iron & Steel	44.62	43	41.1	25	7.4	3.4
BDC	Belden Inc.	Communications Equipment	27.34	46	60.4	34.1	13.1	0.7
BUCY	Bucyrus International, Inc.	Construction & Agricultural Machinery	36.39	46	110.5	128.7	23.3	0.3
CE	Celanese Corporation	Chemical Manufacturing	21.82	43	35.2	17.2	8.6	0.7
CF	CF Industries Holdings, Inc.	Chemical Manufacturing	56.48	33	297.3	45.3	4.3	0.7
CLF	Cleveland-Cliffs Inc	Metal Mining	38.27	31	42.2	45.1	23.5	0.9
CPO	Corn Products International, I	Food Processing	24.82	45	35.2	25.2	10.8	2.3
DE	Deere & Company	Construction & Agricultural Machinery	39.24	41	35.2	17.9	16.4	2.9
DCO	Ducommun Incorporated	Aerospace and Defense	20.31	48	30.7	11.8	10.7	1.5
FLR	Fluor Corporation (NEW)	Construction Services	46.76	46	141	30.6	12.3	1.1
GR	Goodrich Corporation	Aerospace and Defense	37.09	49	41.5	14.1	15.6	2.4
GHM	Graham Corporation	Misc. Capital Goods	40.18	37	109.8	32.2	10.2	0.2
MOS	Mosaic Company, The	Chemical Manufacturing	40.88	25	375	87	8.4	0.5
NYX	NYSE Euronext	Investment Services	33.91	36	78.5	58.7	22.6	3.5
ZEUS	Olympic Steel, Inc.	Misc. Fabricated Products	25.64	33	76.1	10.5	22.7	0.8
POT	Potash Corp./Saskatchewan (USA	Non-Metallic Mining	95.36	39	165.4	61.4	24.6	0.4
PCP	Precision Castparts Corp.	Construction - Supplies and Fixtures	70.61	44	30.7	77.9	12.7	0.2
RBN	Robbins & Myers, Inc.	Misc. Capital Goods	27.16	49	80.3	14.1	11.4	0.6
SPW	SPX Corporation	Misc. Capital Goods	62.69	45	45.5	24.9	17.8	1.6
TRA	Terra Industries Inc.	Chemical Manufacturing	21.75	38	580.2	22.6	3.7	1.8
TXT	Textron Inc.	Conglomerates	25.22	34	30.1	18.2	7.7	3.6
WTI	W&T Offshore, Inc.	Oil & Gas Operations	22.18	37	76.7	41.7	3.8	0.5

2.4 Portfolio Trailing Stop Settings

The trailing stop percentage T_SP for WiserTrader portfolios is described below.  When stocks are bought in a bullish market, an initial trailing stop percentage T_SPI = -20% is just about right.  However, the market can change.  A -20% trailing stop is too wide when the market turns bearish and a -10% trailing stop is too narrow when the market is bullish.  Also, there is the feeling that when profits grow beyond a certain level, say 65%, a stock should have a progressively wider trailing stop.  So a 65% profit acts as a new transition point.  These considerations are described graphically in Figure 2C for long positions.  The lines indicate the T_SP for bullish, cautious and bearish market conditions.

FIGURE 2C

1. When the maximum percentage profit P_MAX% is less than 65%, the initial trailing stop percentage T_SPi is a fixed value that depends on market conditions.  For a long position,

· Bullish, T_SPi = -20%, as when the S&P 500 is above its SMA 30

· Cautious, T_SPi = -15%,  as when the S&P 500 is below its SMA 30

· Bearish, T_SPi = -10%, as when the S&P 500 SMA 30 slope is negative

     2. For a long position, when P_MAX%  is 65% or more greater than the buy price,

· T_SP varies according to,

o f is the fraction of gains placed at risk,

§ Bullish, f = 0.5,  as when the S&P 500 is above its SMA 30

§ Cautious, f = 0.375,  as when the S&P 500 is below its SMA 30

§ Bearish, f = 0.25,  as when the S&P 500 SMA 30 slope is negative

o P_MAX% = (P_MAX  - P_BUY) / P_BUY

o P_MAX is the maximum price reached and

o P_BUY is the buy price

Note: The signs for T_SP and T_SPi are negative for long positions and positive for short positions.  For short positions the maximum price reached is replaced by the minimum price reached.

 3. The sell stop price P_SELL is,

Current Settings:  Bearish

The S&P 500 is currently below its SMA 30. 

The S&P 500 SMA 30 slope is currently negative.

	S&P > SMA30 SMA30 slope >0		S&P < SMA30 SMA30 slope >0		S&P < SMA30 SMA30 slope <0		S&P > SMA30 SMA30 slope <0
	Bullish	Bullish	Cautious	Cautious	Bearish	Bearish	Bearish	Cautious
	Long	Short	Long	Short	Long	Short	Long	Short
TSPi	-20%	10%	-15%	15%	-10%	20%	-10%	15%
f	0.5	0.25	0.375	0.375	0.25	0.5	0.25	0.375

    The settings are designed at worst to, (1) take a 20% loss, (2) break even when there is a 20% maximum gain and (3) walk away with at least half of a 65% or greater maximum gain.  At the same time the stock price is given room to vary.  Deviations from these settings for individual stocks are possible when their industry undergoes unusual activity. 

     If you follow these portfolios, keep in mind that they are only benchmarks which can not be matched exactly because of the round numbers used.  Except where noted, entry prices are taken from the previous close and exit prices are taken from the close on the day that trailing stops are triggered.  You can either sell as soon as a trailing stop is triggered or wait until after the close and try to get better prices over the next few days.  Once out of a position, a stock is set aside for a period of about two months. 

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3.0 Watch Lists

      This section contains several stock watch lists for consideration.  Stocks that pass screens for the first time appear in the newsletter up to four weeks before they appear on the open website.  These stocks are not necessarily trades.  For actual recommendations, see the portfolios in Section 2.  Watch list 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.  More information on each filter is available on the web site.

      A performance summary of filtering techniques for checklists and master trader selection methods is given in Table 3A.  The “Avg. Gain” columns include gains and losses for stocks that have been removed from the lists.  Although changes were made to filters after 1/4/08, the “Avg. Gain in 2008” column extends back to 12/31/07 for simplicity.  The remaining columns apply only to stocks that are currently listed. 

     Since these lists are so dynamic, it is suggested that you focus on only one or two filters that most closely fit your trading style.

Table 3A

Stock Filter Summary

Filter	Avg. Since Listed	Avg. Gain in 2008	Avg. Gain in 2007	Past Month	1 Wk Ago	2 Wks Ago	3 wks Ago	4 wks Ago
Net Insider Buying	7.3%	-3.2%	-0.4%	2.3%	-1.3%	-2.9%	0.0%	6.8%
Cash Rich Companies	26.1%	-0.4%	4.4%	10.2%	-7.0%	-3.2%	4.0%	16.6%
Low Price to Free Cash Flow	5.9%	-3.2%	-1.2%	-1.3%	-4.0%	-1.3%	2.9%	1.5%
Growth Momentum Stocks	0%	-5.6%	9.3%	0%	0%	0%	0%	0%
Lynch Stocks	0%	-5.0%	19.0%	0%	0%	0%	0%	0%
Buffett Stocks	10.5%	-4.1%	8.8%	-5.7%	-9.6%	-3.8%	8.1%	-0.9%
Graham Stocks	-3.1%	-3.7%	1.2%	0.2%	-1.3%	-1.6%	0.0%	3.2%
Templeton Stocks	30.2%	-3.5%	0.1%	2.3%	-4.2%	-0.9%	4.1%	3.9%
Zweig Stocks	24.6%	-2.7%	15.6%	3.6%	4.8%	-1.0%	-2.8%	2.8%
Micro Cap Value Stocks	4.3%	0.0%	2.2%	-25.5%	-11.9%	-4.8%	-11.0%	-1.2%

      Stocks are listed based on the degree to which they are overbought or over sold according to their 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. 

      Watch list performance is based on Friday closing prices.  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.  The use of trailing stops is described in Section 2.3.  The “% from Max” is the percentage the price has declined from the maximum price reached since the reference date.  Stocks that are down from their highs by half the amount of their trailing stops are flagged in yellow.  Stocks that are stopped out are removed without comment for two months. 

     The following color coded key applies to each watch list.

Key

Passed Recent Filter

Price declined by half of trailing stop percentage

Oversold  based on  Williams %R  (%R2 is most recent)

Overbought based on Williams %R  (%R2 is most recent)

Consider Adjusting Position Size

3.1 Net Insider Buying Checklist

      Companies that have experienced net insider buying within the past 6 months of 3% or more of issued stock are listed in Table 3B.  A requirement for positive projected earnings for the current year was added.  It is also required that EPS estimates for the following year exceeded estimates for the current year.  A requirement was added to insure that the stock had not already made its move but was beginning to do so.  This list is a mixture of stocks that are optionable and those that are not.

Table 3B

Net Insider Buying Check List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							10/3/08
LNUX	09/26/08	-2.1%	-2.1%	SourceForge, Inc.	Software & Programming	-2.1%	$1.37	-69	-73
ELOY	10/03/08	0.0%	0.0%	eLoyalty Corporation	Business Services	0.0%	$4.85	-46	-45
CODI	07/25/08	24.0%	24.0%	Compass Diversified Holdings	Business Services	-2.8%	$14.15	-36	-19

3.2 Capital Rich Companies Check List

      Companies with net cash positions that comprise at least 20% of their share price are listed in Table 3C.  A requirement for these stocks to have positive year over year earnings growth for the past two quarters was added to improve performance.  Again, this list is a mixture of stocks that are optionable and those that are not.

Table 3C

Capital Rich Companies Check List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							10/3/08
SMTC	10/03/08	0.0%	0.0%	Semtech Corporation	Semiconductors	0.0%	$12.25	-99	-98
NCEM	03/07/08	52.3%	52.3%	Nevada Chemicals, Inc.	Chemical Manufacturing	-0.1%	$13.23	-6	-4

3.3 Low Price to Free Cash Flow Check List

      Table 3D was added to contain companies having a low price to free cash flow (P-FCF).  A requirement for these stocks to have positive year over year earnings growth for the past two quarters was added to improve performance.  Also added was a requirement for progressively increasing stock price over the past 26, 13 and 4 week periods.  A requirement for a price to free cash flow per share of less than 10 was replaced with one that simply requires it to be less than the industry average and less than the 5 year average for the company itself.

Table 3D

Low Price to Free Cash Flow Companies Check List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							10/3/08
JNJ	04/25/08	-0.4%	-0.4%	Johnson & Johnson	Major Drugs	-8.4%	$66.16	-85	-99
OMI	05/30/08	-3.3%	-3.3%	Owens & Minor, Inc.	Medical Equipment & Supplies	-7.6%	$45.51	-78	-86
RGS	09/26/08	-4.3%	-4.3%	Regis Corporation	Personal Services	-4.3%	$26.62	-80	-85
MKC	04/25/08	2.5%	2.5%	McCormick & Company, Incorpora	Food Processing	-7.7%	$38.50	-68	-71
PRAA	09/26/08	-7.5%	-7.5%	Portfolio Recovery Associates,	Business Services	-9.9%	$43.82	-55	-71
CTL	07/18/08	5.0%	5.0%	CenturyTel, Inc.	Communications Services	-6.5%	$37.56	-69	-64
TMX	06/20/08	6.0%	6.0%	Telefonos de Mexico, S.A. (ADR	Communications Services	-9.9%	$24.09	-52	-63
NVR	08/22/08	-1.0%	-1.0%	NVR, Inc.	Construction Services	-9.5%	$574.55	-56	-63
BUD	05/09/08	28.5%	28.5%	Anheuser-Busch Companies, Inc.	Beverages (Alcoholic)	-4.6%	$65.10	-67	-58
CASS	04/18/08	5.2%	5.2%	Cass Information Systems	Computer Services	-7.5%	$35.50	-43	-57
DRS	03/28/08	29.7%	29.7%	DRS Technologies, Inc.	Aerospace and Defense	-5.3%	$75.60	-40	-43
NOVA	08/08/08	13.4%	13.4%	NovaMed, Inc.	Healthcare Facilities	-7.7%	$4.58	-62	-43
CHTT	09/12/08	3.2%	3.2%	Chattem Inc.	Biotechnology & Drugs	-5.1%	$75.73	-48	-42

3.4 Peter Lynch Value Watch List

      For the Peter Lynch style screen in Table 3E, the number of selections is reduced by selecting only optionable stocks having P/E’s less than 30. 

Table 3E

Peter Lynch Value Watch List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							8/29/08
Nothing this week

3.5 Growth Momentum Watch List

      For the Growth Momentum screen in Table 3F, the number of selections is reduced by selecting only optionable stocks having P/E’s less than 30. 

Table 3F

Growth Momentum Watch List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							8/29/08
Nothing this week

3.6 Warren Buffett Value Watch List

      The filter for Warren Buffet style stock picking in Table 3G is for the intermediate to long term.  Two requirements were added.  One was to include only optionable stocks in order to find LEAPS opportunities.  The other requirement was to include only those stocks having a PE of 17 or less.

Table 3G

Warren Buffett Value Watch List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							10/3/08
JEC	10/03/08	0.0%	0.0%	Jacobs Engineering Group Inc.	Construction Services	0.0%	$44.60	-100	-98
SLB	10/03/08	0.0%	0.0%	Schlumberger Limited	Oil Well Services & Equipment	0.0%	$72.53	-92	-91
MTXX	05/23/08	10.4%	10.4%	Matrixx Initiatives, Inc.	Biotechnology & Drugs	-7.1%	$17.20	-35	-51
HANS	09/12/08	31.5%	31.5%	Hansen Natural Corporation	Beverages (Non-Alcoholic)	-2.4%	$31.96	-41	-10

3.7 Benjamin Graham Utility Watch List

      Stocks from Benjamin Graham’s style of utility investing are listed in Table 3H.  Earnings and dividend payout requirements were relaxed from each of the past 7 years to each of the past 3 years.  A requirement was added to include only those stocks that have increased in price over the past quarter and are within 10% of their 52 week highs.  Performance in the table now includes indicated dividends.  Stocks are removed from the list when their PE exceeds 20 or when the PE times the price to book exceeds 30.

Table 3H

Benjamin Graham Utility Watch List

Stock	Reference Date	% Chg	2008 Gain	Name	Industry	% off Max	Price on	%R1	%R2
							10/3/08
WGL	09/19/08	-7.4%	-7.4%	WGL Holdings, Inc.	Natural Gas Utilities	-7.5%	$32.51	-62	-71
WEC	09/26/08	-2.3%	-2.3%	Wisconsin Energy Corporation	Electric Utilities	-2.3%	$44.62	-47	-66
UGI	05/30/08	-3.0%	-3.0%	UGI Corporation	Natural Gas Utilities	-9.8%	$25.71	-57	-62
ATO	08/29/08	0.4%	0.4%	Atmos Energy Corporation	Natural Gas Utilities	-2.2%	$27.62	-25	-33

3.8 John Templeton Watch List

      Optionable stocks from John Templeton’s style of investing are listed in Table 3I.  The performance now includes indicated dividends.  Stocks are removed from this list when the PE exceeds 1.2 times the 5 year average, PE High exceeds 75, the 12 month EPS growth turns negative, the 12 month operating margin turns negative or becomes less than the median industry value or the total liabilities to assets Q1 exceeds that for the industry.

Table 3I

John Templeton Watch List