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It has been a while since I offered my stock pick newsletter, but I have now gone one better with my latest mechanical Trading System

  • 41% Return Since November 2007
  • 47% Win Percentage (Nov 07)
  • Max drawdown of 9% (Nov 07)
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  • $0.00 per month
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  • The strategy is called "ETF Heaven - Medium" and was created by user "Z_Strategy"
  • Other strategies can be found by searching for component stocks in our MarketPlace or by searching for a user; 'Z_Strategy' or 'fallond'
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    Tuesday, February 26, 2008

    Volatility and Zig Zag

    There was an interesting relationship between profitable long trades in the S&P and the Zig-Zag indicator applied to the VIX. Over the past 10 years there have been 4 periods when a trade initiated at turns in the Zig-Zag indicator have turned profitable long trades - with no failures. The 'buy' side Zig-Zag signal has matched reaction lows in the S&P very nicely. The 'sell' side Zig-Zag signal has been a little early, although during the 2000-2003 Bear market it gave a perfect signal.

    However, one thing which has been consistent across 'sell' signals has been a lower 50-day MA compared to the 200-day MA. In the current market, this would approximate to another 6-months of VIX weakness/sideways action (and higher market prices). In terms of S&P returns it could be anything from 15-50% depending on market conditions (likely the lower end of this range for a bear market). Does this rank as another tick in the bull column?




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    Friday, February 15, 2008

    Top 3 Dividend Stocks

    I ran a quick scan for dividend paying stocks on MSN Screener with the following parameters:

  • Current Dividend Yield >= 5%
  • Market Capitalization >= 100,000,000
  • Div Yield: 5-year average >= 5%
  • EPS growth YTD vs YTD >= 25%
  • EPS growth Qtr vs Qtr >= 15%
  • Return on Equity >= 17%

    The screener returned eleven stocks; best of the bunch were

    [1] Terra Nitrogen Co. LP (TNH): This has the added advantage of belonging to Agricultural Chemicals, ranked strongest sector according to Barchart.com. The weekly chart is looking tired with falling volume on new highs combined with a bearish divergence in the MACD trigger line. Should the stock trade inside a $72-$126 range it would be an attractive dollar-cost-average candidate. Those looking to pick a single entry price should look to the Fibonacci levels: $103.71, $106.66, $114.92 and/or the 50-day MA. Re-invest the somewhat erratic dividend and this could be a great long term hold as commodities (and their associated stocks) tend to enjoy longer bullish environments than is typical (commodity bull markets can last up to 35 years).




    [2] National Health Investors (NHI) is a Healthcare facilities REIT. Unlike Terra Nitrogen it is undergoing a much more sedate consolidation, with good supporting strength in the technicals. There is no dividend chart (Yahoo didn't offer one???), but as one can see from its historical payout it doesn't disappoint. Go long on a break from the consolidation triangle.



    [3] W.P. Carey and Co (WPC) is in the area of Property Managemnent and has seen steady growth in its dividend. Technically, it is the weakest of the three picks with a clear bearish divergence in the MACD trigger line, combined with a distribution trend in on-balance-volume (associated with new price highs - not good). Best to wait for this to fall back into the clutches of Fibonacci retracement before taking the plunge. Provides value in the $26.50-$30.00 range.



    There were two other honorable mentions on the scan: Southern Peru Copper (PCU) is a stock I hold in my dollar-cost-average account because of its great dividend (its sharp price rise has been a bonus). I have talked about this back in June and April of last year so no need to go on about it again. The other stock of potential interest was Lloyds TSB ADR (LYG) which has seen a 40% trim off its 2007 highs and is only a few dollars off its 2006 lows. When big names like this languish in the dump you should whip out your wallet out and start buying little bits at a time. Dollar cost average over the next 12-18 months and you will be holding this at a very nice price.

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    Thursday, January 24, 2008

    Buyers range established

    The last two days have seen tweezer bottoms in large cap indices, a bullish piercing pattern in the Nasdaq 100, and a (somewhat) bullish engulfing pattern in the Nasdaq. But my favorite, the semicondutor index, refused to buckle in the face of broad market selling over the last week - although it would be hard pushed to shed more than it has already. Wednesday's bullish hammer is the icing on the cake. Watch for a fresh MACD trigger 'buy' (but well below the bullish zero line, a weak signal) as other technicals improve:


    The Semiconductor index has a Point-n-Figure chart target of 260 (which would amount to a 50%+ decline from its 2007 highs!). To negate this target the index would need to muster an upside breakout, with 364 likely to define such a threshold.


    The technology sector is one of the first to push higher from a recessionary environment. Chips should lead other technology based sectors. For the purpose of disclosure I am long some deep-in-the-money calls on the Semiconductor HOLDRs (SMH) with the intention of taking some money off the table on a test of the 50-day MA.

    As for other indices, use the 2-day range and apply Fibonacci retracements. If looking to buy then split orders to cover fills on the 38%, 50% and 62% retracement, adding on a break of the 2-day high when further retracements appear unlikely. Stops go on a 1% break of 2-day lows.

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    Thursday, January 17, 2008

    Buy or Sell?

    In my newsletter you will see an overall 'Market Health' rating for the current month which is either Bullish/Buy or Bearish/Sell. I base this rating on the state of the market internals (Bullish percents, % stocks above key moving averages, and the Summation Index) and the relative position of the markets with respect to support and resistance on yearly charts. The chart below shows my respective calls since January 2006 for each of the months that followed:



    It has been a mixed bag with a nice call on 2006 lows, but a missed opportunity on the early 2007 rally. I have remained bullish for December and January as I believe the market is offering discount opportunities for the next rally, particulary in Blue Chip stocks (with Energy perhaps the only sector somewhat overvalued).

    Looking back at the Nasdaq over the last 10 years there are some interesting observations to be made:


    The longest losing strength for the Nasdaq was a 6 month period in 2002, which led to the absolute low for the current cyclical bull market. The largest % loss came from a 4-month stretch in 2000. During the cyclical bull market there were two periods of 4-month losses in 2005 and 2006, but in each case those losses were recouped.

    If markets are entering a cyclical bear phase (which they look like they are) then the probabilty for a complete retracement of the past 3 months declines is reduced, but assuming a Fibonacci retracement there is still good opportunity for long side positions. In situations where the Nasdaq has experienced 3 months of declines, the fourth month has seen a gain on 2 occasions and losses on 4 - so the odds favor a down February. However, January's broad red candlestick looks like a bargain, the question is whether it would be better to wait until February before getting real aggressive, or take advantage now assuming the market will gain some ground back before the month is out.

    Dollar-cost-averaging over the next few weeks would make timing such a bottom less of an issue.

    But the big question will be knowing when it will become necessary to sell? During the bear market of 2000-2003 monthly bounces were few and far between. If you got longer than a month of gains you were doing well. Selling in May and going away could be the lesson of this year. We'll know more about that when the January 2009 annual review rolls around!

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