POORMANS INVESTMENT STRATEGY # 3 MAY 2008
by Bruce Brotnov: 17 MAY 2008
Trust in the lord and do good; DweN in the land, and feed on his faithfulness... Do not fret--it only causes harm. For evildoers shall be cut off; but those who wait on the Lord, they shall inherit the earth. Psalm 37:8-9 ... Do you ever feel like you need a therapist? If so, then Psalm 37 is for you. David writes as a counselor, providing wise steps to take as you face crises and decisions. Whenever you feel the pressure of competition or the compulsion to perform, pause and remember the assurance in this passage. David brings eternal perspective and long-term vision that prevents mistakes in short-term decisions." 5/16 - from "Leadership Promises for Every Day" by John C. Maxwell - You can buy this or other daily devotionals at your local Christian Book Store or online. (New devotional - might be a good criteria for evaluating Presidential Candidates.)
MARKET FOCUS: It was a very good week for holdings in dry bulk shipping (e.g. TBSI) and solars (i.e. CSIQ, SOLF, SOL, etc). So far the hedge funds have not been able to take down the market as they have done 20 of the last 21 quarters, so stay on guard as the quarter isn't over. There is some possibility of the worst being over for housing and the financials, although the liberal media continues to be extremely negative before election time. Shippers will be closely watched for earnings reports from DRYS and EXM on Monday and then HPQ for tech watchers on Tuesday. This week the model had 5.2% gain and matched the accumulated gain of the same amount last week while the main indexes remain down 3.3% on average. Some of the readers also bought SOL and SOLF as an alternative for CSIQ and also did well. Now if the DJIQ and S&P 500 can get back over the 200 and join the Nasdaq and Russ 2000, we would be back on pretty solid support again. The most followed support seems to be the 50 DMA and we are pretty well above it in the market indexes and most stocks. Energy continues to be strong but if it reverses, it could bring on some pretty heavy profit taking. There is high suspicion that energy speculators are driving the prices of energy higher than they would be otherwise.
Personal Note: Arthroscopic surgery for my wife's rotator cuff surgery will be Monday morning (rescheduled from last Monday) and I don't know how much that will interrupt my ability to watch the market as I will have to care for her and some of her normal duties. If it turns out I have a lot of disruption I'll add some time to everyones "paid up period".
2008 Mutual Fund model had a 2007 return of 20.18% for the weighted 8 funds, led by CGMFX with 79.9% gain.
STRATEGY HINT - Analysis of a winner CSIQ: Since we had a success among a number of failures, let us look at what went right for CSIQ just as we did for GHM (which is still going higher, but we locked in 93% gaina from a pullback buy).
1. On 17 December 07 we first bought 200 CSIQ @ 22.05 on pullback to the lower up trend line and we carried it into 1 January of the new model for closing price of 28.15. On 3/17/08 we bought another 200 sh at 18.52 average as it had pretty good support in 18-19 area.
2. On 8 May in front of earnings we sold 200 (1/2) @ 31.80 for 44% gain from December initial buy. Earnings were strong and it gapped up and it closed at 44.90 on Friday and puts us up 142% currently. Yes, we could be better off had we not sold in front of earnings, but we also locked in some gains in case of a disappointment.
In summary the pullback buy once again proved to be a winner and remains one of my favorite strategies over the years, but sometimes problems emerge from behind the scenes and they continue going lower. Sometimes our best analysis results in a bust, but it is nice to get right once in a while. One of the ways to play a more risky buy is to nibble with a part position and then add when the chart or fundamentals improve. The thing that is key in my mind is a higher target potential and the strong earnings growth forecast (i.e. CSIQ and TBSI) and I tend to hold until fundamentals change and I have a reason to sell.
Diary of an election year (partial repeat):
Why so much interest in politics this year? In 2004 before the last election here are some year to date results for the model as we stayed nearly full invested the whole year and probably never more than 20% cash at any time.
20 Feb 08: - 8.8% year to date
20 May - 20.2%
20 Aug - 14.5%
20 Sep - 13.3%
19 Oct - 8.0% (polls virtually guaranted that Kerry would beat Bush)
19 Nov + 16% after Kerry lost
31 Dec + 36.3% for 2004 with 44% gain in last quarter after suffering through the year with media negativity and hype for John Kerry.
Since then hedge funds have become a lot more aggressive in holding down and selling down the market, but what I wanted to show was how difficult the market had during an election year and there wasn't even a recession to worry about. The daily scare "sky is falling" tactic all year was "inflation". We haven't had a serious inflation problem since Carter was President and it has been stable (CPI) since 1982. I am a lot more worried about loss of confidence in the economy and financial problems than inflation. I'm not saying the same thing would happen if McCain wins, but I dare say there would be a noticeable bounce.
REMINDER: Currently I use stockcharts.com for the 100 stocks in the database and watch for stocks breaking up through 50 Wilder RSI (21 day default) for potential breakout buys. I list stocks that look like reasonable buy considerations (depending on the overall market). I run my watchlists (taken from recent earnings reports which have strong growth criteria) in HGS as I am currently running stocks that reported in May and later and met my growth criteria. I typically run lists of stocks that have reported in the last 4-5 weeks.
OVERVIEW COMMENTS (REPEAT): For the first time in 9 years the Russell 2000 (small caps) didn't lead the other major indexes. The 2007 Poormans mutual Fund model gained over 20% once the dividend adjustments were all figured in. One of the funds (CGMFX) was up 79% for the year. The gains for 2007 were particularly in multinational and China companies along with special plays in solar and dry bulk carriers. The newsletter started in 1996 and with a 39.7% average gain for the previous 9 years. For the last 5 years though it has 24% average as you can see on the bottom of the home page, but the last 2 years have been disappointing and suggest a time for change in strategy. So far in 2008 even the mutual funds have not figured out a way to win in a down market (election year constant negativity in the media).
Here is the 6 year average for the major indexes (3 major averages are 5.27% per year):
DJIA up 32.5% or 5.4% per year from 10021.17
Nasdaq up 35.1% or 5.8% per year from 1950.40
S&P 500 up 27.8% or 4.6% per year from 1148.00
Russ 2000 up 56.8% or 9.5% per year from 488.58
The small caps (represented by Russell 2000 or S&P 600) led the major indexes and large caps for the previous 8 years, even though this year the pundits said it couldn't be done again and they finally got it right. The big caps broke a 9 year trend and lost out to multinational big caps held up by global economy.
VIX - It closed at 16.47 this week and not under 12 and where we prefer to see it. When it is over 13 we pretty well know the bears are back on the attack. INDICATES WE ARE STILL IN A PERIOD OF HIGH VOLATILITY AND MARKET NERVOUSNESS! Capitulation usually over 30 (Vix) when it occurs as it appeared to do on January 22,23rd. We have had 11 days of 200+ points down and only 8 days of 200+ points up in 2008.
Changes in Major Indexes and Model: (Annual goal for the model is to beat the S&P 500.)
INDEX PEFORMANCE 5 YEAR ANNUAL POORMANS MODEL AVERAGE GAINS(+ 24% vs 4.6% for S&P 500)
DOW at 12,986 - 2.1 % for 2008; (+ 1.9 % for week) MODEL: + 10.3 % for 2008 and + 5.2 % for week
Nasdaq at 2528 - 4.7 %; (+ 3.2 % for week).
S&P 500 at 1425 - 3.0 %; (+ 2.5 % for week).
Russell 2000 at 741 - 3.5 %; (+ 2.7 % for week)
Poormans Select/diversified 8 MFs: + 1.6 % (+ 3.8 for week) (compared to +20.1% FINAL gain for all of 2007 and 14.3% for 2006).
Some major index technical information: (e.g. 50 DMA = 50 Day Moving Average).
DOW: >9/21/50; < 200 DMAs, support at 12,880, 12,572/11,731 Resist. 13,132/13,780 (See Chart)
NASDAQ: >9/21/50/200;< DMAs, support at 2451/2359/2202; resistance at 2544/2614
S&P 500: >9/21/50 ; </200 DMAs, support at 1399/1361/1256; resistance at 1426/1523
Russell 2000: > 9/21/50; < /200 DMAs, support at 724/704/643; resistance at 746/796
**** $100,000 Model from 1 Jan 2008: $110,328(+ 10.3 % for year and + 5.2 % for the week and + 12.3 % for 3 weeks.). In hindsight we could of kept CSIQ but you never know what will happen and we still did well with it and TBSI. A good replacement would have been SOLF but it reports this coming week and that would be raising the risk too high. We did make some adjustments this week and also put out cash back into stocks as the market has been holding up pretty well so far and one of the best weeks this year. We bought 100 additional HPQ on pullback that we have been waiting for and we bought back some AUY. We sold NLY on news of a secondary and replaced with DAR and then we bought GSI on pullback on Friday at DMA support level. I thought HPQ was going to report this week, but now I see it will be next Tuesday and then all of our model stocks will have reported. I will be looking to salvage AEY in the high 3 area somewhere and hopefully pretty near 4. If I see a good buy on SUTR I might use the cash along with a sale of AEY.
2008 Model Contents (SH/SYMB/Purch RTG & PRI): 600 AEY(5, 6.17); 400 AUY(9, 13.998), 400 BPHX(6, 14.75), 800 CDS(6, 7.50), 203.433 CGMFX(M.F. 52.49), 400, 332.537 CGMRX (M.F., 30.07), 200 CSIQ(5, 18.52), 500 DAR (8, 14.42), 500 GSI(9, 8.70), 200 HPQ(7, 47.45, 44.02), 300 LMIA(6, 26.51); 200 QID (@42.50), 200 TBSI(10, 33.06), 1300 TGB(5, 5.18). Cash balance: $3,797.
POORMANS STOCK RATINGS FROM DATABASE: BOLD = stocks to watch. Core stocks are shown below in bold and ratings and prices below are listed
for time of purchase. Stocks in red are candidates for replacement. See website mid-week alert (updates) for model trade/target strategy! Updates are posted nightly also at "Model Trading Strategy" on the website. Keep an eye on model stocks under 50 RSI currently (caution). (General rule: a number above 50 RSI means
more buyers than sellers.) Over 70 RSI can also be interpreted as being over bought - caution. BOLD = strongest looking stocks currently. (Source: stockcharts.com). Sometimes 30 is a place for bouncing.
Stock RSI Comments (add 10% to targets for leaders in their industry)
AEY 41.4 - SALVAGE, tired of waiting, looking for high 3s, Telecom Equip, T. 20
AUY 53.1 - Gold Stock, beat estimates. Support at $14. T. 37
BPHX 57.7 - Comp-Tech, Good earnings, hold >$10?. Rep'd. 5/1 L.T. 24
CDS 49.9 - China Consulting, basing 8 area, Rep'd 5/9, T. $24+.
CSIQ 76.2 - Canadian Solar, strong bo on earn, T 71
DAR 50.1 - Applic from animal fat, bounced off 50 DMA, T. 24
GSI 51.7 - China Steel, bought on p.b. (bad winter), T. 23
HPQ 50.3 - Tech - comp/printers bought EDS. R. 5/15, T. 81.
LMIA 55.2 - Aerospace, good base at 18-20, S.I. 2.4, Rep'd 5/8, LT. 35
TBSI 72.4 - Dry bulk carrier, above 9 DMA (51.22), beat est. 5/8 by .50, LT 82.
TGB 51.0 - Gold related, 9 DMA 5.31, basing over $5, rep 5/14, T 17+
CGMFX57.8 - Mutual Fund ($10K), heavy in energy.
CGMRX57.1 - Mutual Fund ($10K)- Realty
QID 34.6 - etf (short of QQQQ)
***** ADDITIONS TO DATABASE: Disclaimer - I don't personally own any of these new additions, yet.
GEOI - Georesources Inc (R=6, 22.09) - acquisition, development, and production of crude oil, natural gas, and related products primarily in Texas, Louisiana, North Dakota, Montana, and Colorado. Short Interest just over 1 day. L.T. debt 141% with buying by insiders and institutions and forward pe of 15.2 vs 23.7 for sector for long terget of $34. It was previously in database a couple years ago and maybe even in the model before it was dropped out. Energy Oil & Gas sector - explor and prod. www.georesourcesinc.com
KAZ - B M B Munai Inc (R=9, 7.04) - exploration, development, acquisition, and production of crude oil and natural gas properties in the Republic of Kazakhstan. Debt 0 and S.I. of just under 2 days and forward pe of 5.42 vs 23.7 gives long target of $30. Being on foreign soil can be positive (no US regulations and negative in case of international issues. Good prospect for pullback buy. www.bmbmuai.com
POSSIBLE ADDS: ABP, ACFN, ADM, ALY, APU, ARTX, ASYS, ATN, BTE, CFSG, CXPO.ob, DEPO, EAC, ENG, ESIC, FACE, GLW, NOA, NXY, OVTI, PDC, PDE, QCOM, RJET, ROSE, SIAL, SPTN, TAL, TGC, TEAM, WH. Ones in bold were also researched recently and possible future adds. I almost added ENG to database but held off due to very high short interest.
LEADING INDUSTRIES: Energy-Coal, Energy - Solar, Energy O&G -Expl & Prod, Energy Conversion, Steel-Producers, Chem - Fertilizer, Machine - Farm, Energy O&G - Drilling, Energy Bimass -Eth/Oth, Machine - General, Transp - Railroads, Retail - Home Prdts, Retail - Bldg Prdts, Machine-Const/Mining, Const - Resid/Comml, Retail - Discount.
I am using HGS exclusive these days even though they are different somewhat from another source that I am not allowed to mention. HGS had 200 industry groups last year but has consolidated them into 154 now. Last place: Comp Networks and Comp EDA tools.
INVESTMENT ADVISORS; 46.0 % bullish and 29.9 % bearish. – And less BEARish again this week. Numbers seem often to trail the market direction.
NOTE: Positive candlesticks are decent indicators for stocks moving up, especially in a positive market. Source: Stockcharts.com & Highgrowthstocks.com
DATABASE: EXM, GFA, NOEC, PDO, SOLF, SUTR, TBSI, TITN, WDC,
WATCHLIST (Not researched): A, CVLT, GTE, SXE, TGC, EP, SFY, CVS, XOM, WMB,
INTERESTING CHARTS: AHT, AUY, CXPO, HOGS, AYR, ATW, BLE, FOE, SKH, IPGS, LQDT.
