The Primary Trend letter discontinued publication with the June 10, 2016 letter, and Arnold Investment Counsel closed its office on July 31, 2016.
* * * * * * * * * * * * * *
Notice to Primary Trend Fund Shareholders
As of April 25, 2016, the Primary Trend Fund was closed and transitioned to Sims Total Return Fund - (symbol: SIMFX). For further information, please see their website: www.simstotalreturn.com or call US Bancorp at 800/968-2122.
April 24, 2015 -- 15 Years, 1 Month, 13 Days
It took awhile, but it finally happened. The NASDAQ Composite Index finally surpassed its old record high of 5048.62 last achieved on 3/10/2000. Yesterday, the NASDAQ closed at 5056.06, a new all-time high (click on link for current chart below).
Granted, the hoopla this time was much more subdued than the Internet frenzy of yesteryear, but there are pockets of craziness (biotech stocks come to mind) that contributed to this new record that we've been suggesting could be the "last hurrah" for this bull market. We do NOT believe the stock market will turn down immediately ... there is too much momentum for that to occur. But now that the Nasdaq has joined the DJIA, the S&P 500 Index and Russell 2000 in uncharted waters, this box can be checked off for the bull.
Fait accompli can be replaced with veni, vidi, vici!!
February 18, 2014 -- No BAM Today
Close but no cigar. Today was a very strong day internally. While the Advance/Decline Indicator made yet another new ATH, "Break-Away Momentum" was not triggered (according to our preliminary market data after the close). Advances of 1991 and declines of 1028 (1.94x vs. the 2.0x we were looking for) put BAM at 1.963 ... with 1.97 being the trigger point. Are we splitting hairs? Maybe. BAM still has one more opportunity on this go around ... if Wednesday and Thursday's market action both deliver, on average, an Adv/Dec Ratio of 1.2x. Still doable, but postponed for a couple of days now.
Why are we highlighting the significance of BAM? Because this cyclical bull market will be celebrating its 5th birthday on 3/6/14 ... and we believe we are in an extended bull market where momentum can trump many things, but risks are that much greater as well. A BAM signal (similar to early 1987) breathes more life into this final phase and the historical report card for BAM signals gets an A-rating. Again, stay tuned.
February 17, 2014 -- BAM Watch
The internals of this stock market continue to be tremendously strong. Breadth is particularly strong given that it has made new all-time highs as measured by the NYSE Advance Decline Indicator. In fact, so strong, that "Break-Away Momentum" (BAM) could be triggered on Tuesday if we get a 2-to-1 ratio of advances over declines. That would be very bullish and actually makes our 1987 Parallel even more plausible. While above-average capital gains could be in store for investors in the first half of 2014 if BAM unfolds, risks would also be above-average (similar to 1987 as well). Stay tuned for Tuesday's market action.
October 23, 2013 -- Road to Riches
If Dow Theory has any credibility (and we believe it does), then the recent strength by the Dow Jones Transportation Average (DJTA - 6960) is a precursor to what may transpire in the Dow Jones Industrial Average (DJIA - 15,400) over the next few weeks.
Stock market action by the DJIA has been somewhat muted of late with the venerable benchmark failing to make new all-time highs (ATHs) in concert with the rest of its brethren in the last week. However, the DJTA has led all U.S. indices recently as it tickles the underside of 7000 today. Year-to-date, the DJTA has gained +28%. During the government shut-down correction, the Transports gave up ground grudgingly by losing only -5.2% from its mid-September ATH. It made a new ATH within days and has jumped +9.4% in just the last 2 weeks (from 6400 to near 7000).
By contrast, the DJIA is up only +16% year-to-date, gave up more ground during the debt-ceiling shutdown, and has only recouped +5.4% in the last 2 weeks -- failing to make new ATHs ... so far.
We believe it is only a matter of time before the DJIA will shoot to new ATHs above its 15,700 mid-September level. Given the fact that the DJIA is the most widely-followed b y investors and most widely-reported in the media, headlines of new highs by the Dow will juice the financial markets even more so, in our minds.
Dow Theory suggests that industrial stocks and transport stocks will play follow the leader due to their economic sensitivity. The fact that the Transports have the pedal to the metal on the road to riches gives us what we believe is a leading indicator for the Industrials and that they will confirm the move to the upside soon.
How far? The DJIA will no doubt break the 16,000 level, and maybe quite significantly during our expected year-end rally. Any extended Dow Theory divergence between these 2 indices lasting into the new year will be a major warning flag for both this bull and the economy.
October 16, 2013 -- Sad Day in D.C.
Short-term solution? Maybe. Long-term disaster? Definitely. The Senate has reached an agreement on a fiscal deal that pushes the debt ceiling out until 2/7/14 and avoids a "default". We put default in quotes because that is the propaganda that has been spewed from the Obama Administration and Capitol Hill as a scare tactic. Default has never been on the table, technically or in reality.
Assuming the Senate passes their deal, it will go to the House for a vote. If passed there, it then goes to the President's desk. As Rep. Sean Duffy of Wisconsin stated upon hearing of the Senate's agreement: "We've been jammed." That's political jargon for railroaded, and we agree.
This power-grab may appease the stock market today, but it does not bode well for the fiscal fitness of the good ol' US of A going forward. President Obama stated just last week that raising the debt ceiling doesn't increase our debt obligations. Currently we are at $16.96 trillion in debt. We'll see if that indeed does not move up, Mr. President. Stay tuned as the Federal Government grows larger with Obamacare extending the reach of its tentacles ... if it can ever get its website up and running.
It will be interesting to note if Congress and the President himself will be subject to Obamacare, or if it is purely the bitter pill that the American people must swallow.
April 7, 2013 -- New All-Time Highs ...
... but one of the weakest post-recession recoveries on record. The S&P 500 Index finally surpassed its October 2007 highs on 3/28/13 and then further still last week. But if that doesn't get the average American worker excited, one can understand by looking at the chart below. Despite the Obama Administration's claim that the unemployment rate edged lower to 7.6% in March, this number is misleading ... it ignores the fact that more Americans just gave up looking for a job. True unemployment still lingers at the dreadful 11.1% level ... hardly bragging rights.
First quarter earnings could be fairly strong, but not due to topline growth and robust hiring - due to corporate expense control and margin expansion.
January 15, 2013 -- No Go on Break-Away Mo
As promised in our most recent issue of The Primary Trend letter, we are providing an update to "Break-Away Momentum" (BAM), or breadth thrust. Yesterday (1/14/13) was the final opportunity for the time being for BAM to give us a bullish signal. It fell short.
Again, BAM is the 10-day total of advancing issues on the NYSE vs. declining issues. When it hits 1.97x (the threshold deemed very bullish by Walter Deemer), breadth is considered too powerful to ignore and a stock market rally of substance is forthcoming. Despite the overwhelming strength in breadth that started on 12/31/12, the 10-day ratio could only muster a 1.79x ... still strong but not a BAM signal.
The strength of breadth recently, however, has catapulted the Advance/Decline Line into new all-time high ground ... one of the stock market's greatest allies. The A-D Line tends to peak well before a peak in the stock market averages (historically, on average, by 6 months according to Leuthold Research), and so time seems to be on the side of the bulls as we venture into 2013.
January 5, 2013 -- Good-Bye 2012 ...
... good buy in 2013?
As mentioned in our December issue of The Primary Trend investment letter, the drama surrounding the fiscal cliff crisis created an opportunity in the stock market for a robust rally. We are getting that now. The final day of trading for the old year (December 31) and the first day of trading for the new year (January 2) both registered Lowry "90% UP Days", with a 97% followed by a 91%. In addition, our Sputnik Indicator (a relatively newly-named yet old-time indicator) also registered a buy signal on January 2. We will go into more detail in our January issue of TPT (to be published this week), but the Sputnik Indicator simply measures the "UP volume burst" that investors exhibit vs. volume in declining stocks. Our last buy signal on this indicator was on 12/2/10.
With the S&P 500 Index making a new recovery high on 1/4/13 by surpassing its 9/14/12 recovery high, the stock market is hardly launching its "burst" from some beaten down low. But momentum markets can be very intoxicating and profitable. The stock market's greatest ally at this point is breadth ... and the Advance/Decline Line continues to make ALL-TIME HIGHs. As the New Year gets underway, investors will focus on the recent gains, not on any long-term concerns. Ironically, as Walter Deemer recently points out, our discussion below in July of "Break-Away Momentum" being off the table just might be back on the table here in the new trading year. Stay tuned.
July 11, 2012 -- BAM Off the Table
As we recently wrote in the 7/6/12 issue of The Primary Trend investment letter, a "Break-Away Momentum" (or BAM) buy signal was close at hand but contingent on a fairly strong breadth showing over the course of the next few trading days. Well, the overbought stock market instead had a few weak days at the end of last week and beginning of this week as the S&P 500 Index fell from 1374 to 1341. This has eliminated the potential for BAM occurring on this latest run. However, this does NOT eliminate the fact that breadth (the NYSE Advance/Decline Indicator) is still strong -- just not strong enough for a breadth thrust, or BAM. As a reminder, BAM signals are rare: the last signal was on 9/18/09 when the S&P 500 traded at 1068; and there have been only 9 such signals in the last 30 years.
An updated chart of the Advance/Decline Indicator can be viewed by clicking on the link below.
July 4, 2012 -- Happy Birthday, America!
On this day, we celebrate our 236th year as an independent nation. The following youtube video offers some very humbling words of wisdom from our Commander-in-Chief (in 1986). The message is timeless and even more critical today as we approach a pivotal crossroad ... and it has a sprinkling of history lesson as well.
February 29, 2012 -- LEAPing to New Highs
We have been remiss in updating this market commentary section of our website, but we thought we'd let the stock market speak for itself ... and it has spun quite the tale in 2012 thus far. The DJIA has recovered to a new bull cycle high above 13,000, gaining +6.5% year-to-date. But the DJIA is the "worst" performer of the major averages: the S&P 500 has rallied +9.0% in the first 2 months of this year, and the Nasdaq Composite has posted a remarkable +14.6% ytd. Keep in mind that Apple (AAPL-$535) is the largest weight in both of those market cap-weighted indices as the stock approaches $1/2 trillion.
Our point, however, is that the strength of this bull rally has its beginnings off of the climactic low of early-October, not just from a very robust liftoff to 2012. Supporting the strength of the popular averages is the underlying strength of the individual stocks in those averages. We include the chart of the Advance/Decline Indicator which speaks volumes about the market's latest move.
Any correction in the market should be met by more buying from investors ... and hence, a pullback should be shallow as long as breadth remains robust. We look forward to keeping you abreast in these pages and pages of The Primary Trend investment letter.
December 23, 2011 -- Happy Holidays!
The markets look like they are going to keep the spirit of Christmas and the "Santa Claus Rally" alive and well. As measured by the S&P 500 Index, the stock market has tacked on 5% this week with the S&P rallying to the 1260 level ... which also happens to be resistance atits 200-day moving average. With the circus tent finally folding up for a couple of weeks in Washington, D.C., investors and the American public can focus on the things that truly matter during the holiday.
We SOLD Vulcan Materials (VMC-$39) mid-month on news that Martin Marietta Materials (MLM-$76) is launching a hostile takeover bid for VMC. After 18 months of negotiating and zero progress, MLM decided to offer VMC shareholders 1/2 share of MLM for each share of VMC. Any deal in today's environment runs the risk of falling apart, and a hostile bid using ALL STOCK is even more susceptible to failure. We took advantage of VMC's run from $30 to above $40 on the news as an opportunity to sell. We obviously also run the risk of either a White Knight stepping in or MLM raising their bid. In the spirit of the season, we say "Thank you MLM."
November 4, 2011 -- Agoraphobia
This title is "all greek to me." Literally, it is made up of two words ... both being Greek. Agora means "open market place", an area present in most cities of ancient Greece. Phobia, as we all know, is Greek for "fear."
In other words, agoraphobia means "Fear of the Marketplace" ... and it has gripped global bourses, to include our very own Wall Street. And it seems understandable since sovereign debt emanating from the Eurozone took down MF Global (MF-nil) and its head honcho, John Corzine. Sovereign debt issues and rumors also compelled Jefferies Group (JEF-$12.50) to itemize to the public its Euro-exposure (and its exposure is not only minimal, it is net-short).Needless to say, Greek bailouts, Italian yield spreads, and Lehman-esque 'runs on the bank' are fueling fear and keeping the hoards of cash on the sideline. This uncertainty is fueling the volatility fire.And while it is frustrating in the short-term, it is healthy in the more intermediate term.
Walter Deemer (www.walterdeemer.com) wrote in his Market Strategies and Insights investment letter last night (dated 11/3/11):
"Deja Vu? Tom McClellan posted the following this week: 'Consider a hypothetical situation where US unemployment is above 9%, the federal government is running large deficits and a summer decline has investors worried. A populous country and important trading partner of the US then announces is is going to default on foreign debt equivalent to about half the size of its GDP, and this default soon spreads to several other countries.' That was Mexico on August 12, 1982 (the day of the closing low that year)."
Both McClellan's trip down memory lane and Deemer's wink-wink nudge to a new bull lift-off may be two of the best nuggets of investment knowledge to have right now.
While still wary of the volatility inherent in dealing with Europe and the fact that they are the tail that is wagging our dog, we believe U.S. corporate earnings are fairly strong and valuations are fairly compressed. We are still constructive on this stock market as we head into the final stretch of 2011.
October 25, 2011 -- At Resistance
The S&P 500 Index [click for chart] has rallied nearly +17% off of its 10/4/11 intraday low of 1075 and is now running into some stiff resistance in the 1250 zone. Not only is the 1250 level the approximate lows in the March and June downdrafts, but the 200-day moving average (red line on chart) is curling down near these levels as well. Investors have experienced 3 weeks of solid gains (if they didn't bail out during the bleak days of September) and the fiscal deadline for tax-loss selling for mutual funds is October 31, so it wouldn't surprise us to see a pause or pull-back. In fact, with the "Mer-kozy" Summit and European crisis holding our stock market hostage, volatility to both the up- and downside should continue.
We have noted how bearish investors have become and they haven't changed their mood despite the latest rally in stocks. Even the American public continues its sour disposition. Just released this morning, the Consumer Confidence survey for September came in at 39.8, a 14% drop from August's 46.4, and the LOWEST level since March of 2009 when the U.S. was at its nadir. [A reading above 50 is generally positive and below 50 is negative.] There are many reasons for both investors and consumers to be gloomy ... but as reasoned contrarians, we do view that mentality as an opportunity since much is already reflected in the marketplace.
September 15, 2011 -- Bad Mood Swing
There's many ingredients that go into a stock market rally, but investor sentiment seems to be the most counter-intuitive. To wit, when the majority of investment professionals (by our definition, those paid to make money in stocks) are bullish, it would seem that the stock market would go up. And if most are bearish, stocks should fall. Afterall, they should know better than anybody the direction of the stock market.
However, as long time investors in The Primary Trend Fund know, sentiment is a contrarian indicator ... it is best to go opposite the crowd. History is replete with one example after another where swimming against the current was the correct course of action: the Tulip Bulb Mania of 1637, the Hunt Silver Panic of 1980 and the Tech Boom of the late-1990s were all perfect examples (especially with the benefit of hindsight) of "getting out" while the gettin' was good.
Today, we certainly don't have optimism overflowing as we did in those historical examples.And we don't have ALL investors running for the hills either. But what we do have is a shift into the bearish camp.
For the first time since 9/3/10, Investors' Intelligence sentiment figures has more Bears (40.9%) than Bulls (35.5%) [click for chart]. This isn't a silver bullet fix for what ails the global financial markets, but it is a silver lining in what the media likes to consider a very cloudy outlook. This "bad mood swing" should bring about a stock upswing.
August 12, 2011 -- A Peek onto the NYSE Floor
We've used this before to pictorially describe the inner workings of Wall Street.
Enjoy the calming effects of the weekend.
P.S. Yesterday was another 90% Down Day ... that makes 4 days in a row of 90%ers, a validation of the volatility that will be with us.
August 11, 2011 -- History Made
According to Walter Deemer and his relationship with Lowry's Research, the stock market experienced a third consecutive "90% Day" on Wednesday (8/10/11). Monday was a 90% Down Day ... Tuesday, with the dramatic intraday reversal post-Fed announcement, was a 90% Up Day ... and yesterday was another 90% Down Day. This has never happened before.
Walt does mention, however, that since 1950 we have had 2 occasions when we have had 3 "90% Days" in 4 days: June 1, 2 and 4 of 2010; and October 19, 21 and 22 of 1987. We are not predicting any "miracles" here, but we do believe knowledge is power.
Also, babies are being thrown out with the bathwater in this environment ... we still espouse sticking to the household name blue chips as we sort through this decline that has hit "Bear Market Status" (>20% decline) for Russell 2000 Index, DJ Transports and Value Line Index, to name a few.
On a bright side: Cisco Systems (CSCO-$15) seems to have surprised on the upside with its EPS release late yesterday and should open +10% today.
August 9, 2011 -- Ugly Picture
"Common sense is not so common."
August 8, 2011 -- Panic Attack
The stock market has been in a freefall for the last week, with the DJIA losing nearly 2000 points, or -15%, in just the last 2-plus weeks. And the Dow is the lesser of all evils ... the Russell 2000 Index actually entered bear market territory with a decline off of its high of -20%-plus. With the benefit of hindsight, this was clearly a "sell the news" event, referring of course to the budget deal inked in the 11th hour.
With that said, fear is rampant and blood is running in the Street. While we have been defensive due to the tiring bull, we certainly did not foresee this watershed event and the aftershocks to the equity markets worldwide. Investing based on emotion, either greed or fear, is never a sound investment strategy. We believe that the "Don't just do something, sit there!" is sometimes the prudent strategy. We don't like to catch a falling knife, but the time to shop is when the merchandise is on sale. We are making a list of potential long-term blue chips worthy of purchase.
Stocks may go lower still; but the market is so oversold on so many different fronts we would not be surprised by a heckuva rally in the near future ... and then a re-test. Success or failure at that point will determine the longer term direction of this market.
July 12, 2011 -- Arrivederci!
Any possibility that the stock market's recent "breadth thrust" was going to escalate into a full-fledged "Break-Away Momentum" (BAM) signal evaporated with fears of European contagion spreading to Italy over the weekend.
As mentioned in our just-published issue of The Primary Trend, the very bullish potential of a BAM signal rested on the outcome of Monday's (7/11/11) market action. However, major averages gapped down and closed near their lows for the day, with declines of 1.5% to 2.5%. With the NYSE Advance/Decline numbers coming in at 446 and 2602, respectively, Monday's ratio was 5.8x to the negative, putting the BAM indicator (its 10-day cumulative=1.52x) short of its 1.97x threshold.
While the market didn't stage "break-away momentum", the underlying surge in breadth during the last 2 weeks is still very powerful and characterizes an equity market that wants to go up rather than down. Volatility has increased of late and seems to be fostering a sense of uncertainty, if not fear ... and reading the headlines of sovereign debt crises and domestic debt ceilings is enough to keep investors on their heels.
While in the later innings of this bull market, we still believe that the telltale signs of distribution and a major correction are not yet evident.
July 6, 2011 -- Whale of a Rally
... or should we say Whaley of a rally? We have cited the work of Wayne Whaley in past issues of The Primary Trend newsletter and previous posts here on our website. The five days ending July 1 registered both a "Whaley AD Thrust" (advance/decline) and a "Whaley UD Thrust" (up volume/down volume). Either one in their own right is a strong signal for further market gains, but both on the same day is an even more powerful greenlight to stocks. The last time this happened was on 3/18/09. Granted, that one occurred at the outset of the new cyclical bull (first inning), but even these strong technical trends in the later innings can propel the stock market averages higher.
This coincides well with our intuitive outlook for the stock market and the fact that we believe a 'summer rally' could be something that develops. The potential for "Break-Away Momentum" (BAM) is also something that we have been discussing with Walt Deemer (BAM's creator) over the past few days. www.walterdeemer.com
June 17, 2011 -- Key Driver
Can the Transports deliver the goods? The Dow Jones Transportation Average [DJTA Chart] has declined to its 200-day moving average and uptrend line that has steered this index for the past 2-plus years. If the DJTA can resume its leadership role as an economic indicator, the stock market could find its bearings and move higher in concert. Thus far, the Trannies are the best performing index in today's market action, up 80 to nearly 5200. Dow Theorists will most likely be following the confirming price action between the DJTA and DJ 30 Industrials as any rally unfolds.
June 15, 2011 -- Greecing the Skids
Citizen protests and strikes in Greece seem to be putting the kibosh on the one-day stock market rally. As we've laid out in the lastest issue of The Primary Trend (just mailed), we believe this market is hugely oversold and, at a minimum, is due for a snapback rally of some sort. The S&P 500 Index [click here for chart] still has strong short-term support in the 1225-1250 level as noted on the chart. Couple that with its 200-day moving average (currently @ 1256)providing a technical floor and it seems that the S&P 500 should have no more than 4-5% additional downside risk from current prices if this is just a normal cyclical bull correction. By the same token, the Dow Jones Industrial Average has risk to 11,700.
Per Investors Intelligence, bullish newsletter writers have dropped to 37% this week ... its lowest level since 9/17/10. Poor economic data of late, continued global unrest, QE2 coming to an end and the commensurate stock market decline have all contributed to souring the investment mood.
We have turned more cautious over the last few months as our profit-taking has been more pronounced than our bargain-buying. The cyclical bull that began in March 2009 is long in the tooth, but the major warning signs that typically precede major tops have not yet surfaced. New recovery highs seem likely still, and that could mean this summer.
May 12, 2011 -- Commodity Crack
Oil, silver, gold and copper ... no matter what commodity pit, investors are gettingskiddish and taking money out of these trades. That certainly makes forvolatile markets, but not necessarilybad markets. We've already lightened up on our energy holdings as well as our commodity-based investments.
By contrast, we have found some long-term opportunities in a couple of undervalued growth names. DreamWorks Animation SKG (DWA-$26) is cheap on a P/E basis and has the "bonus" attraction as a potential takeover target. Molson Coors Brewery (TAP-$45) is also inexpensive on earnings, especially relative to its competition. We recommend purchase of both stocks in the current environment.
April 29, 2011 -- Acrophobia?
The Dow Jones Industrial Average, the S&P 500 Index, NYSE Composite and Nasdaq Composite have all hit new recovery highs this week ... a new recovery high being defined by us as new high ground since this cyclical bull market began in March 2009. Even more incredible is the fact that both the Dow Jones Transports and the Russell 2000 Index (small cap stocks) hit not only new recovery highs but also new ALL-TIME HIGHS (ATH) ... surpassing even their best levels from 2007 before the bear market ensnared investors.
This market is still in gear and these new high levels aren't necessarily too lofty at this point. So a fear of heights, or acrophobia, does not need to be exercised. But with these new highs brings us a greater need to filter any divergences that may develop. Currently, the Advance/Decline Indicator is confirming these new bull highs ... and with higher stock prices comes higher risk. We are bullish but are invested with eyes wide open.
April 25, 2011 -- Banking on Oil
Walter Deemer makes an interesting observation in his April 24th Market Strategies & Insights (www.walterdeemer.com
"A number of things, including but not limited to ISI's latest hedge fund allocation survey, are indicating that the enthusiasm gap between the high-flying energy sector and the downtrodden financial sector has become dangerously large (i.e., energy stocks have become unusually popular and financial stocks particularly unpopular among investors). At the moment, though, both sectors' price action continues to justify the enthusiasm and lack thereof towards them, so we'll consider the evidence to represent an early heads-up warning rather than a sign of clear and present danger."
We concur with his observation: the recent price spike in crudeoil above $110 per barrel coupled with energy stock prices following suit has made oil and energy a crowded trade; hence, a riskier proposition than a mere 6 months ago. We have taken profits in the energy sector and have little exposure to this group currently.
The fact that the financial sector has almost zero sponsorship on Wall Street does pique our interests. However, the lagging underperformance by financial stocks has historically been a precursor to overall market weakness. The reasoning is that interest-sensitive stocks such as financials tend to sniff out a general trend in interest rates ... if financial stocks (and utility stocks) act poorly, a rate rise might be in the offing, which in turn can put the brakes on a cyclical bull move. The disdain for financials does pique our contrarian side, but the poor price action keeps our technical side at bay. We continue to own long-term holdings in JPMorgan Chase (JPM) and USBancorp (USB).
April 14, 2011 -- Lost in the Crowd
The one major negative for this stock market is the fact that the majority of investors are bullish. Investors Intelligence (II)reported last week that BULLish opinion hit 57.3% while BEARish sentiment settled in at 15.7% ... a Bull-to-Bear Ratio of 3.65x. As shareholders are aware, II sentiment figures are best digested with a contrarian flavor. Such bullishness in the short-term typically paves the way for a correction as enthusiasm gets wrung out of the market. However, we would be remiss if we didn't also mention, as we did in the April issue of The Primary Trend newsletter (just published), that sometimes the majority opinion is correct. For instance, the last time that we witnessed such a huge Bull-to-Bear Ratio was in mid-2003 when this ratio hit 3.74x ... the market gained over 16% over the next 9 months before it even took a breather. We prefer prevailing "bearishness" but the latest II figures don't necessarily spell doom.
On the other hand, if some major divergences surface on any ensuing charge to new recovery highs, this could spell trouble for the markets. As this chart of the S&P 500 Index [click]shows, we could jump out to new highs above 1343 and still be trading under the broken trendline (green). In fact, the reverse Head & Shoulders that has formed potentially points to an upside target near 1435-1450 and yet it would still only tickle the underbelly of that trendline. Underlying action (breadth, volume, and index correlation) during this potential rally will tell us alot about the market's character ... strong or weak? Right now, momentum and strong internals suggest pullbacks will be minor. A solid floor of support still rests with the 1225 level -- the intersection of the blue short-term support line on the chart and the red 200-day moving average line.
With that said, however, we continue to tweak the portfolio. Earlier this week, we took profits in Alcoa (AA-$16.50) after reporting fairly solid earnings, yet disappointing topline revenue numbers due to the weak USDollar. AA has gained 55% for the Fund and we feel that we can find better risk-reward investments elsewhere. We sold AA common at the $17 area and will sit on the cash for now.
March 30, 2011 -- Mr. Mojo Rising
The stock market is gathering some momentum here in the aftermath of the Japanese-induced correction. We believe it will only be a matter of time before it hits new cyclical bull market highs ... above the 2/18/11 S&P 500 closing high of 1343.01 and DJIA closing high of 12,391.20. While Momentum markets tend to produce nice gains,they are a tricky environment to be doing wholesale buying since selectivity is paramount.
In today's Wall Street Journal, a new stent of Abbott Labs (ABT-$49) was featured that shows great promise. Called The Absorb, the stent is made of the dissolvable suture material and is currently being used in Europe. U.S. approval appears to be 3-5 years away but ABT clearly has the lead to market. ABT is undervalued and provides solid longterm prospects. Under $50 per share, ABT is still worth initiating purchase ... but especially on pullbacks to the mid-$40s.
March 28, 2011-- Another Sale
We soldCabot Oil & Gas (COG-$51) on Friday on its latest burst of price strength. COG has been a heckuva perfomer since we put it in the Primary Trend Fund portfolio last fall. With a solid +80% gain in just5 months time, we believe we should look to greener pastures. The price of crude has been hovering near the $105 level, and as we've mentioned, we would not be surprised to see it spike to $120 over the short-term. But longer term, our economy cannot support oil prices above $100 for too long. We love the future prospects for COG, and would buy it back at cheaper prices, but have concluded that it has gone too far, too fast.
March 16, 2011 -- 1225 Still Good Target
If one can actually distance themselves from the chaotic intraday trading and minute-by-minute updates from both the Orient and Mideast, it still seems reasonable that the markets might come to rest in the 1225 area for the S&P 500 Index ... only 40 points or 3% from this morning's level.
Internal technicals during this recent and short-term downdraft thus far havenot deteriorated. In other words, the advance/decline ratios and new 52-week lows that we've witnessed have been "normal" ... not indicative of the start of anything worse than a correction at this point. In fact, the internals looked worse mid-November, end of August and early July ... all three occasions when the U.S. stock market was making short-term lows.
March 15, 2011 -- Fallout from Japan
After the Nikkei 225 took an 11% hit overnight due to increased concerns over the nuclear reactor's vulnerability, U.S. markets are following suit this morning with declines of anywhere from 1.5-3.0%. We've been a little uncomfortable with recent bullish opinion and the uninterrupted string of gains since November, but if this market is as strong as it portends, the correction should limit itself to the normal 10% backup. As we mentioned in our February issue of The Primary Trend, and shown in this linked chart of theS&P 500 Index, the 1225 level on the S&P is an area of short-term yet strong support. It is defined by the double-top in April and November of last year. Emotional selling is never a good habit to get into ... how the market responds to these sell-offs and subsequent rebounds will tell us much, however.
February 23, 2011 -- Another Red Flag
Oil is popping by over $4 per barrel and has hit the $100 mark today on continued unrest in the Middle East, to include rioting in Libya andBahrain, and the Iranian warships passing through the Suez Canal.In turn, this has"energized" the oil stocks, with the Energy Sector SPDR Index (XLE) gaining +2%-plus today alone. Historically, energy stock rallies are a lasthurrah duringbroader stock market rallies. Webelieve today may be no different. As such, this isanother warningshot across the bow of this market. As we mentioned in the latest issue of The Primary Trend, a correction of 10% could bring the market down to the 1225 level on the S&P 500 Index ... and investors' moods during thedecline will be very telling as to themarket's next move.
Today, we sold our entire position inConocoPhillips (COP-$79) asa result of its latest surge to nearly $80 ... a +60% total return in less than a year [click link]. Our profit-taking is strictly based on the insanity in the oil pits and our feeling that these big oil stocks have gone "too far, too fast." If further supply disruptions occur in petro, we could see $120 oil in short order ... and that would mean that we're leaving some money on the table. But emotions are running high and rationale running low ... a time for us as a value money manager to step aside.
February 18, 2011 -- Politics As Usual
We are constantly digging deep into various price patterns by the stock market, whether "Decennial", "Seasonal" or "Presidential". Going into the new year, we discussed the oddity ofthe "Presidential Cycle" and its bullish ramifications during the third year (2011) of a sitting President's term.
The chart included here is not only an update but a very nice depiction of how 'presidential' the 2011 rallycould be (+22.3%). Courtesy of Walter Deemer Research (www.walterdeemer.com) and GlobalMacro Monitor (www.macromon.wordpress.com). This is not the only factor driving the current rally, nor is the outcome a fait accompli, but it is one of the prevailing patterns that has held true over the course of history (and since 1955 in the case of this chart).
December 31, 2010 -- Happy New Year!
The Bulls indeed had Christmas after the Bears had Thanksgiving. Assuming nothing dramatic happens during the remaining 2 hours of stock market action for 2010, this year's December (+5.2%) should go down as the best December since 2003 (+6.9%). It's been a quiet week of trading, but the Santa Claus Rally didn't disappoint this year. We believe the tug 'o' war between thepositives and negatives will be won by the bulls in the intermediate term. But divergences are beginning to creep into the marketplace as we turn the page to 2011. Have a wonderful New Year's celebration and we wish all a healthy and wealthy 2011!!!
December 15, 2010 -- Crosscurrents Galore
Well, the DJIA finally closed at a new recovery high yesterday ... 11,476.54. But a funny thing happened on the way to new cyclical highs -- according to the "buzz" on the technical side of Wall Street, a Hindenburg Omen also accompanied those highs.
And, if we may wipe the smudge off our crystal ball, a Titanic Syndrome sell signal could also transpire if the stock market decides to go down right from here. (Only because the New Highs/New Lows are acting so anemically.)
So, we are betwixt and between. Stock markets are making new cyclical bull highs ... and not just one, but the majority. The Dow, the S&P, smallcap stocks, midcap stocks, Nasdaq, etc. are all besting their April recovery highs. The ValueLine Arithmetic Average has actually made a new ALL-TIME HIGH (ATH) above its 2007 levels, and the S&P Midcap 400 Index is close to making new ATHs. Meanwhile, the advance/decline indicator continues to look constructive but it is slightly lagging behind its 11/5/10 ATH. And of course, we have the Sputnik Indicator flashing "BUY".
But those signs of distribution keep popping up. We mentioned the Titanic Syndrome sell signal of 11/16/10 as being a one-hit wonder. If we get a few more with markets making these new bull highs, we can't ignore this cluster of caution. And like we mentioned above, the Hindenburg Omen (HO) is apparently making headlines again ... at least in technical analyst circles. Unlike the HO signals we got in August where we respectfully disagreed with its creator James Miekka because the markets were making corrective lows, today we have the markets making new highs. And we also have the Financials still lagging the overall market ... not the best situation. Lastly, sentiment is also getting to extremes with Investors Intelligence figures logging in this week at 56.8% Bulls and only 20.5% Bears ... so from a contrarian standpoint, too many folks are happy out there.
So, here we sit. Things looking bullish. Other things looking bearish. Crosscurrents galore. This is what makes markets. If need be, we will switch gears and take some profits, but right now, we are still comfortable sitting in the bullish camp.
December 13, 2010 -- New Highs
The stock market keeps plowing ahead with new recovery highs; the S&P 500 Composite, Nasdaq Composite, DJ Transports and Russell 2000 Index (small caps) have all hit new recovery bull highs since the March 2009 lows. The DJIA is lagging, making its most recent recovery high back on November 5th.
Our December issue of The Primary Trend (being mailed today) goes into greater depth on our new Sputnik Indicator and its track record, but we offer the performance table here[Click on link] as a follow-up to the 12/3/10 posting below. The back-to-back UP volume days is rare but definitively BULLISH. Take a look at the numbers ... the average move is +44% over 15 months.
December 3, 2010 -- Sputnik Indicator
Inspired by Dan Sullivan of The Chartist (P.O. Box 758, Seal Beach, CA 90740), we have dissected some statistics and quite possibly come up with a brand new technical indicator ... and a bullish one at that! On last night's hotline (Thursday, 12/2/10), Dan Sullivan mentioned that upside -vs- downside volume has been unusually strong over the last 2 days (12/1 and 12/2). He points tothe September liftoff having the same strong characteristics, with upside-to-downside volume on the NYSE beingmore than10x, followed by more than4x the next day.
We have taken that "bull" by the horns and looked at our daily stats going back to 1976. We found that while "one-hit-wonders" weren't rare, they were infrequent. But the back-to-back trading days with >10x Upside-to-Downside VOLUME followed by a day >4x was indeed a rare event: Only 11 such events over the past 34 years.
We haven't crunched the performance figures yet for the previous 10 occurrences, but suffice to say, they are all at some sort of low in the stock market. Is the December 2nd signal yet another "buy signal"??
We have dubbed this technical number-crunching the "Sputnik Indicator" ... a blast-off if you will ... in honor of the WikiLeaks scandal, and as a contra-nickname to the Titanic Syndrome (see below). We are somewhat facetious on thenametag, but we do believe that the Sputnik Indicator has huge validity on the surface.
More to come on this in our newsletter.
December 2, 2010 -- St. Nick Rally
December started off on the right foot with a +2% rally in all of the major averages on the first day. It looks like Wall Street won't have to wait until Christmas for some gains; a St. Nick (December6)Rally might be in the offing as we speak [or write].
We have been doing further research on the "Titanic Syndrome" sell signal which flashed on November 16th. Our work on the technical indicator coined by Bill Ohama in 1988 suggests 3 important observations: 1) It is not infallible; 2) It does not typically give us a "one-and-done" signal (in other words, it will show up again); and 3) It can be reversed if the DJIA surpasses its previous recovery high (11,444.10 on Nov. 5) by 2% or more (therefore, a price target of 11, 673).[Click on chart of DJIA here] In summary, the Titanic Syndrome Sell is not a healthy development at all, but it is also nota silver bullet. We will have more statistical analysis on this technical negative in our upcoming December issue of The Primary Trend to be published next week.
We still believe the stock market could have a "melt up" phase as we turn the calendar page ... if the Financials turn a new leaf and join the rest of the equities on this upside push. Anecdotally, the market has absorbed a lot of bad news (Ireland, N. Korea, WikiLeaks, insider probe) and not given back too much ... a good sign.
November 24, 2010 -- Happy Thanksgiving
The old Wall Street saying goes ... "If the Bears have Thanksgiving, the Bulls will have Christmas." After a 2-month run-up of +17% (during September and October), it is of no surprise that the market had a 4% pullback from 1225to 1175 on the S&P 500 Index-- and we wouldn't doubt that it could tack on a few more downdraft days, eventually resting near 1130. That would be our worst-case scenario in the near term, and then the year-end rally/Santa Claus Rally that makes new recovery highs.
However, our "2 Canaries in the Coal Mine" that we highlighted in the latest issue of The Primary Trend have actually weakened further. The lagging performance of Financial stocks has underperformed even moreso during this latest correction. But the New 52-Week Highs indicator that was only diverging during 2010 has now, we believe upon our initial review, flashed a Titanic Syndrome sell signal. Without going into great detail, the Titanic Syndrome occurs when the market makes a new high (recovery or all-time) and within 7 trading days before or after, new lows exceed new highs. The stock market made a new recovery high on November 5th (as measured by the S&P 500, DJIA and Nasdaq Composite) and on November 16th (7 trading days after), new stock LOWS outnumbered new stock HIGHS 139-20 ... not healthy. This is preliminary but potentially a big negative so we thought worthy to bring to our shareholders and "blog" readers' attention. More on this as we delve deeper into the numbers.
Momentum has taken hold in the current equity environment and could actually be explosive to the upside, aided and abetted by the $600 billion QE2 elephant in the room. But divergences that create a less healthy stock market climate are starting to sprout. Enjoy your holiday weekend, be safe and God bless.
November 4, 2010 -- The Fog Has Lifted
The election results are an overwhelming mandate to fix Washington, D.C., by turning off the spending spigot. Talk of at least extending the Bush tax cuts into 2011, maybe 2012, is a good start. While QE2 has finally been defined as $600 billion over the next 8 months, we are not proponents of QE-anything at this point inthe economical cycle. In the short-term, however, the clouds of uncertainty are dissipating ... in the long-term, the seeds of inflation are being planted.
The momentum in the stock market that started percolating during September and October, has now been heated to asimmering boil. The divergences that had made themselves known -- Financials' hugely lagging performance and faltering new highs on the NYSE -- is in the process of being negated, thanks to today's 200+-point move in the Dow. We haven't gotten the technical signals of "Break-Away Momentum" or any of the "Whaley Thrusts", but the market is in gear andthe fog is lifting. And as we stated in last month's Primary Trend letter, the 9-10 months following a midterm election are historically very, very bullish.
October 29, 2010 -- Not So Scary
The stock market seems to be putting in an excellent encore performance after its September rally. The major averages have not only sidestepped the widely-anticipated October curse of some sort of "crash" or "crisis", but they managed to tack on gains of anywhere from +3-4%. The overwhelming Republican landslide that is expected to be reported on Tuesday night is, in our estimation, one of the reasons for the September/October upside move. So, we would not be surprised to see a downdraft come Wednesday morning ... "buy the rumor, sell the news", so to speak.
Also, the Wall Street soothsayers were very loud in their 'scare tactics' in August, stating that "September is the worst month" and "October is never kind to equities". What does the market do? Go up. Remember the bearish media coverage of "Death Cross" and "Hindendburg Omen"??? Well, we've recently experienced the bullish"Golden Cross" in the S&P 500 Index and nary a word about it. We do not believe the "Golden Cross" portends anything on its own ... but it does confirmhealthy stock market action. More importantly, the extreme focus on the negative back in August spelled opportunity.
Trick or Treat? Heading into November, we believe we could have some profit-taking for 3 reasons: 1) The double-digit gains by the stock market in the last 2 months; 2) Hangover from the election results and the fact that these victories were already baked in; 3) Increased pundit-pontificating on November being the initial month of the best 6-month period. Combine this with the Financials' poor relative performance since the April peak and the market could be a 'turkey' going into Thanksgiving. This is all short-term noise, however. Assuming no major divergences develop or worsen, we still feel the stock market can make new recovery highs after an intermediatepullback. We continue to search for value in this environment and think we've found one in our recent BUY below.
Cabot Oil & Gas (COG-$28)is down from its early-January high near $47 and its all-time high near $75. Natural gas prices are the culprit ... nat gas has dropped from $6 per mcf at the beginning of the year to $3.50 per mcf currently. Two years ago, nat gas traded at $14 per mcf. We believe COG will trade north of $40 as the industry's pricing pressures subside. We recently initiated a position in COG common in the Primary Trend Fund.
October 20, 2010 -- Warm Asylum
Upward trending markets have a tendency to lull investors into a sense of complacency. This can be gleaned fromthe chart of the Volatility Index, or VIX. When the VIX is low, such as under 20, investors tend to feel confident ... when it spikes to high levels, such as above 35, investors are on edge. We haven't reached the complacent extremes that sometimes accompany a bullish move in the stock market, but the VIX Index is trending in that direction (currently trading under 20). This is an investor sentiment barometer, much like the bullish/bearish opinion polls we track from Investors Intelligence or AAII, and so it isa contrarian indicator.It is not screaming SELL, but it is going in the wrong direction. When the majority of investors are feeling lulled into asense of warm asylum, stay alert and awake.
On another note, we have sold our position inDuPont (DD-$47) in the $46 area.The shares have had a heckuva run--tripling off of the March 2009 bottom and posting a +40% move this year alone. We believe there isriskof a 20% correction in DD in the interim and have sold our entire position. We would not be averse to owning these shares again ifthey hit the mid-$30s.
October 15, 2010 -- Don't Bank On It
As we've mentioned in earlier posts as well as our investment letter, The Primary Trend, the poor price action of the Financials is a nagging negative for the stock market; even as the stock market rallies to 5-month highs (the last time that the S&P 500 traded above the 1170 level was just prior to the May 6th "Flash Crash"). The underperformance of the Financials [please see a current picture under the "Featured Chart" section at left] does pose a health risk to the current rally. More importantly, however, we believe at a minimum that the Financials' ugly action and lack of leadership role spells continued underperformance ... both relative and absolute.
As such, we have sold our position inWells Fargo (WFC-$25) based on our premise that bank stocks will not be leaders going forward. We have also added a new holding to the Primary Trend Fund: Vulcan Materials (VMC-$36). VMC presents investors with an undervalued opportunity in a cyclical stock. VMC is the largest domestic producer and supplier of aggregates (stone, crushed gravel, etc.)and has been hit hard by the demise of the housing market. Infrastructure projects as well as any pick-up in the residential housing market will benefit VMC going forward. It now trades at the same low levels it was at during the bear market nadir.
October 13, 2010 -- A Q4 Melt Up?
The climb up the "Wall of Worry" and incessant spouting of "this rally has no volume" could culminate in a very explosive move to the upside. We suspect, however, that a rally of this potential and character would be powered by the momentum investors, not necessarily those long-term investors sniffing around for value.
With all that is gloomy these days both financially and economically, we thought a "melt-up" theme might be at least refreshing to read. We are not predicting a melt-up, but it is not out of the realm of possibilities. If divergences develop under this scenario, that would be the time to lighten up aggressively on positions.
The Financials' relative weakness still gives us pause, however ... and now Investors Intelligence data, with nearly a 2-to-1 bulls-to-bears ratio[chart] ,clearly shows a more bullish posture for investment newsletter writers (which is a negative from a contrarian vantage point).
"An apple a day ... "Apple (AAPL-$300) may be a great company with great products and headed by a great innovator in Steve Jobs, but ... but, is it a great stock? That is always the question on both sides of a trade. After all, someone is selling those shares that are being bought. We feel the "fluff" in AAPL is getting a little bit too fluffy and divergences are developing [click on chart link above]. At a minimum, we would avoid the "love affair" Wall Street has with this stock. But what do we know? We missed the opportunity on the way up.
September 30, 2010 -- A September to Remember
The numbers are in and they're a heckuva lot better than Wall Street was expecting a month ago. September notched a +7.72% price gain for the DJIA ... its best September showing since 1939's +13.49% performance. It is also the 4th-best in history, behind 1939, 1915 (+11.55%) and 1916 (+11.54%). Investors were tripping over themselves to sell positions at the end of August in anticipation of September historically being the worst-performing month in the calendar.
Now we enter October -- notorious for downside fireworks and crashes. In actuality, it isa "bear-killer" month ... a time to capitalize on price weakness, not an opportunity to get more defensive. But just as one well-respected market seer often reminds us: "Just when you think you've found the key, the stock market goes and changes the locks!"
Financial stocks and their relative weakness casts a shadow on this current rally ... but that's also a divergence that could be corrected in a hurry.The bearish plurality at the end of August[click here for chart of Investors Intelligence] was enough to kick-start the September rally. Investor sentiment has now shifted to the bullish end of the see-saw ... a slight negative. All of these are minor concerns, however ... yellowcaution flags, if you will, not full-fledged flashing red lights. We continue to search for undervalued stocks that may get either unduly or temporarily punished. And we are not averse to taking profits on strength either.
September 24, 2010 -- Sell ABX
We have sold our entire position in Barrick Gold (ABX-$47). Bullish sentiment on gold is nearly 90%, while bullish sentiment on silver is 95%. The precious metals are definitely the darlings on Wall Street. Any change in mood amongst these investors, or something such as the Republicans throwing down their gauntlet in November, could unravel the metals markets, at least temporarily.
Specifically to ABX, the stock has gained 35% since we bought it a year ago and its latest move to new 52-week highs has been met with divergences as highlighted on the chart (click on link above). We do not like the inherent risk that seems to have shrouded gold and gold stocks.
September 22, 2010 -- Golden Years
Gold and gold miners have become all the rage of late. The yellow metal is on the verge of breaking the $1300 per ounce level. Gold bullion's demandis a function of both inflation expectations down the road as well as "crisis insurance", or hedge, against sovereigndebt problems or deflation.
When we initially purchased Newmont Mining (NEM-$65) and Barrick Gold(ABX-$47), the yellow metal was trading at just under $1000. Our roughtarget price for gold was $1300 justbased on technicals.Its reverseHead & Shoulders pattern [LS @ 1000, HEAD @ 700, RS @ 1000] projected a $300/oz. move once it broke above the $1000 resistance level. We are here.[6-Year GOLD CHART - click here]
We took profits (unfortunately prematurely) in Newmont in the upper-$50s. Investor and speculator sentiment regarding gold bullion is getting awfully, awfully bullish. It is certainly a much more crowded trade than it was when we got involved just over a year ago. We are taking some profits in Barrick Gold as well by trimming our position in the upper-$40s.
September 16, 2010 -- The Cisco Kid ...
...has entered adulthood. Cisco Systems, Inc., a long-term holding in the Primary Trend Fund, announced yesterday that it will begin to pay a cash dividend starting in 2011. Management estimates the initial dividend to be in the area of 1-2% on a dividend yield basis. That would equate to approximately $0.25-.50 per share. Some say this is a negative sign that CSCO has left the realmof "growth" and entered "stodgy." We believe that it is more indicative of its huge cash stockpile of $40 billion and the fact that CSCO isa cash-generating machine.
We have always considered dividends to be a huge part of our investment philosophy. We view divs as "patience money" -- getting paid while we wait for the investment story to unfold. In fact, dividends have generated half of the long-term total returns for the stock markethistorically.
We would add to positions in CSCO common on any price weakness to the $20 level.
September 15, 2010 -- After the Close
Break-Away Momentum (a 10-day calculation) failed to trigger during today's session ... the best opportunity to do so. While breadth has been outstanding of late, we did not get the 'breadth thrust' that isunequivocably bullish. Breadth, as measured by the NYSE Adv/Dec Indicator, continues to hit new ALL-TIME HIGHS, however ... marching to its own drummer while the markets sit curbside.
[See "Featured Chart" at left.]
September 15, 2010 -- HappyAnniversary!
The Primary Trend Fund iscelebrating its 24th year of existence today ... a milestone that is not easily achieved in this business where bear markets, competition and regulatory red tape are daily hurdles. We attribute our long-term success to you, our shareholders. Thank you!
We include a 24-year chart of the S&P 500 Index below to give some historical frame of reference to the ups 'n downs of the stock market since the Primary Trend Fund broke onto the scene.
September 14, 2010 -- Bad News Bulls
Landon Thomas, Jr. - New York Times article:
"At a time when fear-stricken hedge funds are stocking up on gold, retail investors are fleeing the stock market and gloom-peddling economists like Nouriel Roubini are commanding the airwaves, making a bullish case for stocks can be lonely, dispiriting work.
But therein lies the opportunity for investors like John Paulson...and Bill Miller..."
... and Arnold Investment Counsel. We aren't insinuating that we belong in the ranks with those well-known investors, but we do share the same outlook and bullish bent.
September 14, 2010 -- Pre-Market Open
Today's market action could tell us alot about the complexion of this current rally. While we've been focusing on the Whaley Thrust measures (5-day stats), the potential for "Break-Away Momentum" (BAM) has crept up on us. BAM is Walter Deemer's technical indicator measuring breadth over a 10-day period. If the advance/decline numbers for today's market action on the NYSE are slightly better than Monday's, then we could get the green light for BAM. As we've mentioned on our website and fully-researched in The Primary Trend investment letter, BAM occurs at the beginning of very strong bull moves ... strong in terms of duration and price. We will keep you posted, but Advances of 2300 and Declines of 700 (or anything better) today will do it!
September 13, 2010 -- Factoid of the Week
As we noted in our "September Mourn" entry below, September has the worst performance record of all the months with a -1.31% loss on average for 11-plus decades. Evidently, someone forgot to tell the stock market because month-to-date, stocks are up anywhere from +5.5% on the Dow to +8% for the Russell 2000 Index and Nasdaq Composite.
An interesting dissection of September's historical performance was brought to our attention by Walter Deemer in his 9/10/10 daily letter Market Strategies and Insights as he quotes Wayne Whaley:
"I have mentioned on a couple of occasions that on average, September's weakness comes in the last ten calendar days of the month ... I went back to 1950 and divided every month of the year into three periods, Days 1-10, Days 11-20 and Days 21-end of month, which gives you 36 mini-months each year. It turns out that the last 10 days of September have been the weakest of any of the 36 periods since 1950."
Which mini-month is the best 10-day period? According to Walt Deemer, it's the middle ten days of October! Volatility is certainly not lacking in the next couple of months. Just something to chew on as we enter what many deem as the 'season to avoid.'
September 9, 2010 --BullsHave the Ball
Gloom and doom has been shoveled into the laps of investors for over 2 years now ... and ironically, it seems worse today despite some of the glaring bright spots. But that is what makes a market.The chart of the S&P 500 Index[click on link] is holding steady above what we believe is a key level at the 1050 mark. The next assault will be the June/August peaks of 1130. We did not get either of the Whaley Thrusts on the most recent rally but the pessimistic investor psychology spells more room to the upside.
That is all short-term entertainment value. For the very long-term, valuations on equities are extremely cheap and accumulating high quality stocks is recommended. We continue to comb the landscape for the new market leadership.
September 7, 2010-- Ruby Tuesday
Ruby as in red ... because the market opened in the red on the session and stayed down all day long. The underlying technicals never had a chance to light any upside fuse and so the Whaley Watch has been postponed. While a potential Whaley Volume Thrust could still happen on Wednesday, the Breadth Thrust has no chance ... and so the rally, if it continues, will probablynot induce any "buying stampede."
Speaking of 'ruby tuesday', the Tennessee-based restaurant chain has recently had a makeover and only trades at a 25% premium to book value. Recent stock price action [Ruby Tuesday (RT-$10.53)] has piqued our interest, but we have yet to buy anyRT common. We include it here because of our heading and the fact that if the stock market should make any attempt at a bona fide rally, Restaurant Stocks seem to be surfacing as some of the new emerging leadership ... the industry is cyclical, consumer discretionary and has a bit of M&A activity surrounding it (i.e. Burger King take-out).
[See "Featured Chart" at left for a picture of market breadth.]
September 3, 2010 -- Vacation's Over
In 3 quick days, the stock market averages erased all of the pain dished out to investors during the entire month of August. The Russell 2000 Index performed the best, tacking on +6.8% since Wednesday's opening bell, while the Nasdaq Composite, S&P 500 Index and DJIA posted gains of +5.7%, +5.3% and +4.3%, respectively. Not a bad taste to leave in investors' mouths as we relax over Labor Day Weekend.
Butthe real fuse to some upside fireworks could be lit on Tuesday. Why? Tuesday is setting up to be a very key trading day! According to our preliminary figures, if Tuesday brings out the buyers in force once again in terms of strong breadth and strong upside vs. downside volume, we could get "Whaley Thrust" buy signals from both his breadth indicator AND volume indicator. We had a "Whaley Volume Thrust" trigger on 7/13/10 ... we had a "Whaley Breadth Thrust" trigger on 9/10/09 ... but we haven't hadBOTH since 3/18/09, just 8 trading days off of the March 6, 2009 bottom. And even though stocks were up 19% already in those 8days before the dual-signal, good things continued to happen from then on as we all know.So Tuesday's technical complexion could be a very key turning point in getting this market in gear.
September 2, 2010 -- September Mourn?
October might be the most notorious month for fireworks and free-falling on Wall Street, but Septemberowns the title of "Worst Month" ... at least as measured by the Dow Jones Industrial Average. More on this in our upcoming Primary Trend issue, but September has an average loss of -1.31% for the 113 years of data, by far the worst of the 12 calendar months.
We do not believe that investors should hunker down in a foxhole, however, as we enter the month. More to come.
August 31, 2010 -- The Swan Song
Hindenburg and Titanic and Death Cross, oh my. Something very, very negative has surfaced in the financial markets recently ... and that something is investor sentiment.
After the summer doldrums (August was abnormally low on trading volume), the markets continue to tread water. Generally, fundamentals are cheap, technicals are poor, and investors are apathetic. We are looking for new stock market leadership to emerge in order to put some of our cash cushion to work. Be opportunistic, not pessimistic.
July 29, 2010 -- Failed Thrust
The stock market failed in its attempt to generate a Whaley Breadth Thrust. The past 2 days of weakness in the markets were too great and countered the strength that started last Thursday. This is by no means a reason to get cautious ... but it does postpone the chance of "Break-Away Momentum" anytime soon.
Confusion and uncertainty rules Wall Street ... even after investors have been basking in the sun of a redhot July (+7.1% on the Dow).
July 27, 2010 -- Seeing Stars
There has been some stealth strength bubbling underneath the surface of this stock market. Granted, the summer rally is in full swing with the S&P 500 Index up a robust +10.3% off of its 7/1/10 intraday low of 1010.91 to yesterday's close of 1115.01 ... a full 100 points. But the Advance/Decline Indicator, or breadth of the market, is within a smidgen of a new ALL-TIME HIGH despite the S&P 500 still hovering 10% below its April highs. Leadership is still suspect, however. We have recently added to core positions in both Intel Corp. (INTC-$21.50) and Pfizer Inc. (PFE-$15).
Inthis morning's market comments, Walter Deemer (DTR Inc., www.walterdeemer.com) notes: "Financial astrologers were predicting that some pretty dire things ('all hell breaks loose') were going tostart happening on Monday, July 26th. The fact that all hell did not break loose yesterday is considered bullish."
On another note, talk of the "Head & Shoulders" (H&S) top and "Death Cross" has quickly receded as the market has pushed higher. Unfortunately those "experts" are never called on the carpet when their dire predictions don't come to fruition.
For an update on the Whaley Volume Thrust signal of 2 weeks ago, see the latter half of the July 13th entry below.
July 15, 2010 -- State of Flux
We have not only beentroubled by the lack of stock market leadership, but somewhat paralyzed as portfolio managers too. We are searching for the next "best ideas" to put some idle cash into this market, yet still wait. Today in his daily letter, Market Strategies and Insights, Walter Deemer mentions one possible explanation: the money coming into the stock market recently is going into ETFs (exchange-traded funds) rather than into individual stocks. And he offers, this may be due to a lack of conviction on the part of investors.
July 14, 2010 -- Bears Growling Louder
For the first time since 5/1/09, bearish advisers outnumber bullish advisers. According to Investors Intelligence sentiment figures for this week, bears remained at 34.8% but bulls dropped to 32.6%. From a contrarian standpoint, we would love to see further erosion in bullish opinion coupled withheightened bearishness, especially if the market grinds higher. Either way, market psychology is goingin the right direction.
July 13, 2010 (Post-market close) -- A "Whaley" of a Thrust
The stock market today flashed a green light in one respect: its 5-day Up/Down Volume ratio triggered a Whaley Thrust (named for its originator, Wayne Whaley). We will go into greater detail on this technical indicator later in the week, butsuffice it to say that it is an earlyingredient to what could ... COULD develop into Walter Deemer's "Break-Away Momentum", or BAM as we have nicknamed it.
More to come on the "Whaley Thrust" ... a silver lining in what most consider a cloudy, at best, equity environment.
UPDATE (July 27, 2010): Wayne Whaley did some extensive work on 5-day Momentum Thrusts that historically have paved the way for greater gains. He analyzed thrusts based on volume, breadth and price. His reasoning: rare yet powerful moves tend to signal that there is more to come, not that it was a 'last hurrah'.
On July 13th, the markets gave us a Whaley Volume Thrust where the 5-day upside volume versus downside volume totaled 81.36%. Anything over 77.88% is a "buy signal." However, his Whaley Breadth Thrust (5-day NYSE advances versus declines total 73.67% or greater) did not give us a signal. It peaked at 72.96% on 7/13. Ideally, we would like to see both signals, not just one of them. His Breadth Thrust is considered an early warning to the more powerful Break-Away Momentum (see first paragraph). As we write this on Tuesday, the advance/decline figures are creeping back toward a potential Whaley Breadth Thrust. We will keep you posted.
July 13, 2010 -- Cramer -vs- Cramer
Stock investors mightbe in for some rough times in the immediate future. Reason? Jim Cramer, of Mad Money on CNBC, is proclaiming that "we may have seen the lows for the year." We are being somewhat flip, but it does make us uneasy whenthe caffeinated Cramershares our viewpoint (luckily, most others do not). At the tail end of the stock market's slippery downslope in May/June, Cramer was extolling the virtues of CASH. Asbroad ashis scope of knowledge is, hisseesaw market calls are a disservice to the longterm equity investor. The best advice: turn down the volume.
As for the much ballyhooed "Death Cross"[the technical condition where the 50-day moving average has crossed down through the respective 200-day moving average], we recently wrote in our July issue of The Primary Trendthat the "Death Cross" is no more reliable than a coin toss. After sending that missive to the printer yesterday, some research crossed our desk that is worth sharing. According to Turning Point Analytics (www.turningpointanalyticsllc.com), while the "death cross" usually coincides with periods of muted stock returns, it does NOT necessarily mean negative returns. In fact, over the last 20 years, there have been 10 "death cross" occurrences resulting in an average GAIN of +4.45% one year after that supposedly bearish trigger point. Again, the technical condition of the stock market is in much better shape if we have both the 50- and 200-day moving averages moving up and the 50 is above the 200 ("golden cross"), but it is not the kiss of death when the "death cross" is triggered as it was on 7/2/10.
July 8, 2010 -- A "Down" Market
Talk of a "head & shoulders" (H&S) top, double-dip, high frequency trading and Lebron James seem to monopolize the headlines and airwaves these days. Yesterday again was a high-octane move higher off of very oversold levels of nearly 1010 on the S&P 500 (stocks gained 3% on average). The bears are getting much more play time, and for some reason, economists' opinions are in very high demand ... a very unusual development.
This market is cheap ... buttechnicals are broken down, momentum is downward, and emotions are downbeat. Cheap fundamentals doesn't necessarily translate into immediate profits but we continue to find opportunities on both the buy and sell side.
Recent portfolio changes:
We recently sold our entire position of United Technologies (UTX-$66). As a conglomerate, it continues to garner a premium P/E multiple, but we believe it could be vulnerable to $50 as estimates and/or multiples come down.
On July 1, we received 0.24 shares of Frontier Communications (FTR-$7) for each Verizon (VZ-$28) we own. Wesold that minornew position in FTR yesterday as well.
We boosted our position in Aqua America (WTR-$18) and believe that income-oriented shareholders will reap a 40-50% total return over the next 2 years.
June 15, 2010 -- Volatility Continues
Today was an up day, with the DJIA gaining over 200 points, or +2.1%, and the S&P 500 gaining 2.3%. And the Financials led, with gains of +2.9% -- very impressive. Today's rally will no doubt be another "90% UPSIDE Day", where both points gained and advancing volume were both more than 90% of the activity on the NYSE. This is a good start to a summer rally but hardly an "all clear" bulletin...fits and starts will be typical and expected as the tug-o-war between bulls and bears continues.
We leave you with an Albert Einstein quote provided by Keith McCullough of Hedgeye:
"As our circle of knowledge expands, so does the circumference of darkness surrounding it."
June 8, 2010 -- Portfolio Update
With the recent run-up in the price of gold to a new nominal ALL-TIME HIGH of 1250, we have taken profits in goldminer Newmont Mining (NEM). We continue to hold Barrick Gold (ABX) asan inflation-hedgeand crisis-hedge and wouldn't be averse to revisiting NEM in the mid-40s.
On the buy side, we have added new positions in Abbott Labs (ABT) near $45. At 10.8x 2010 EPS of $4.15 and its cheapest valuation levels in decades. ABT's 17-year average LOW P/E multiple is 16.5x ... a 50% premium to today's prices.
The markets continue to create opportunities ... on both sides of the ledger.
June 7, 2010 -- Corrective Phase
Whether one argues that the stock market is at the tail end of a corrective phase (decline of 10-15%) or in the initial innings of a bear market, it is inarguable that stock leadership isquickly changing its stripes ... what led us upduring the past year is no longer at the forefront of market strength.This is not necessarily a bad thing ... but it does require us to revisit our holdings to determine what may potentially be undervalued leaders and what may be fully-valued laggards.
Fear has certainly gripped this market and now is the driving force behind these violent daily (and sometimes intraday) moves. Greece andHungary debt problems, Euro demise, China bubble and North Korea threats; all are casting the equity markets into the shadows of the unknown and uncertain.
We continue to "harp" on the underlying strength of this market. The deterioration that is typical PRIOR to a market peak did not surface at all. But as we mentioned in a "News Flash" in our last issue of The Primary Trend, the May 6 Flash Crash could very well have been a game-changer; and in its infinite wisdom, computer-error, "fat finger" or otherwise, the market was sending a message that day.
We have been taking profits since the beginning of the year, first with Hormel Foods (HRL) and then in FedEx Corp. (FDX), Schlumberger (SLB), Walt Disney (DIS), Home Depot (HD) and most recently today in D.R. Horton (DHI) just above $11. While we may take even more profits (or losses) in holdings we identify as laggards in the next upmove, we are also currently sitting on adequate cash in order to take advantage of current stock price weakness.
Volatility, headline risk and fear will continue to rattle the major markets. Do not react to these events. Instead, look forward to capitalizing on these events and repositioning portfolios accordingly.
May 19, 2010 -- Increased Volatility
The stock market continues to react violently, both on the upside as well as the downside. This increased volatility is unnerving. We stated 2 months ago in The Primary Trend letter that during the last 12 months, theS&P 500 had experienced very few days where upside bursts exceeded 2%. This was bullish. Now, things seem to be getting a little bit more wild and woolly. Bull markets typically move up quietly while they get "noisy" on the downside. Things are getting noisier on Euro-zone concerns as we roll through May. We are monitoring the potential technical breakdown of the market very closely. A few caution flags are waving in the wind: 1) Leadership is faltering; 2) Financials are weakening; and 3) The number of stocks making New 52-week Lows exceeded New Highs on the NYSE on May 6th and 7th, only 9 days after the popular averages made a new recovery high for this bull cycle.
Home Depot (HD-$34) reported EPS yesterday that were above expectations but the company's easy comparisons are now behind them.At 18.4x our 2010 estimates of $1.90, we believe HD has realized much of its intermediate term potential. We have sold HD common this morning.
May 10,2010 -- Don't Blink
The shock to the financial system that we've experienced over the past week is very reminiscent of the meltdown during the Crash of '87. However, the markets were extremely overvalued during the 1987 run-up ... a situation that is not part of the problem today.
After a weekend where the European Central Bank (Europe's equivalent of our Fed) decided to flood the system with liquidity and at least temporarily throw a lifeline to Greece and some of the other PIIGS, European bourses are rallying hugely ... giving the U.S. stock markets a dose of upside nitro as well (+4-5% just this morning). The lesson from last week and this morning: Don't blink or you'll miss a several hundred point move in the Dow.
Michael Burke notes in his Investors Intelligence newletter this morning: "Someone once saidthe market goes up twice as often as it goes down, but when it goes down, it goes twice as fast." So true.
The S&P 500 is extremely oversold at this stage and seemed to find some support at its 200-day moving average (~1100). We reiterate, the character and color of the ensuing rally will tell us alot about whether May 6-7 was a game-changer or a painfully quick correction during the cyclical bull market ... its third such correction since the March 2009 bottom. If it is a game-changer, divergences will develop on any move to new highs. If not, this was the best 'buy on weakness' during a bull market for investors since the Asian Contagion in October 1997. We remain constructively bullish but have taken profits in a few stocks over the past month and a half [see below].
May 7, 2010 -- A Potential Game-Changer
The intraday market plunge of 1,000 Dow points yesterday, whether perpetrated by errant trades or not, is a potential game-changer for this cyclical bull market. It doesNOT mean that we are entering another bear market. But what has powered this market ahead through the thick uncertainty of the global sovereign debt crisis has been the ability of the U.S. stock market to continually exhibit solid technical underpinnings. That changed yesterday.
We believe that the correction that accelerated to the downside yesterday could bring the S&P 500 down to the 1050-1095 level on a closing basis. That equates to a decline of 10-14% ... larger than the 2 previous declines of last summer and early this year (~8-9%). At that point, the subsequent rally (yes, there will be a rally after this heart-stopping slide) will give us huge cluesto whether this is a garden variety correctionwithin a cyclical bull market or something worse thatchanged the game.
Either way, rest assured that those who were dipping their toes back into the equity waters, have fully-retreatedto the safety of their cabana.
Please visit these pages for any change in our strategy or buys/sells in the portfolio. Our latest issue of The Primary Trend investment letter is being published today. In it, we note SELLS of both Disney (DIS) @ 36 and FedEx (FDX) @ 96during April ... and we have just sold Schlumberger (SLB) this morning @ 65.
April 20, 2010 -- The Goldman Gaffe
The headline toAlan Abelson's Up and Down Wall Streetcolumn in the April 19th issue of Barron's reads: "Sad Sachs?" The SEC civil fraud case against Goldman Sachs is truly a sad development ... not necessarily for Goldman (since we believe they will eventually prevail in this case), but for the entire financial industry. Those tremors and rumbles that we hear isn't another Icelandic eruption ... it's a groundswell of regulatory legalese that might make Sarbanes-Oxley look like child's play. If the federal government is good at anything, it's the creation of a paperwork nightmare that accomplishes little.
As for the hiccup in the stock market due to the Goldman Sachs charges, we believe this is NOT another Lehman Brothers or AIG watershed event. What this news does do, however, is keep those investors who were inching their way towards the edge of the pool a reason to go back to their lounge chairs. This 'wall of worry' is still prevalent and a leading ally to the current cyclical bull market.
We have yet to come to an investment conclusion on Goldman Sachs (buy, sell, wait --- see Stock Chart above), but we feel the political staging and timing of this lawsuit has provided investors with an opportunity to accumulate other undervalued stocks at cheaper prices. Earnings season is now in full force and it appears that upside surprises on both the top and bottomline are the rule, not the exception.
April 1, 2010 -- Happy Economists Day
As Walter Deemer reminded us in his daily market letter this morning, today belongs to those statisticians who are as accurate and prone to revisions as the local weatherman.
The market is now entering the seasonal period that will garner more attention as we move through April ... "Sell in May and Go Away." We are currently crunching numbers and massaging market statistics that may actually debunk that Wall Street mantra ... stocks may surprisingly only be in the 3rd inning of the best period (in keeping withthe theme of the start of baseball season). More to come in our April issueof The Primary Trend being published next week. [Due to space constraints, we have relegated the "debunking" until the May issue, to be published the week of May 3rd]
Have a Blessed Easter holiday weekend!!
March 31, 2010 -- Window Dressing
Many professional investors are relieved that this first quarter of 2010 is over and done. Not because it was a terrible first quarter (as was the 2009 quarter), but because the cyclical bull market has flexed its muscles recently, leaving many of those same investors underinvested and scratching their heads.
All major indices not only posted gains of anywhere from +4% to +9% for the first 3 months of this year, but this is also the fourth quarter in a row that the markets have made upward progress. For Q1, the blue chipDow Jones Industrial Average closed 4.1% higher at 10,856.63, and the S&P 500 Index closed with a gain of 4.9% at 1169.43. Smaller caps were the star performers as the Value Line Arithmetic Average and Russell 2000 Index posted gains of 9.7% and 8.5%, respectively.
The second quarter should be interesting as the bearish/underinvested crowd decides when to jump aboard the bandwagon ... rest assured, that is when we will get off (or at least takesome profits and get defensive). But that could be several months away.
As we've reiterated many times in our monthly The Primary Trend investment letter, this market is in gear to the upside and currently shows no signs of deterioration or exhaustion. We may experience some bouts of profit-taking, to the tune of 7-10% corrections suchas we had in early summer of 2009 and again in January of this year, but that is considered normal in a cyclical bull market.
We continue to look for warning signs but they have yet to surface.
March 23, 2010 --March Madness
The adrenaline rush that we feel here in March isn't just from a perfect NCAA bracket, but the cyclical bull that has reasserted itself on Wall Street recently. Since the early February bottom (1044.50) to today's recent intraday high of nearly 1170, the S&P 500 Index has jumped +12%. The DJIA has also made a new recovery high above 10,800. This follows on the heels of a market correction of nearly 10% that many on Wall Street thought would unravel into another bear market plunge. Oh, how the market loves to confound the majority!
This is a stock market that is in gear: divergences are few, the majority of major indices are marching in lockstep, and skepticism abounds with each new advance. The chart we picture below is indicative of the underlying strength that is prevalent in today's equity market ... the Advance/Decline Indicator is making ALL-TIME HIGHS, not just recovery highs. This indicator almost always shows deterioration well ahead of the market indices. The fact that it is powering ahead to new highs and exhibiting greater strength than the popular averages is screaming BULL.
We are on the hunt for signs of deterioration, divergences and non-confirmations, but thus far, they are few and far between.
December 18, 2009 -- A Whitney Buy Signal?
Meredith Whitney, as an Oppenheimer banking analyst, made her name in 2007-08 by correctly being bearish onCitigroup specifically and banks and the ensuing financial quagmire in general. She has sinceleft Oppenheimerin early '09 to form her own research outfit, Meredith Whitney Advisory Group. She has remained bearish on financials throughout 2009 and is now beating that drum loudly again on CNBC.
The reason we bring this up is that Meredith Whitney, if she is anything, is a very polished self-promoter. And she seems to be garneringattention just asprevious "rock star" analysts of Wall Street: Henry Blodget of Merrill Lynch and Mary Meeker of Morgan Stanley. The difference being thatthose analysts became "rock stars" for touting the dot.com stocks in 1999/2000 and remaining bullish all the way down. In other words, they started to believe their own success was enough tomove the sector....and more importantly, the public treated their views as gospel.
We just wonder if Ms. Whitney and her Pied Piper status might be going down the same path, wherestardom trumps analysis. Might banks actuallyoutperform in 2010?
December 7, 2009--Never Forget
On this day 68 years ago, the United States came under attack at Pearl Harbor. We must remember and pray for our military personnel who serve around the globe in order to protect our shores and our freedom. God bless them!
On a stock market note: the Dow Jones Transportation Average achieved a new cyclical recovery high on Friday (12/4/09), closing above 4100 for the first time since October 2008. This is a short-term positive for3 reasons: 1) The DJTA broke through a triple top formation that has held the index in check since mid-September; 2) The DJTA typically leads the Dow Jones Industrial Average; and 3)This move by the DJTA now confirms the move by the DJIA to new recovery highs ... andinso doing, confirms the continuation of the Dow Theory BULLish Indicator.
December 2, 2009 -- Santa Claus Rally?
The "pause that refreshes" may be exerting itself on Wall Street over the past few months. Many pundits are crying that the lack of upside volume and progress is a precursor to a decline. One contrary take on this development: after gaining anywhere from 50-60% off the March lows, the market could be potentially refueling and storing up some calories forwhat could be a very merry rally into year-end.
Some very short-term negative non-confirmations are definitely surfacing in the current market environment, however:
We will keep abreast of these dichotomies, especially if there is further deterioration, but all of these minor and very short-termdivergences can be corrected in a heartbeat.
Investors (as measured by mutual fund investors) are still pulling $ out of U.S. equity funds and plowing $ into bond funds ... a sign that skepticism abounds (a good thing!). We are one month into the best 6-month seasonal period for stocks. Historically low interest rates continue to grease the skids.
Unemployment at 10.2%, Dubai World in default, and cash-strapped consumers have yet to derail this market. Fear of missing the boat could be the fuel for the next rally.
June 26, 2009 -- Moving Day!
A little reminder that our offices are in the midst of transitioning fromour downtown Milwaukee locationto our new home in Delafield, WI (a suburb 20 miles west). After 31 long years in the First Financial Centre (renamed Associated Bank building), it is a bitter-sweet departure, but we are very excited about our next chapter.
Due to the move/disruption, phone service may be "out" on Friday, June 26, but you can reach us on our cell @ 262.617.3306. Our new office phone number is 262.303.4850 and will be operable starting on Monday. Our toll-free number remains unchanged@ 800.443.6544.
New Address: (see top right corner)
Thanks for your patience during our move!
June 24, 2009 --Testing The Golden Cross
The stock market (asmeasured by the S&P 500 Index) is at a critical juncture in the intermediate-term. [As a side note, the short-term direction of the stock market is for folly and the long-term direction is up.] The 50-day moving average (899.36) has moved up through the still down sloping 200-day moving average (899.03) ... a developing positive. But as of yesterday's close of 895.10, the price has dropped down below both moving averages. It is important for the S&P 500 to bounce off of this 3-way intersection near 900 ... and thus far this morning, it is rallying back up to the 910 level.
Quote for Today
"As part of my research process, I connect with the management teams of 3 or 4 companies every week to try to gauge how business is tracking. I have yet to find one that will tell me that the trends are getting better. President Obama is correct to say that 'the American people have a right to feel like this is a tough time right now', because it is [a tough time]. The 32% move from the March 9th low has allowed consumers to be more optimistic than the facts alone would justify. I feel much better now that the President has given me permission to feel like crap!"
--- Howard Penney, Managing Director of ResearchEdge LLC
[It seems Big Brother is in charge of many things these days, to include emotions.No doubt, we can look forward toa forthcoming tax on those as well.]
June 15, 2009 -- The Golden Cross
In recent issues of The Primary Trend, we have outlined the bullish signs that the market has been flashing (we would use the term "green shoots" if it wasn't so overused and nauseating). These, of course, are technical positives which typically lead anything positive on the fundamental or news front:
As you can see, there are many indicators screaming BUY ... indicators that are long-term innature and not commonplace.
Happy 30th Birthday, TPT!!!
The Primary Trend investor letterjust turned30 years old. We thank our loyal subscribers, clientsand shareholders in the Primary Trend Fund for making it a successful and long-lasting publication!
In honor, we have provided an excerpt from the headline page of the very first issue of The Primary Trend letter. At the time, bearishness prevailed and the DJIA closedat 856.64 that week ... one-tenth the level of where it trades today.
We will be publishing TPT issue#494 next week ... again, thank you!
April 27, 1979 -- It's A Bull Market!
For investors the most important(and hence potentially most profitable) information they can possess is the direction of the primary trend of the market. We have so named this publication to emphasize theimportance we attach to the proper determination of the primary, major, or long-term market trend.
The 1974 lows terminated a major bearish cycle dating from February 1966 on the DJIA.
The 1974 lows will not be approached, much less exceeded, in the foreseeable future.
The primary trend of the market is bullish, and has been since early 1978.
The overall market is cheap when measured by historical benchmarks of value.
That because of the foregoing, the popular averages will sell at substantially higher levels over the next several years.
Potpourri excerpt from Issue #1 (called 'Nuggets & Nonsense' back then...funny how some things never change):
Jimmy Carter, please note:
"It is asocialist idea that making profits is a vice; I consider the real vice is making losses."
--- Winston Churchill
April 16, 2009 -- Horton Hears a... What?
D.R. Horton actually heard some bullish news yesterday when the National Association of Home Builders announced that sentiment in April rose toits highest level since last October. This is nothing more than what Larry Kudlow of CNBC likes to refer to as a "mustard seed" --- something that can sow the seeds for future improvement. DHI rose by +8.2% in Wednesday's market action ... even in the face of a Stifel Nicolaus brokerage initiation of the stock with a SELL rating. Finally, stocks are ignoring bad news. We are buyers of DHI common on dips below 10. Technically, the stock is carving out a strong base from which to launch its next bullish move. Both the 50- and 200-day moving averages are converging at the$9 level where we would add significantly to positions. The $9 area also hasfloor support from an upward trendline connecting the lows of November, January and March. Also, please see "Featured Chart"section for a Breadth Thrust update.
April 15, 2009 -- The Tax Man Cometh
On a day like today, when root canal feels more pleasurable than the IRS shakedown, we would like to sharewith our shareholders and investors 2 timely and positive developments:
1) Dan Sullivan ofThe Chartist has turned somewhat bullish as of yesterday'smarket close. He is advising to get 50% invested. While his investment m.o. differs from our value-oriented philosophy (he typically invests in momentum/high relative strength stocks), wehold him in high regard as an experienced investor.
2) Investors Intelligence reported in today's issue:
"The bulls advanced to 43.2% ... the bears fell to 34.1% ... The bulls now outnumber the bears for the first time in 12 weeks. Over the past year the bulls have outnumbered the bears for only 3 periods. There were more bulls for 8 weeks in a row from 4/18/08 to 6/6/08, for one week at 8/15/08 and for 3 weeks from 1/2/09 to 1/16/09. Each of those periods occurred near the peak of a bear market rally and they proved to be great times to sell. WE SUSPECT WE MAY BE AT, OR NEAR, THE END OF THE BEAR MARKET so the markets and sentiment may react differently." [all-caps emphasis by us]
April 14, 2009 -- BULLS 1, BEARS 0
One of the biggest allies to the current rally in the stock market has occurred without alot of fanfare: the relaxation of mark-to-marketaccounting rules. This is a boon for banks.
We've been hoping for some sanity to enter the realm of finance and it looks like FASB has finally succumbed to thepressures of reason.
As Matthew Philips of Newsweek recently reported:
"To most people, it's an arcane accounting rule. But to bankers, it's the whole ballgame: "mark-to-market" pricing is the practice of requiring banks to value their assets based on their current market value. Not what banks paidfor those assets yesterday. Not for what they could get for them in, say, ayear or two when the financial industry has settled down. What they could get right now. Which is basically bubkes. Banks have been pleading for this requirement to be lifted since the credit crisisbegan, and last week they got their wish ... the FASBcaved and voted to loosen the rule ... Banks can now use "significant judgment" to valueassets."
This change in the financial landscape will do more togrease the skids of the national lending mechanism than cutting interest rates had tried to do (and failed) or TARP funds have yet to do.
This is not a panacea. However, it lays the groundwork for 'normalcy' ... and more importantly, it eliminates the spectre of uncertainty that has shrouded the U.S. banking system and stock market since last September.
This has culminated in the best rally yet since the market peaked in October 2007 ... a rally of nearly 30% in the S&P 500 Index since the March6 intraday lows.As outlined in the most recent issue of The Primary Trend letter (published 4/9/09), we have taken somechips off of the table due to the "too far, too fast" bull move. We sold Allstate (ALL), KB Home (KBH), and most recently, Citigroup (C) on its blistering short-covering surge.
Feb. 13, 2009 -- Looking for Strength
In the current equity environment, it is extremely difficult to find leadership of any kind. Stock market leadership, when it surfaces (healthcare is trying to take the baton), will also be a harbinger of a cyclical bull rally.
What is of great interest, however, is the chart below of Energy stocks and their relative performance vs. the price of crude oil. The fact that energy stocks (top portion) are basing in the face of declining oil prices is good news.
According to Walter Deemer of Deemer Technical Research: "...the SPDRs stubborn failure to go down in the face of the relentless decline in the crude price since October could well be trying to tell us something." What it's trying to tell us is that either energy stocks will go up on their own accord, or oil is about to climb which will propel those stocks higher as well. Our favorites in this group are BP plc (BP), Schlumberger (SLB) and Valero Energy (VLO).
Feb. 10, 2009 --FUD~ Part 2
New Treasury Secretary Tim Geithner came to the podium today and did absolutely nothing to squelch the uncertainty that exists in the financial markets. Details of the new "Banking Fix" were non-existent and the stock market is in the midst of selling off on this lack of clarity from the new Administration. The DJIA is down 400 points, erasing all of its early-February gains.
It's tough to swallow the growing pains of President Obama and his colleagues, but their "baptism by fire" was not by choice. We believe this is all still part of the bottoming process in the stock market. The climactic lows of November 20 have still not been surpassed in price or severity: 1) new lows have contracted considerably; 2) volume has shrunk; and 3) the breadth of the market has improved, especially in light of the recent profit-taking in the first 6 weeks of the year.
Not Half Bad ... The Primary Trend Fund did not escape the carnage that occurred in the last six months of 2008. The S&P 500 Index dropped nearly -29%, and your Fund was down about half that. But we've been entrusted by you to make money ... not lose less than the market.
We believe 2009 will be challenging, but bullish. The headline news will get worse, but we feel that stock prices, the ultimate leading indicator, will signal a recovery well ahead of the headlines. And we believe that signal is part of this bottoming process that started duringthe early-October swoon.
Dec. 10, 2008 -- The Valley of FUD
As Vinny CatalanoofBlue Marble Research recently mentioned, the stock market may have finally turned thepsychology corner. Looking passed the valley of FUD (fear, uncertainty and doubt) to the other sideis all part of the healing process that we wrote about on Monday (see below). But there will be more FUD where that came from ... extreme FUD that will resurface as the market tests the 11/21/08 lowsof 7500 on the DJIA and 740 on the S&P 500 (but we believea SUCCESSFUL test).
NEW BUY (see "Featured Chart" section)
Dec. 8, 2008 -- Pink Slips = Green Light
Apparently job losses totaling 533,000 for the month of November is just what the doctor ordered to get the stock market out of bed.
We say that somewhat facetiously, of course, but the truth of the matter is that those horrendous jobs figures released by the Labor Dept. on Friday pushed the stock market lower by nearly 260 points (as measured by the DJIA) in the first hour of trading, only to see stocks rebound the rest of the day. These were the worst monthly job losses since December 1974 -- AND -- the DJIA closed more than 500 points above its intra-day lows.
Typically, these economic releases have little emphasis in our analysis of the equity markets.For one, they are short-term in nature. And secondly, government statistics arebackward-looking and fraught with revisions. However, when the stock market's tendency in 2008 has been to go down on good news and go down even more on bad news, it is quite illuminating when it rallies on bleak news headlines that haven't been seen since the severe recession of 1973-74.
The economic numbers will get worse ... we can almost guarantee it. But they always do ... even as stocks move higher. Friday's reaction is a positive sign in a market groping for a bottom. Recession is officially here (we've been saying that for 8 months). A cyclical bull market is being born. More upside action to bad news will be good news for the bullish case. Volatility will be commonplace as a legitimate bottoming process takes hold.
Nov. 26, 2008 -- A Turkey of a Market
Despite the bear market that has ravaged portfolios and tasered the American spirit, we do have much to be thankful for as we enter the 2008 holiday season. Travel safely and enjoy the company of family and friends. Happy Thanksgiving from The Primary Trend Fund and Arnold Investment Counsel.
As for the stock market, we are getting a little bit of a reprieve after the sell-off last week. We did say in our 11/13/08 entry below that new price lows can be expected ... we just didn't expect it to hit so quickly. There is a silver lining, however ... the internals did hold strong as the chart shows: stocks hitting new 52-week lows only totaled 1894 on 11/20/08. This compares to a whopping 2901 new lows registered on 10/10/08 despite the market being down an additional 100 points on the S&P 500, or -11.8%, since then.
We have just entered the seasonally strong 6-month period (Nov. thru Apr.) and Wall Street has enjoyed Santa Claus Rallies in the past.
We all are aware of the negatives that are on the table -- recession, bailouts, autos, banks, housing and unemployment. But we remind our shareholders that the market is 50% off of its highs of last year for those very reasons. More importantly, less obvious positives are developing under the surface: insider buying has mushroomed to levels not seen in 30 years (according to InsiderScore.com); investor sentiment is still overwhelmingly negative (a contrarian positive); technicals are trying to carve out a bottom; valuations are historically CHEAP; and the Fed is pumping the system with liquidity. We are searching for the new stock market leadership that will propel the market higher in 2009 ... and so too, your investment in the Fund.
Nov. 13, 2008 -- WOW! ... +11.3%
Nothing surprises us anymore these days on Wall Street. When the populist choice for President, Barack Obama, paraded his team of economic advisers onto the stage last week, the stock market continued its downward spiral. When President Bush, with an approval rating lower than his hat size, addresses the sad state of the economy today, the market reverses course and rallies nearly 900 points on the Dow.
As the chart below of the S&P 500 Index shows, today's intraday rally was huge. Technical support, and investor spirits, were completely broken this morning. As we mentioned in this month's Primary Trend investment letter (mailed earlier this week), we may breach the October 10th intraday lows in terms of price, but the all-important internals (technical underpinnings) are NOT likely to confirm those price lows --- a would-be BULLISH development. To us, this latest re-test of the October lows and subsequent +11.3% upside surge is just another building block to a stronger, longer term foundation from which to launch a cyclical bull market.
Oct. 30, 2008 -- Mortgage Crisis101
M. Jay Wells does a fantastic job in today's headline story in Investor's Business Daily touncover the petrie dish that is the U.S. housingcrisis. His timeline formatis simple to absorb, yet complete in its unveiling of the cast of characters over the decades. It is a long read, butin our estimation, worthy of the investment of time.Click on the link below...
Oct. 29, 2008-- Sweet November
We are fast-approaching a period that has been rewarding for investors ... the 6 months from November thru April. The brutal October 2008 (see chart below) is at least being put to bed, and that, in and of itself, is a victory for investors. More on the "Seasonal Upswing" in the November issue of :
The Primary Trend
[to be published next week].
Oct. 24, 2008 -- Enough Already!
[please see our "featured chart" section]
Oct. 17, 2008 -- New York Times (editorial)
"...bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price."
--- Warren Buffett
Oct. 16, 2008 -- Quote of the Day
"Men go mad in herds while they only recover their senses slowly, and one by one."
[from Charles Mackay's book, ExtraordinaryPopular Delusions and the Madness of Crowds, 1841]
Oct. 15, 2008 -- TESTING PROCESS
Never pretty, but often profitable. We have reached extremely, extremely oversold levels.The S&P 500 Index reached 840 and the DJIA hit 7900 last Friday (10/10/08), before reversing. We are now testing those lows as we "speak." Historically, climactic sell-off lows that "kill the bear" test those lows within 3-4 days of the initial low and again within 3-4 weeks and then 3-4 months. Unfortunately, those tests can be even more emotionally traumatic for investors --- a deja vu/"here we go again" feeling that keeps investors on the sidelines...or worse, compels them to pull more money OUT. That appears to be the case these days as mutual fund redemptions are surging, joining the hedge fund bandwagon.
These are difficult and trying times, to be sure ... and even moreso if you are an investor trying to put some of that dry powder to work in the equity markets as we are trying to do these days. But we believe it is prudent to be "shopping" now. As the old saying goes: "Wall Street is the only place where, when they put merchandise on sale, the customers flee the store."
The S&P 500 is cheaper by 40% in terms of price since the highs reached last year. It is a little bit more difficult to discern valuations based on P/E multiples since the "E" is no doubt a moving target downward. HOWEVER, historically, we are at levels that are in the bottom 20% of the bargain bin.
Indiscriminate selling ("throwing the baby out with the bathwater") is typically the hallmark of final bear stages, not the beginning. Many great companies have now become good investments. At the end of September, we stated: "Amidst chaos lies opportunity. We will no doubt get both in October." Well, here we are ...
Below are some of the salient points of The Primary Trend Fund (ticker: PTFDX):
All of us at Arnold Investment Counsel and The Primary Trend Fund look forward to serving your investment needs and exceeding your expectations.
The Primary Trend Fund is now available to broker/dealers and advisers on the NSCC platform.
We are also registered in all 50 states and Puerto Rico.
Please contact us at (800) 443-6544 if you are interested in listing us on your platform!
The Primary Trend Fund is offered to United States residents, and information on this site is intended only for such persons. Nothing on this website should be considered a solicitation to buy or an offer to sell shares of the Primary Trend Fund in any jurisdiction where the offer or solicitation would be unlawful under the securities laws of such jurisdiction.
Please refer to the prospectus for important information about the investment company including objectives, risks, charges, and expenses. Read it carefully before investing. You may also obtain a hard copy of the prospectus by calling (800) 443-6544.
While the Primary Trend Fund is a no-load mutual fund, management fees and other expenses still apply. Please refer to the prospectus for further details.
Mutual fund investing involves risk. Principal loss is possible.
All rights reserved.