POORMANS INVESTMENT STRATEGY # 1 DEC 2010                

by Bruce Brotnov: 2 JAN 2010 

From far beyond our world of trouble and care and change, our Lord shines with undimmed light, a radiant, guiding Star to all who will follow Him--a morning Star, promise of a better day. Charles E. Hurlburt and T.C. Horton. " 1/02 -  from "365 Days of Praise" - You can buy this, or other daily devotionals, at your local Christian Book Store or online. (Proverb sounds appropriate to investing as well).  

An additional devotional reading (below) from Job relates to human attemped solutions in God's theater that stood out in my readings this week. How often have you seen any reference to God in the hysteria related to "global warming" and receding glaciers (while glaciers are building up in other areas - but an inconvenient truth for Gore and his followers). REPEAT

"Whatever the Lord pleases, He does, in heaven and in earth in the seas and all deep places....."Psalm 135:6

" When we get piled upon one another in large cities, as in Europe , we shall become as corrupt as
Europe .
    Thomas Jefferson.
 

MARKET FOCUS: The market index averages had a good year after an awful year in 2008 following the "change" brought by Congress in 2007 under Pelosi and Reid as they stopped all actions in Government and allowed Fannie and Freddie to fail and drag the US and world into a recession. The market really dropped in 2008 when it was apparent that the Social Democrats were going to route any simblance of conservativism in Government. The market bottomed in March 2009 and then we had a nice bounce, but now in 2010 the socialist/progressive programs will be coming up for vote and put into action barring a miracle. The majority of people are against these high debt producing programs, but with election coming in November 2010, the Dems are desparate to put bigger Government in control and are counting on the "have nots" to out vote the "haves" in a major effort to force "weath distribution" and seek to become like all previous failing socialistic countries. We will start conservative in the model with an equivalent of 44% cash (last year we started with 50% cash) and see if we have a chance to squeeze out a little more from the market before Congress returns from their winter boon doggle. Historically the month of January has a U pattern with sellers hitting early in January. 

NOTE: The 2010 model will start with the same stocks we ended with on Thursday in the 2009 Model. However, I found that the Yahoo was way off on totals although the actual gains were within $300 but they changed portfolio information this past year and instead of $34K in cash, I only have $5,264 after loading up the new model, so I guess I have been trading on margin. I'll be looking to pick up some cash next week, probably starting with TIP and maybe RINO. The new mutual fund list is listed under "mutual fund" icon on the webpage. I added 2 etfs and 1 mutual fund.  

Historic chart that is carried forward.

http://stockcharts.com/h-sc/ui?s=$INDU&p=W&b=3&g=0&id=p49816239957&a=153771146&listNum=1

2007 Mutual Fund model had a return of 20.18% for the weighted 8 funds, and were led by CGMFX with 79.9% gain. But the world turned upside down on mutual fund managers in 2008 following the loss of the uptick rule (July 07) and the financial disaster that was partially the fault of Congress and their excessive regulations in some environmental area and lack of oversight of Freddie/Fannie. The 8 Funds were down around 50% for 2008 and the 3 major averages were down 37.6%. 
  

STRATEGY HINT 2009 Guidance: We started the year with 49% cash and a starting strategy of 25% cash, 25% gold (probably GLD and/or one other gold or precious metal) and 50% in misc stocks. We have worked ouselves back down to 25% cash currently and watching the market to see if we want to increase or decrease our cash percentage and watching to see if the indexes can hold over their 50 DMAs.

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): In 2007 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. In 2008 even the mutual funds did not figure out a way to win in a down market (election year constant negativity in the media).

Here is the 7 year average for the major indexes (3 major averages are down 2.5% per year): 

DJIA down 12.5% or down 1.8% per year from 10021.17
Nasdaq down 19.2% or down 2.7% per year from 1950.40
S&P 500 down 21.4% or down 3.1% per year from 1148.00
Russ 2000 up 2.1% or up 0.3% 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 21.68 this week and not under 20 and where we prefer to see it. When it is over 30 we pretty well know the bears are back on the attack.   INDICATES WE ARE STILL IN A PERIOD OF EXTREMELY HIGH VOLATILITY AND MARKET NERVOUSNESS! Capitulation may have occured on Friday 10/10 as the market dropped 700+ points at the open and then rebounded to positive zone at one point. The DOW broke the previous low of 7449 on 11/21 and the hit a new low of 6465 on 3/6/09. It could test the lows again and then again, it could have been a bottom??? So far we have had a decent bear rally and DOW made it over 9000, but needs some positive drivers, such as a return to something like the "uptick rule" that is out for review or rejection of "cap and trade", but SEC unlikely to go against powerful hedge fund lobby. VIX was over 30 and the market under bear control for a few days, but under 22 now.  

Changes in Major Indexes and Model: (Annual goal for the model is to beat the S&P 500.) 

INDEX PEFORMANCE  (1 week)                                 

DOW at 10,428 + 18.8 % for 2009; (- 2.2 % for week)                     MODEL: + 29.1 % for 2009 and - 1.2 % for week) 34 % cash
Nasdaq at 2269 + 43.8 %; (- 1.1 % for week).
S&P 500 at 1115 + 23.4  %; (- 1.2 % for week).  
Russell 2000 at 625 + 25.2  %; (- 1.8 % for week)
Poormans Select/diversified 8 MFs: + 28.0 % (- 1.8 for week) (compared to - 50.4% for 2009, +20.1% FINAL gain for all of 2007 and 14.3% for 2006). 
              
Some major index technical information: (e.g. 50 DMA ).  

DOW: >/50/200; < 9/21/DMAs, support at 10265/9252/8087 Resist. 10,580/10,600(See Chart)
NASDAQ: >9/21/50/200; < / DMAs, support at 2173/1958/1727/1626; resistance at 2296/2300
S&P 500: >/21/50/200; > 9 DMAs, support at 1094/992/869/666; resistance at 1130/1150
Russell 2000: >/21/50/200; < 9 DMAs, support at 597/552/470; resistance at 636/721  

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)

ARO  51.0 - Clothing retailer, still looks oversold, low 28.65, T. 52
DEER 41.7 - China appliances, dropped on large placement, bottoming, T. 26 
FUQI 41.1 - Jewelry maker, Sup 16.40 (18.18 = 200 DMA), good earnings - T. 37
GFA  49.5 - Brazil home const, 9 DMA 31.73, T. 51
HITK 64.4 - Pharma, nice base, 9 DMA 27.97, T. 40
JAG  52.5 - Gold/Silver Mining, 9 DMA 11.30, T. 17
NLY  48.1 - Mortgage Reit, back over 50 DMA(17.26), yield 15.6%, T. 26
PNNT 59.5 - Finan/Inv Mgmt - Recent low 7.29, Next Div 1/4, 11.8% yield, T. 12.
QTM  65.2 - Disc maker, just reported, 21 DMA 2.86, T. 4
RINO 51.4 - China stock steel indus, recent low 25.86, 50 DMA 26.20, T. 48.
TSTC 68.0 - China - wireless, above 9 DMA 17.81, T. 20.
WATG 45.6 - China - automotive, support 50 DMA 12.41, T. 18
WCRX 70.1 - Pharma - Holding over 9 DMA (28.10), T. 39

DIG  50.0 - Proshares ultra Oil and Gas (etf) T. $54
GLD  46.6 - Gold bullion ETF, inflation watchers/hedge funds like it. T. 161
SLV  43.5 - Silver ETF, for inflation watchers, T. 26
TIP  47.7 - Barclays TIPS Bond Fund, 102-106 trading range, Yield 4%, T. 145

**** $100,000 Model from 1 Jan 2009: $129,106 (+ 29.1 % for year and + 3.1 % for week and + 3.5 % for 3 weeks.). This week was another short one and the last one for 2009. I did trim the model down to raise cash to go into 2010 model. I sold APT, CSIQ (stopped out) and sold 1/2 TSTC for 140% gain and bought some WCRX. We have the same as $44K in cash counting $10K from TIP.

2009 Model Contents (SH/SYMB/Purch RTG & PRI): 100 ARO(8, 32.50), 300 DEER(7, 11.20), 200 DIG (24.05 - energy etf), 200 FUQI(7, 6.26), 100 GFA (9, 34.02), 100 GLD(gold etf, 86.52), 300 HITK(4, 20.10), 500 JAG(4, 10.88), 300 NLY(6, 17.93), 500 PNNT(3, 4.25), 2500 QTM(8, 1.845), 100 RINO(8, 13.56), 300 SLV(Silver etf), 100 TIP (101.69 - Bond etf), 200 TSTC(6, 10.02), 400WATG(8, 11.66). Cash balance: $5,264. 

***** ADDITIONS TO DATABASE: Disclaimer: Picked up some ZSTN a week or two ago to watch.

ZSTN - Z S T Digital Networks (R=8, 8.76) - develops, manufactures, and supplies digital and optical network equipment to cable system operators in the People's Republic of China. L.T. debt of 0 % and recent IPO at $8. Stoxline targets of 10.92 and 13. www.shenyangkeji.com

POSSIBLE ADDS: ABT, AEL, ARTG, ASGR, ASIA, BRLI, CNK, DFZ, EBIX, FLL, GFI, HWAY, IFON, MDF, MED, MSN, RAH, SIAL, TEVA, TRCI, VMW, VRX, WAC.  Ones in bold were also researched recently and possible future adds. 

LEADING INDUSTRIES: Energ - biomass-Eth&Oth, Retail - Home Prdts, Retail - Food, Computer - Soft Diversified, Retail - Dept Stores, Paper Prdts, Energy - Nuclear/Uran, Semicond - Equip, Auto Mfgr - US & Foreign, Retail-Mail Order, Media-Book/new/Mag, Media - Radio/tv, Auto Parts & Equip, Consumer-Cosmetics, Machine - Const/Mining, Travel&Leisure - Airlines.   

I am using HGS exclusive these days even though they are different somewhat from another source that I am not allowed to mention. HGS previously had 200 industry groups last year but has consolidated them into 155 currently. Last place: Banking - NE (12/230)

INVESTMENT ADVISORS; 51.1 % bullish and 15.6 % bearish. – Less BULLish 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: None,          
WATCHLIST (Not researched): CRMT, AEL, BTN,    
INTERESTING CHARTS. APT, ASYS, TEVA, VNR, BOFI, ISTA, VITC,

INTERESTING SITE WITH GOOD TECHNICAL INFORMATION: WWW.STOXLINE.COM (I use for some of our targets)