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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 12/18/2006 & 12/25/2006: We're closing out 2006 with a nice return on lots of fronts. It's not been a year that was easy to understand. We had interest rate worries along with increasing energy prices, inflation pressures and at the same time some less optimistic activity in the U.S. housing market. Well, as long as we get to do some buying in weaker times and some selling in the better ones, we shouldn't complain. The range of the indexes was large enough to generate some AIM directed trades for those using index funds. Individual stock performance was, well, individual!
So, as we close out another year we see that the i-Wave kept us cautious during the early part of the year, gave us some relief mid-year with a nice retrenchment only to head back toward the cautious end of things by years end. Could we ask it for anything more during such a period? I guess we could ask, but it can only deliver what it senses in the market place. This wasn't a year to hock the house and buy stocks. It also wasn't a year to panic and unload everything to protect ourselves from a tragedy. I think we all would have liked to have had more amplitude on our price motions. I think we all would have felt a bit more comfort if Value Line's P/E hadn't spent so much time in Nose Bleed territory. But, with AIM guiding our trading hand and the i-Wave giving us some guidance as to reserve levels we all seem to have done just fine.
Congratulations on getting through another market year with profits - both realized and unrealized. That puts us ahead of many individual investors all by itself. That we made money while "hedged" with reasonable cash in reserve says all the more for our fiduciary abilities.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
We still need either interest rates to ease or P/E to drop (or both) to get this measure back to more normal levels.
I've become interested in an idea relative to what is pushing the markets ever higher with such a broad effort. Last week there were 1312 New 52 Week Highs and only 98 New Lows when we add up the NYSE and NASDAQ totals. Could it be the massive number of "Index Funds" that is driving this? Index funds buy stocks because they're part of the "index" not on any selective basis. So, these index funds are buying the "bad" along with the "good." This allows for very little differentiation based upon company performance. The Index Phenomenon is also helping me to understand such a broad move without seeing a spike in Speculation.
I'm going to be reviewing the data for the Speculation component from around 2000 to present and see if there's a difference from historical norms. If measurable I might adjust the bullish and bearish cross-overs to account for the change.
The Divergence component is bullish (but also the most fickle of the components) for now indicating that a large majority of market participants are feeling certain about the market direction being "up." We'll keep our eyes open here and weigh the most fickle component against the least. My concern is that we'll see the opposite of the usual "January Effect" this year. With the best of this economic cycle's earnings growth behind us it might not be very pretty during reporting season in the first quarter of 2007.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
In my personal taxable and retirement accounts I've not done anything as drastic. Those accounts are run with AIM as the primary manager and they already reflect conservative equity/cash allocations generated during the last three years of bullish environment. The alumni account has AIM as a micro manager and the i-Wave as a macro overlay. This is the third time the macro i-Wave overlay has shifted the assets to being all cash and bond funds. By avoiding several back-steps we've been able to move forward successfully without a lot of risk.
It is my belief that while Speculation isn't measurably bearish at this time, other non-measurable aspects of it may cause the stock market to become unsettled sometime after the first of the new year. 0 to 20 is its normal range and it's currently at 17.6. So, still technically Neutral, but rising toward bearish levels even without adding in what has been happening with "private equity placement."
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Relative Valuation remains the source of the high IW readings again this week. In my own account I've been getting Sell signals in Financial Services in the ETF from IShares, IYG. IYW, the Technology index ETF is also nearing its own Sell point. While still about 5% away from a sale, the Biotechnology Index fund, IBB, is also getting close.
I ended my Sun Microsystems ownership. It was my first attempt to run a "real time" LD-AIM investment.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
It doesn't appear there is huge downside risk, just that the upside potential is again looking very limited. So, if your cash reserves are adequate, at least you should be earning in excess of 4% in a premium money market account on that portion of your holdings. If your "growth" stocks don't grow, that's okay if the yield on the cash is okay. For your "income" components, be content to collect the dividends and add them to your cash reserves if possible.
If we see a repeat of the correction we had earlier in the year from high Relative Valuation, we'll get an opportunity to re-deploy the cash soon enough. I hear a lot about the seasonality of this time of year. Generally Sept and Oct are not the best months. Generally Nov, Dec. and January are pretty good. This year Sept and October were rather generous. How will this affect Nov., Dec. and January? Gosh, wouldn't it be nice to know in advance? The i-Wave is telling us not to expect that much more from the broad indexes. Many market prognosticators are saying we're going to have a couple of great months in the Technology sector and some other areas. So, maybe we'll "rotate" our way past a correction. A broadly diversified portfolio should, then, have some good areas while others might languish a bit. This is what makes Sector Specific AIMing such a treat.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
The problem we had with Relative Valuation earlier in the year has come back to Haunt us again this Halloween. High P/E even with moderate short term interest rates creates a ceiling that restricts the markets' advances.
Something else that I have seen before, but never quantified is occurring. The NYSE is moving strongly ahead while the NASDAQ advances with less vigor. Advance/Decline on the NASDAQ was 17 up for every 15 down while on the NYSE it was 24 up for every 11 down. This shows up again in the 52 Week New Highs/Lows with the NASDAQ showing 389 new highs with 107 new lows. The NYSE shows 733 new highs and just 29 new lows. So there's more churning going on at NASDAQ than at the NYSE. As I said, I've seen this "three letter vs four letter" ticker divergence before. I can't predict where this will lead, but it does show a schism that for now is unresolved.
Speculation has been building slowly from the bullish signals of last Summer. While still not Bearish, the rise is being noted. Divergence a week ago was actually Bullish but has returned to Neutral this week. So with only two of the six components Bearish it may seem a stretch to call the overall markets High Risk. While not as strong a warning as if we had multiple components bearish, it is well to heed the signal. Like last Summer, it might end up being that there's just not that much Upside left, not that there's massive Downside looming.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
So, with a bit of a mixed picture, I don't think the i-Wave is giving us much to go on. It seems to be telling us that the Bears have gone on holiday and only the Bulls remain. At the same time it's telling us that the markets are pricy and over-bought. Personally I'm more comfortable when there's plenty of skeptical Bears around. The last week it seems that only members of the Optimist Club have been allowed on Wall Street.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
In recent weeks six of the PIC List Stocks have tripped sales with a few more near that point. APCC, KSS, CHS, CHUX, HELE, and MTW all have shown good recent strength. The PIC stocks seem to move with high correlation to the general markets. An example would be:
However you go about picking your stocks and/or funds AIM is going to do the best job it can at attempting to equal Mr. Buynhold, but do it at considerably less risk. In CHUX's case this is shown quite nicely.
While the larger cap i-Wave is a bit more relaxed, the smaller cap still is showing signs of being over-bought. The overall market seems to be having its own festival right now. Last week there were 4860 stocks advancing on the NYSE and NASDAQ with just 1916 declining. New 52 week highs equalled 944 stocks while new 52 week lows were only 141 stocks (NYSE and NASDAQ combined). The band's going to take a break sometime and we'll have to see who's still up and dancing. Maybe we've finally put the Ghost of October 19th, 1987 out of our thoughts. Maybe Halloween is yet to come!
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
First if we're investing in individual stocks we need to know which of these major business sectors are represented by our holdings. If we're investing in business sector funds it's easier to identify. Next we need to think about where in the economic cycle we are. This may not be easy as there's opinions everywhere and no two will be the same. Well, is it possible that the markets will help us identify where we are rather than our guessing?
This profile of the ten major market sectors would indicate that we're passing the market peak and heading for a correction. Energy has at least temporarily softened, Staples, Utilities, Services (including Healthcare and therefore, Biotech) and Finance are reasonably strong and even Technology and Consumer Cyclicals are showing strength. So while the indexes are reaching for recovery highs it might be that they are being carried on a wave of earnings that represent the recent past and not the future. So does this next modified graphic show better where we are in the cycle today?
So, it would appear for AIM Users we should be getting some Sell Signals in Healthcare, Utilities, Financials and might expect to see some in Consumer Cyclicals, Technology and Telecomm going forward over the next quarter. I have a full palet of both buy and sell limit orders in place should this rotational pattern continue to sweep along its path. Sector rotation and AIMing take on more of a trend following nature rather than pure "volatility capture." Roller Coasters are only scary if they go off track. With AIM as our rails, we should remain on course through these rotations and reach our goals.
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Large Cap. iWave 
Suggested Cash Reserve For New AIM Accounts Using:
Small Cap. Funds (Diversified)________33% Up 1 - Over Bought IWSC Risk Oscillator____________________"+3" - Rising Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
So, with another quarter of good earnings reports, we should be able to maintain the indexes where they are. We might even see some advance before the end of the year assuming great reports. My crystal ball is a bit fuzzy about what we might expect in earnings starting in 2007, so we'll have to wait until the i-Wave comes into better focus.
Speculation remains moderate in both the larger and smaller cap stocks for now. After the strong bullish signals we had in the summer months we can hope for a bit more rally before we run into the dreaded valuation ceiling again.
My retirement account has hit another all time high since changing its structure in September of 2002.
The cash position needs some work to bring it back down to more rational levels. If the market doesn't offer a method, I'll "rebalance" sometime when the i-Wave is giving us a lower risk reading than now. I've noticed this year that we're beginning to see a bit more separation of the sectors in the retirement account and in the general market. It seems that Sector Rotation is beginning to show again:
This should help provide a bit more trading as the sectors differentiate a bit more.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______49% Up 4 - Average Risk Stock Mutual Funds (Diversified)________33% Up 3 - Average Risk IW Risk Oscillator____________________"+6" - Rising Risk
Small Cap. Funds (Diversified)________32% Up 1 - Average Risk IWSC Risk Oscillator____________________"+4" - Rising Risk
iWave Large Cap Components:
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______45% Up 3 - Average Risk Stock Mutual Funds (Diversified)________30% Up 2 - Average Risk IW Risk Oscillator____________________"+3" - Rising Risk
Small Cap. Funds (Diversified)________31% Down 4 - Average Risk IWSC Risk Oscillator____________________"+1" - Rising Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Market risk is starting to track back up with the market indexes. It appears that the ceiling isn't that far off in the distance.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______45% Up 1 - Average Risk Stock Mutual Funds (Diversified)________30% Up 1 - Average Risk IW Risk Oscillator____________________"0.0" - Steady Risk
Small Cap. Funds (Diversified)________36% Down 1 - High Risk IWSC Risk Oscillator____________________"-2" - Falling Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
As soon as the indexes start upward we seem to run into this same bearish ceiling. If the markets can't seem to go "up" then where will they travel next? This has been a very tricky market so far this year. Let's not lose focus on what is important - Capital Preservation - as well as growth of our assets. Any losses we encounter seem all the more difficult to turn back into gains. Better not to have losses in the first place.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______44% Up 1 - Average Risk Stock Mutual Funds (Diversified)________29% Unchanged - Average Risk IW Risk Oscillator____________________"-1" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk IWSC Risk Oscillator____________________"-4" - Falling Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
I have a full complement of Sell and Buy orders in place according to AIM's directions. I can sit back and let the market decide which of them it will fill first.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______43% Down 3 - Average Risk Stock Mutual Funds (Diversified)________29% Down 2 - Average Risk IW Risk Oscillator____________________"-2" - Falling Risk
Small Cap. Funds (Diversified)________37% Down 1 - High Risk IWSC Risk Oscillator____________________"-3" - Falling Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
I did note while going through Value Line this week that of the 30 stocks listed as "Bargain Basement Stocks" in their Index section 10 of them were Home Building companies. That shows a significant "rotation" away from that arena. It also says that sector might be worth watching for some good bargains should the price of those stocks decline further. Many of these builders also pay dividends and have effective BETA rankings to drive the AIM machine.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______46% Down 1 - Average Risk Stock Mutual Funds (Diversified)________31% Unchanged - Average Risk IW Risk Oscillator____________________"0.0" - Steady Risk
Small Cap. Funds (Diversified)________38% Up 1 - High Risk IWSC Risk Oscillator____________________"+2" - Rising Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
With two high risk, one average and one bullish component the i-Wave is telling us that there's many sides to this arguement. The small cap market isn't much better. While off its highs, the small cap end hasn't ever settled back even to the midpoint of its usual range. While most of the speculation in small caps is in just a couple of stocks, we see that it takes a 27% rise in the last quarter to get one's stock on the Best Performers list for small caps while it takes a 49% loss to guaranty a spot on the Worst list. Similar imbalance shows up in the Large Caps. Only a 19.5% gain gets you listed in the Best while it takes a 39% loss to be recognized as one of Value Line's worst.
Here in this broadly diversified U.S. based portfolio you can see that in the last year there's been activity even if it has broken from the trend of continuous selling that we'd had since 2003. It appears U.S. investors have taken the concept of diversifying overseas to heart and have shipped money to the four corners of the globe.
It appears while Large Caps have little speculative activity there's still really no intriguing bargains either. With cash paying a reasonable return now it seems a tougher choice to move that money to equities showing little growth and nominal dividends.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______47% Up 4 - Average Risk Stock Mutual Funds (Diversified)________31% Up 2 - Average Risk IW Risk Oscillator____________________"+1" - Rising Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk IWSC Risk Oscillator____________________"+2" - Rising Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Okay, you're probably not going to want to hear about Relative Valuation since I've been harping about it for six months. But let's just show the latest graph so there's no confusion about how the markets are valued relative to current interest rates:
Now for the good news: Speculation on both the larger and smaller cap ends of the market is rather mild right now. Here's what the Larger Cap end looks like right now:
I think it speaks to us two ways. First is that we should be selective about where we deploy our assets. This might prove to be a time when individual stock picking will outperform broad indexes. If nothing else let's take a long look at what sectors are currently out of favor and why. We're seeing some specific sector rotation issues around right now and it helps to explain the low value for Speculation right now. Biotech and Technology both have been out of favor for most of this calendar year. These are favorite haunts for Speculators. They're not in those sectors right now, making them pretty good values compared to others.
This brings us to a second point. If the speculators aren't buying Biotechs and Techs, what are they doing with their money? I believe they are "off-shore" right now with their coins. I mean Non-U.S. investing when I say off-shore. The advent of country specific and geographic funds has added an extra layer of teflon to investors' money. It can slip across borders with the click of a mouse. It can be in U.S. Technology one day and searching for value in an Emerging Asia fund the next. This, I believe, is where the speculators are right now. It's not that they've retired, it's that they've gone abroad. So, what do we do? Well, the Ex-U.S. ETF Markets are shown as examples here at the AIM Users Web Site for your review.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______43% Unchanged - Average Risk Stock Mutual Funds (Diversified)________29% Unchanged - Average Risk IW Risk Oscillator____________________"-2" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk IWSC Risk Oscillator____________________"0" - Steady Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
In making the changes described, my retirement account now looks a bit different. About 22% overall is invested in the corp convertible bond fund CHY. 6% each go to IBB, IYG and IYW with slightly more, about 7% going to IYE. PIV now represents 12% overall and our cash reserves make up the remainder (about 41% currently). If the i-Wave cooperates and drops further we can see using up a significant portion of the cash reserve in the future.
The IW has been stuck at the same levels for three weeks now. Is this just summer doldrums or is this a calm before yet another storm? AIM's cash reserves are a good indicator some times. During regular cyclical market corrections we'll see our cash levels going up and down with the markets. If you find that you're tapping hard on your reserves, then it adds fuel to the hope that we're nearing a correction bottom. The IW's components aren't in harmony here, so we just have to assume this is an "average risk" market.
I've been using the setbacks in some stocks to rebuild inventory levels. I'm doing so with only cautious amounts of cash. Many of my holdings I'd nearly liquidated back while the IW was still at High Risk. I'll eventually borrow the cash from those individual holdings to start new investments. I'm waiting for the Relative Valuation component to revert to a mean level from its current over-valued state.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______43% Unchanged - Average Risk Stock Mutual Funds (Diversified)________29% Unchanged - Average Risk IW Risk Oscillator____________________"-2" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk IWSC Risk Oscillator____________________"0" - Steady Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 07/17/2006: So, what are we going to do with this messed up market that doesn't seem to know how to get out of its own way? I have a suggestion. Start talking up what a "deal" the market is right now. Tell everyone and anyone you see to dig deep into their savings and buy anything they can as this is a "Once in a lifetime" chance to really make it big as an investor!
Don't let your conscience get to you. This is important. We need to pump the market as much as possible so we can sell off all our stocks at good prices. But, whatever you do, don't let anyone see this following graphic:
It's rather clear here that there's really not much in the way of bargains out there. Of those stocks reporting earnings, the Value Line median estimated Price/Earnings ratio is 17.7 - not cheap by itself. When we toss on an additional 5% Treasury interest we come up with a sum of 22.79 which has been historically a bearish value. More than 90% of the time since 1982 this figure has been lower and values have been better. This runs contrary to some of the "guests" on CNBC. Many of them talk about the S&P 500 being quite reasonably priced. Don't get taken in. If earnings don't improve dramatically, this market, like in the musical Oklahoma, has "....gone about as fer as she can go."
Yet, there is hope for some kind of rally over the next 3-6 months. It can only carry the indexes back to their previous highs without earnings growth, but that's at least something to trade. The reason I see this potential is my Speculation Index. It's, for the third week in a row, in its own bullish territory. So valued, it's been a very good sign since 1982.
Here we see the Speculation Index in its lowest 10% of the data base. This gives hope that there still may be a rotation from other market areas (smaller caps?; non-US markets?) that will prop up these larger cap stocks and give the popular indexes a lift.
Tune in to the AIM Users Bulletin Board and keep the television tuned to something other than CNBC and you should be fine!
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______43% Down 2 - Average Risk Stock Mutual Funds (Diversified)________29% Down 1 - Average Risk IW Risk Oscillator____________________"-3" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk IWSC Risk Oscillator____________________"-2" - Falling Risk
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
While not quite as inviting, Small Cap Speculation has also been falling. Still in the Neutral territory it has been improving fairly steadily for several weeks. I still feel that Small Caps have further to go in giving up both speculative activity and also relative valuation. Compared to Small Caps, the larger cap market is a better "bargain" these days.
While the correction might not be over, we've managed to get the markets in better shape. As mentioned last week the upper ceilings seem to still be there but at least a reasonable rally back to those highs could now be possible.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______45% Up 4 - Average Risk Stock Mutual Funds (Diversified)________30% Up 3 - Average Risk IW Risk Oscillator____________________"-1" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Bullish Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Good news this week is that Larger Cap Speculation as measured by my index has dropped to its Bullish territory after about two years of being either neutral or bearish.
While usually a very good sign, we still have high market valuations as an inhibition to significant market gains. I don't see any lifting of the ceiling the indexes have hit in the last year or so. This means we most likely won't see a grand rally based upon the bullish Speculation measure alone.
A new stock this week is being added to our PIC List. RYL, a home builder, has had great room to add an addition of profits and the stock was headed for the roof up until 2006. Since April it's fallen all the way to the cellar!
Well, Value Line's Timeliness on this stock dropped to "#5" this week and it still remains on their "Highest Growth Stocks" list. This is what gives it qualification as a Perverse Investment Candidate. So, if you think you'd like a building company as part of your portfolios foundation, you might want to review RYL as a possible candidate.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______45% Up 4 - Average Risk Stock Mutual Funds (Diversified)________30% Up 3 - Average Risk IW Risk Oscillator____________________"-1" - Falling Risk
Small Cap. Funds (Diversified)________37% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Bullish Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Read along for free at the Silicon Investor AIM Bulletin Board.
So, is the glass half full or half empty? I guess it depends upon what you last read. For instance, if you pick up this week's BARRONS Magazine and turn to Page 18 you can read about "Waking The Bear" and how the worst is yet to come. The term "cyclical bear market" gets used. Remember when that's all we'd read about back in 2003? I'm not doubting that there could be more downside to the market. Relative Valuation, for instance, has only just this week fallen back into its Neutral range with a full 89% of the historical data indicating lower risk than now. Further, the RV of the Small Caps is also still bearish. Even to get the RV back to the midpoint of their Average Risk range would take about another 7.5% drop in the indexes.
On the brighter side, our Speculation component is looking quite good. It's not been excessively bearish in quite a while and currently is just above its own "bullish" territory.
Usually we've had some nice rallies off the Speculation Bullish signals. Maybe we'll get one again. In any case the larger caps seem to be a better value than the smaller caps right now. Whether they're a "good value" is still questionable.
If the trend of risk reduction continues this could indicate a near term market bottom. Still I'd like to see the Small Caps give up a bit of their fluff and blubber before we declare an official bottom has occurred.
in the mean time there's more volatility than we've had in a long time and that's generating some profitable trades for AIM users.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______43% Down 2 - Average Risk Stock Mutual Funds (Diversified)________29% Down 1 - Average Risk IW Risk Oscillator____________________"-5" - Falling Risk
Small Cap. Funds (Diversified)________39% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
The relatively new "S.I. Trend View" index I've been working on from Silicon Investors' data showed a quick spike in voting this week. While both the weighted and unweighted values had been dropping for a while this last week they both turned upward. This measure shows a more bullish voting pattern at SI which I've chosen to take as a contrary indicator.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______45% Down 1 - Average Risk Stock Mutual Funds (Diversified)________30% Down 1 - Average Risk IW Risk Oscillator____________________"-5" - Falling Risk
Small Cap. Funds (Diversified)________40% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Our trusty i-Wave continues to drift downward in risk. Only the Relative Valuation component remains in Bearish territory but it's close to its lower limit. Another week of market drift and we could have it back in its neutral range. A couple of graphs of an aspect of the i-Wave are available on the AIM Bulletin Board - Investors Hub. These show the cumulative change from the average value of the IW over two different time periods. It is interesting to note that we've been in a period of above average risk for the better part of this year so far.
While not everything is a bargain yet, we are seeing some new candidates show up as possible buying opportunities. Just this week we added a new candidate to the PIC List. Urban Outfitters (URBN) has fallen to a Timeliness #5 ranking while still being on Value Line's 100 Highest Growth Stocks list. While it seems confusing to think of one of the 100 best companies being in the "worst" column as far as being a timely purchase, this is just what I feel we should look for. A good company who's recent misfortunes have caused some reduction in price/share and therefore have made it a more compelling value. Check out the PIC List Candidates to see what has been happening. I'll be udating these graphs over the next week or so. Also, please remember that several of these stocks I own personally.
I recently also updated my Retirement Account page for everyone's review. It continues to do well enough even if it is a bit on the conservative side. I have a feeling we will be able to re-deploy some of the cash in the near future.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______46% Down 3 - Average Risk Stock Mutual Funds (Diversified)________31% Down 2 - Average Risk IW Risk Oscillator____________________"-6" - Falling Risk
Small Cap. Funds (Diversified)________41% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
For the first time last week we saw the i-Wave fall below its High Risk range. It's been stuck there for most of 2006 so far. Not only is it falling back to more moderate levels, the IW Oscillator is showing a rapid rate of decline. Unfortunately this is true mostly of the Larger Cap stocks. The Smaller Caps still are showing high risk in their version of the i-Wave. Both are falling rapidly, however. That's the good news. Quite a bit of risk has already evaporated. Until we see the Relative Valuation component fall off to Neutral, I'd remain cautious. The reason is that this single component has maintained the upward limit of the markets for a very long time. That means any rally that we see start now will again end at or near the recent market highs and go no further. Relative Valuation remains the key to unlocking the Market Ceiling.
Keep watching for your favorite stocks to trip, causing AIM to want to buy more shares. Prices have fallen enough that many stocks and funds are now below their 26 week moving averages. This is always a better place for AIM to start thinking about making purchases. Unless we see the i-Wave fall to its Low Risk point, I recommend sticking to the once in 30 days rule for consecutive purchases.
The best thing I can say about the May market is that it shows that Volatility hasn't become extinct. This means that AIMers still have good opportunity, maybe better than in a couple of years, to capture some profits as prices swing around.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______49% Down 4 - Average Risk Stock Mutual Funds (Diversified)________35% Down 4 - Average Risk IW Risk Oscillator____________________"-5" - Falling Risk
Small Cap. Funds (Diversified)________42% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______53% Down 6 - High Risk Stock Mutual Funds (Diversified)________35% Down 4 - High Risk IW Risk Oscillator____________________"-2" - Falling Risk
Small Cap. Funds (Diversified)________43% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Last week both the larger and smaller cap Value Line P/Es dropped about 5%. As you can see here, it helped but not nearly enough. To get back to the middle of the Average Risk range we still need to see significant valuation changes. While business remains pretty good in the U.S. I'm not sure that the profits are going to be good enough to bring the P/Es back down all alone. With interest rates not likely to descend in the near future, then we only have a market correction or consolidation to get this fat trimmed.
On my individual stocks we've seen enough movement in price/share that we've had some trades in the last few weeks. However, my Exchange Traded funds, both U.S. and non U.S. have not yet changed in value enough to generate any AIM activity. Bigger and broader discounts are still needed to get some trading activity. We're using relatively small Hold Zones with the ETFs compared to individual stocks, but these are also quite a bit less volatile. Should the market continue to wiggle around and maybe decline, I'm sure the ETFs will get their chance to change Equity/Cash ratio, too.
In the last few weeks our PIC List of stock ideas has tripped more than a half dozen trades. About half were Sells since the beginning of May and more recently Buys as the market has settled back. This group of stocks continues to give pretty good AIM results.
We will continue to watch the various components of the i-Wave to see if we can divine the future of the stock market. Right now with most of the components in their own Neutral territory the strength of the signal seems less than at other times. There seems to be a lot of money available to buy into these dips we're been seeing. Is that the smart money or just idle money trying to find any home?
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______59% Up 2 - High Risk Stock Mutual Funds (Diversified)________39% Up 1 - High Risk IW Risk Oscillator____________________"+3" - Rising Risk
Small Cap. Funds (Diversified)________43% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Bearish Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
On my individual stock list, several have started to show prices that AIM is interested in for buying. Many have had buys in less than the last 30 days so are awaiting further purchases. I plan on seeing if they stay down long enough to trip the next round of buying.
The i-Wave certainly isn't indicating that this is a great time to be building out our portfolios yet. It seems to think there's considerable risk in the markets even though its only two components that are currently bearish. It hasn't been that there's too much speculation, its just that the prices are high relative to earnings and interest rates. A consolidation or correction seems to be the best medicine even if it's been a long time waiting for the prescription to be filled. Even sector rotation seems not to be appropriate as all sectors have really been doing quite well until recently. Of the various sectors I watch only IBB, IDU, IYH, IYK and IYW are currently below their 26 week moving averages. Even so, they still have to drop further to trigger AIM's buying interest. So, while this recent four days of setback have been interesting, they're really not providing the type of discount that AIM usually would like to see.
I do look forward to the opportunity to get some of my cash reserve put back to work. Although the cash is earning more interest now than for several years it still seems like a long time since we've had a meaningful correction. Some of this cash has been sitting around since mid 2003 and is getting a bit dusty. I'm confident that our trusty i-Wave will give us a strong indication of when the risks have fallen back to more reasonable levels.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______57% Unchanged - High Risk Stock Mutual Funds (Diversified)________38% Unchanged - High Risk IW Risk Oscillator____________________"+2" - Rising Risk
Small Cap. Funds (Diversified)________43% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Bearish Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Risk remained high for both the larger and smaller cap stocks during the latest reporting period. Neither look very attractive for starting new accounts or for doing much buying in ongoing accounts for that matter. Two of the four components are Bearish in their own right.
As you can see, the rising interest rates are doing nothing but harm to the Relative Valuation Index. With the Value Line P/E at 19.2 for large caps and 20.7 for smaller caps there's no immediate chance of this indicator returning to a Bullish stance. Both are shouting "Fully Valued" to anyone who will listen.
We have a long summer ahead and then the usual Sept/Oct. uneasiness to get out of the way. After that we can re-evaluate the effectiveness of our investing. I note a preponderance of non-U.S. funds being sold at the Warehouse these days. Does this mean further weakening in the U.S. currency or better business conditions overseas? Could it mean U.S. investors are seeking out better returns outside their own country? If you're AIMing non-U.S. assets does it really matter why we get these sales? Nope! We sell into strength no matter when or where it appears. There's no reason to to have a reason when Mr. Lichello's model is guiding your actions.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______57% Up 3 - High Risk Stock Mutual Funds (Diversified)________38% Up 2 - High Risk IW Risk Oscillator____________________"+3" - Rising Risk
Small Cap. Funds (Diversified)________43% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Bearish Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______54% Down 2 - High Risk Stock Mutual Funds (Diversified)________36% Down 1 - High Risk IW Risk Oscillator____________________"+1" - Rising Risk
Small Cap. Funds (Diversified)________43% Up 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Bearish Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______56% Up 1 - Average Risk Stock Mutual Funds (Diversified)________37% Up 1 - Average Risk IW Risk Oscillator____________________"+4" - Rising Risk
Small Cap. Funds (Diversified)________42% Up 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Bearish Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Recent trades
As the market has been showing more stress I've seen many of my holdings drift from near sell prices to the buy end of their Hold Zones. You can see this in the actions taken above.
Two of the four components are now Bearish in their own right. This gives more weight to the overall risk reading. We're watching the other components very closely.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______55% Up 5 - High Risk Stock Mutual Funds (Diversified)________37% Up 4 - High Risk IW Risk Oscillator____________________"+4" - Rising Risk
Small Cap. Funds (Diversified)________41% Up 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______50% Up 1 - High Risk Stock Mutual Funds (Diversified)________33% Unchanged - High Risk IW Risk Oscillator____________________"+1" - Rising Risk
Small Cap. Funds (Diversified)________40% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______49% Up 1 - Average Risk Stock Mutual Funds (Diversified)________33% Up 1 - Average Risk IW Risk Oscillator____________________"0" - Steady Risk
Small Cap. Funds (Diversified)________41% Up 3 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
A variety of AIM directed sales have occurred in the last few weeks along with a couple of buys. This has also been the case in the PIC List virtual portfolio. There's both buying and selling occuring which indicates the market is starting to differentiate. This usually drives up the Divergence component and it did rise some this week. While speculation on the larger cap stocks is still mild, it is rising.
It appears these changes in the components are signs of building stress in the marketplace as seen in the i-Wave. I'd stated here earlier in the year that we should be a market peak value for 2006 unless there's some change in the Relative Valuation component. It is forcing the entire i-Wave into the High Risk zone with its unfortunately high level. I don't see corporate earnings growing fast enough to lower the average P/E nor do I see interest rates falling off any time soon.
Many AIM users are reporting very rich cash reserves and this seems to be a good idea. First, it provides a very inexpensive hedge for our portfolios. Second, money market funds are now starting to pay reasonable interest - better than the dividends of many individual stocks. This is a time when a keg of dry powder seems a good idea for our inventories.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______48% Down 2 - Average Risk Stock Mutual Funds (Diversified)________32% Down 1 - Average Risk IW Risk Oscillator____________________"-1- Falling Risk
Small Cap. Funds (Diversified)________38% Up 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
I will say that when I see Small and Mid Cap Value ETFs both triggering sales in the same week I have to wonder about the i-Wave Small Cap high risk assesment.
Midcap Value has been strong for three straight years with essentially no hesitations. At least none big enough to interest AIM.
The same is true of Smallcap Value. These hypothetical accounts are showing Year To Date gains of around 5% each even with no dividends or interest allowed. How much longer can these continue to rise when the Relative Valuation remains bearish? I guess as long as there's money around to chase them higher. I'm just glad that AIM has been there to take profits along the way. The next downward hill on the Roller Coaster will be a lot easier to take with that cash cushion helping.
We had a sale in EWG, the Germany ETF this week. This one puts the Cash Reserve level above our upper limit, so "vealies" will be the way to go for me if the price continues to rise. I'm using an arbitrary 33% cash level for most of the non-U.S. ETFs.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______50% Up 2 - High Risk Stock Mutual Funds (Diversified)________33% Up 1 - High Risk IW Risk Oscillator____________________"0"- Steady Risk
Small Cap. Funds (Diversified)________37% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Sales in CBK and STKL both occurred this week with nice profits attached. I also did some selling of some Call options. I was able to sell the October $100 Call for IYE, the Sept. $95 Call for IBB and the January, 07 $30 Call for ADCT to generate a bit of cash flow here where the market seems risky. I find that selling Call options when my cash reserves are well funded is another method of generating some cash flow while I'm pulling "vealies" and waiting for a market correction.
The CBK chart looks quite good with five consecutive sales.
Several more of my holdings continue to hover nearer their Sell targets than the other extreme. I'm beginning to feel a bit like Chicken Little here each week talking about High Risk with the i-Wave. However, I'll stick by our IW reading for now and hope that it again continues to guide us well.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______48% Down 1 - Average Risk Stock Mutual Funds (Diversified)________32% Down 1 - Average Risk IW Risk Oscillator____________________"-2"- Falling Risk
Small Cap. Funds (Diversified)________38% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______49% Down 2 - Average Risk Stock Mutual Funds (Diversified)________33% Down 1 - Average Risk IW Risk Oscillator____________________"-2"- Falling Risk
Small Cap. Funds (Diversified)________39% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 02/27/2006 & 03/06/2006: Exquisite Sense Of Timing?.........................
This AM on CNBC the officers from E-Trade and TDAmeritrade were interviewed. The "headline" to the story told of how both of these companies - discounters with heavy "retail" work from individual investors - had huge January trade increases. The increase over December was somewhere in the neighborhood of +30%.
Both officers felt that much of the money coming back to the market to generate these trades had come from the Real Estate markets. One stated that his feelings were backed up by a periodic survey they do which had, for the last two or three years, shown Real Estate to be their clients' primary focus. Now, starting back in about October, that has changed back toward equities.
One fellow mentioned that the 2000-thru-2002 market had basically "wiped out" the average speculative trader. Now, flush with cash from a generous reality market, many were coming back. It is still my opinion that the stock market isn't "cheap" by any means. It's my feeling that these newly emboldened investors and speculators are helping support the high relative valuations we're experiencing and thwarting any consolidation or correction. That certainly doesn't offend me as it keeps my net worth a lot more constant than it might otherwise be!
Relative Valuation in both the larger and smaller cap markets remains troublesome. In recent weeks the P/E of the Large Caps has improved as the interest rates have been rising. The net effect is that it's still bearish. Small Cap P/E has been stable but still too high by historical standards. Without some relief, these two components will be keeping a lid on the market's "exuberance."
A feature of Value Line that's always been of interest to me is their "Three To Five Year" forecasts for price/share. At times we'll find our favorite jewels near the bottom of that range and other times near the top. This will occur in spite of their "Timeliness" evaluation. How would you feel if your current favorite stock was shown to be at the top of the 3-5 year price range prediction and still a "Timeliness #1"..? Hmmmmm, does that mean that it's going to be one of the best performers over the next 12 months (the definition of Timeliness #1) and that it's not going to change in price to the upside any more over that same time frame?
This is the situation I found on some of my long term favorites recently - top of its 3-5 year range and Timeliness #1. So, other than a possible setback where I can accumulate more shares, it would appear that the investment's appreciation potential was going to be stalled for a long time. If it's not going up, then AIM's not going to be selling more shares. If new money is pouring into the markets as we watch, then this stock might not go "down" for a while either! Does this mean "dead money" for now? With ziltch for dividends on these stocks, the interest earned on Cash was starting to look pretty attractive.
For LD-AIMers, this shouldn't be a problem. Their smaller overall positions will be forced to liquidity (and many have been stating "last sale" recently) in a fully valued market. That is marvelous. I might suggest our LD-AIMers use the 3 to 5 year Value Line forecasts in conjunction with their plans for designing their "fully invested" and "fully liquid" ranges. If you find yourself with a stock near its forecasted high and still a Timeliness #1, it means there's enough Momentum left for you to make sure you're liquidity goals are met. If it's a poorer Timeliness rating and nearer the 3-5 year low, then you can nearly be assured you'll be trading the stock before the MoMo crowd arrives. When they come, you'll get liquid and be smiling.
So, while we long term AIMers were digging in the yard for raw gemstones in the early part of this decade others had left for the real estate sandbox to play. Now they're returning. In the mean time, our jewels have been cleaned of mud, polished and shined. We have them all aranged on the picnic bench by color, shape and size. The neighborhood kids are lining up to buy them at the prices we've marked. We know how much time we put into gathering them. We know how much time and effort we've put into making them presentable and we've priced them accordingly. Every day, as the word spreads about our hoard of Beautiful Jewels, more and more kids want to see them. Lucky for us, they have their piggy banks with them!
There will be a time when they tire of the new precious stones. The shine won't be as good, they will have played with them in the dirt or just put them someplace where all forgotten toys go. Eventually they'll come and ask if we'll buy them back. If we're smart and have patience, we'll be ready with our own piggy bank.
| Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______51% Down 3 - High Risk Stock Mutual Funds (Diversified)________34% Down 2 - High Risk IW Risk Oscillator____________________"-1"- Falling Risk
Small Cap. Funds (Diversified)________39% Unchanged - High Risk iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 02/20/2006: The DOW 30, the S&P500 and the Nasdaq Composite all moved higher last week. Not any great amounts, but enough to show there's still life in the market place. The first day of this week's trading has been less than great for many stocks and funds, however.
Over the last few weeks I've pushed ahead my sell-off schedule on a few individual stocks. These were ones that had grown to be too great a percent of the over all account. I've dropped the total ownership on these to a much smaller total and have restarted AIM on them. This "rebalancing" has forced the overall cash reserve level from around 31% of total in my taxable account to 39%. This is totally UN-AIM and is being done to have funds available for areas I want to build out in the future. If the cash sits for more than a month, I'll start to shift it to higher yielding short or mid term bond funds. However, money market rates have risen to a point where they are at least showing some income.
It's a very odd market still. Speculation, Divergence and Zeal are all in their neutral territories. Only Relative Valuation sits in the BEARISH box. Short term interest rates start at the 13 Week Coupon rate of 4.553% and stretch to the 20 Year rate of only 4.73%. My guess is there's going to be some Adjustable Rate Mortgages starting to feel the effects of the short term interest rate hikes. While our Value Line P/E for both the larger and smaller cap stocks went down this last week, it wasn't nearly enough to give us a neutral reading on Relative Valuation.
I've started to hear that there's a slow-down in some areas in the Real Estate boom. If cash from that area comes to the stock market we could see some increase in the apparent volatility in the stock market. It could happen that some of the real estate money might get locked up in property if the market declines. Liquidity has been pretty good in real estate almost everywhere. That liquidity could dry up and trap some money.
I've not changed the basic AIM settings in my accounts other than to make sure that the minimum order size is properly gauged to the new reduced total equity value. The "rebalancing" was going to be done no matter what the i-Wave was saying. It was time to harvest some nice profits from the purchases made in 2002 and now we'll shift those dollars to new homes when the market gives us a chance.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______54% Unchanged - High Risk Stock Mutual Funds (Diversified)________36% Unchanged - High Risk IW Risk Oscillator____________________"+2"- Rising Risk
Small Cap. Funds (Diversified)________39% Up 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 02/13/2006: This is getting to the point where I can't stretch logic far enough to understand what's going on in the market. My best guess is there's too much money coming into the market too quickly. Where it's coming from is anyone's guess. (mine is that it is coming from Real Estate)
Relative Valuation continues to show the market fully valued. While this graphic shows the Large Caps, the Small Caps are actually worse. This limits the "potential" and shows just how much "at risk" the market is. Speculation in the Large Caps is moderate while the Small Caps have bearish Speculation again. Along with rising IPO activity my guess is we'll not see any new market highs of significance for at least 6 months and maybe a year.
So, if you're counting on Price Appreciation as the driving force of your portfolio's growth for 2006, be very careful. There don't appear to be many sales on right now. This is looking like it's going to be a better year for capturing dividends and volatility to build total return. Price appreciation may have to wait.
This week must be National Google Bashing Week. Both Barrons and Time magazine have GOOG as their cover stories and neither are very complementary. With so much fat marbled in the muscle of GOOG, I'd suggest waiting for this one to slim down a lot further before getting involved. It needs to get into serious shape to go toe to toe with the likes of MSFT and YHOO. The bad press should help to motivate it getting down in weight.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______54% Unchanged - High Risk Stock Mutual Funds (Diversified)________36% Unchanged - High Risk IW Risk Oscillator____________________"+2"- Rising Risk
Small Cap. Funds (Diversified)________38% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 02/06/2006: In reading last week's report I thought I could almost copy it again as this week's report. No change in the i-Wave's status and only a slightly worsened Relative Valuation reading.
On Monday this week a Sell order for some of my VTSS tripped and sent a nice extra dose of Cash to the Reserves. It's always nice to have a sale in the midst of a High Risk market.
I noted on the AIM Users Forum the other day that our IPO Zeal component was warming up a bit. After literally years of slow erosion of the number of issues traded on the NYSE and NASDAQ we've recently seen a mild increase.
While it has a long way to go to reach its own Bearish level, it might help explain where some of the more speculative money is going these days. IPOs tend to be one of the most speculative areas of the market.
Also note that our Speculation component which measures the more traditional and established stock on the market isn't exactly bullish either.
Closer to its bearish end of the range, it can't stand too much more "good news." The last week should help trim this one back a bit in a "reversion to the mean" sort of way.
What has not yet shown any pause is the Divergence component. It is showing only moderate divergent thinking right now. It appears from the number of new highs and lows over the last 52 weeks that most are content with the rising market since the 1st of the year and are somewhat fearless.
Considering the other components, I'll take a contrary view here and say this one's out of phase so far. If the selling continues this week, this component will also start to show some stress. Since it reacts very quickly we'll know very soon when this sentiment has changed.
For now, I'm content to hold a healthy cash reserve and to use it sparingly. I almost long for a market correction to come so I can get more fully invested. Such strange thoughs only occur with a system like AIM in place!
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______54% Unchanged - High Risk Stock Mutual Funds (Diversified)________36% Unchanged - High Risk IW Risk Oscillator____________________"+3"- Rising Risk
Small Cap. Funds (Diversified)________38% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 01/30/2006: Even as a couple of more Sell orders have tripped the High Risk signals for both larger and smaller capitalized markets continues. While not overly frightening with only two of the six components currently Bearish on their own, we have to note that both of the Speculation components (larger and smaller cap) are near their own Bearish territories. As mentioned before, it's not that there's so much downside risk as the lack of upside potential. The markets truly need to "earn" the right to rise higher.
I'm pleased to note the AIM Users on our electronic forum continue to keep level headed and let their warehouses sell into the market strength. We continue to serve up hot shares to those interested in buying them. Where would they be without us?
Relative Valuation continues to be the controlling influence of the i-Wave and the markets:
Herein lies our biggest problem and the biggest threat to the markets. Even with great earnings reports coming in, it's all already priced into the equities. Assuming the 13 Week Treasury Rate is unchanging going forward for a while, how far would the P/E have to fall to give us a Bullish signal? It would need to fall from its current 18.8 (Value Line 1700) to 14.6! That would be the equivalent of the S&P 500 Index falling to around 1000 and the NASDAQ Composite falling to about 1800. This could be quite painful for those not prepared to take advantage of the drop.
So, Cash remains King for another week.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______54% Up 6 - High Risk Stock Mutual Funds (Diversified)________36% Up 4 - High Risk IW Risk Oscillator____________________"+4"- Rising Risk
Small Cap. Funds (Diversified)________38% Unchanged - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 01/23/2006: Well, if last week was a "correction" then we need a new definition! There's still too much fat in this market and this week didn't help any. Lucky for us, we have AIM to guide our hand and keep us from getting sucked into an over-valued market. This week the i-Wave rose back into the High Risk range based upon a rise in P/E, 13 week Treasury rates and rising speculation. At 19.3, Speculation is borderline Bearish.
Seasonally this isn't usually a bad time of year for investors. However, I would like to remind everyone that a good time for most investors is a great time for AIMers to be selling into strength. It sounds as though this is the case over on the AIM Users Forum at Investors Hub. While there have been some stocks generating a buy or two recently the predominent theme has been Selling.
I guess that we can play this bullish trend for all that its worth. Energy pulled back a bit then started back toward its peak values. I heard a fellow on CNBC the other morning saying that all the good news that might come on profits in the energy sector are priced into that sector already. I guess that means we should expect a downturn later as profit takers move in. Well, I've already taken a mountain of profits and have cash nearly equal to my starting portfolio value from 3+ years ago.
At Veale Intl. Equity Warehouse we saw these trades recently:
It's delightful to have this sort of activity. It's also good for our overall Cash Reserve position. VIEW taxable account is currently at 31% cash overall while the VIEW Pension Funds are showing 39% cash overall. These are relatively comfortable positions.
For now, with the current High Risk reading of the i-Wave, I believe I'll halt all AIM directed Buys until the clouds clear away. Selling mode is the trend I'll allow to run its course for now. Once we see the market strength give way and the i-Wave drop back a bit then we'll exercise whatever buying is pent up in the AIM machinery.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______48% Up 1 - Average Risk Stock Mutual Funds (Diversified)________32% Up 1 - Average Risk IW Risk Oscillator____________________"-1"- Falling Risk
Small Cap. Funds (Diversified)________38% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______47% Down 3 - Average Risk Stock Mutual Funds (Diversified)________31% Down 2 - Average Risk IW Risk Oscillator____________________"-2"- Falling Risk
Small Cap. Funds (Diversified)________39% Down 2 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 01/02/2006 & 01/09/2006: It seemed a mad sprint took place the first two weeks of 2006. Everything and anything that even looked remotely like a stock was on the rise. Then, last Friday, the 13th, the markets seemed to have a bit of a climax. Starting this week was a bit of a sell-off triggered by who knows what!
If we check the i-Wave for a health reading, maybe we can see what's going on. First, the Relative Valuation of both the large and smaller cap ends of the market show little room for upside moves. If 4th quarter results come in as spectacular on the earnings front, this would help lift the market ceiling defined by Relative Valuation.
Only fantastic earnings or a market correction is going to bring this down. I don't expect interest rates to receed any time soon.
Speculation, which had been a problem in late Summer of 2005 has dropped back to neutral conditions for both segments of the market.
It's too soon to see how the last two week's performance has affected this component. It takes almost two weeks for the data to filter through Value Line's processing, so we should see some change in Speculation starting next week.
A more instant reading is achieved with the Divergence indicator. It has fallen off quickly from its bearish reading a month ago. This one has always been a bit more fickle.
While it's still neutral, it does show how single minded the markets have been for the first two weeks of 2006.
And finally Zeal. This component fell asleep for about two years or so. Only recently have we started to see a reversal in the trend of shrinking numbers of issues available. The number peaked near 9000 issues available and fell over several years to a recent low of around 6900 issues.
So, to see it surface above the zero change market should be expected. It needs to rise to a value of 2.8 to be truly bearish and you can see that it's a long way from that still.
So, really our only worry is the Relative Valuation. We've been bouncing off that same market ceiling for going on two years. I don't know how things will work out on earnings, but business doesn't seem all that bad. I just know that this has been the most reliable single component of the i-Wave over the years. It will be interesting to see how this one works itself out.
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Large Cap. iWave - Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks (& Sector Funds)_______50% Down 1 - High Risk Stock Mutual Funds (Diversified)________33% Down 1 - High Risk IW Risk Oscillator____________________"0.0"- Steady Risk
Small Cap. Funds (Diversified)________41% Down 1 - High Risk
iWave Large Cap Components: Speculation ____ Neutral Divergence (Large and Small Caps) ____ Neutral Zeal (Large and Small Caps) ____ Neutral
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 01/02/2006: It's begun as a busy year for all AIMers according to reports on the InvestorsHub.com AIM bulletin board. We here at VIEW are busy also. Several sales have taken place this week to initiate the beginning of 2006. The i-Wave continues to hang on the edge of the High Risk area so selling is a good thing, I guess.
It will take more than one week to determine if this is just a continuation of the New Year's Eve party or if there's some substance to it. Relative Valuation remains our biggest concern at this point both in the smaller and larger cap stocks. I've been able to keep my Good Until Cancelled orders up to date, so we're hoping for continued activity favoring VIEW's Savings and Loan business.
With Speculation now under reasonable control in both the large and small cap sectors, this gives us some encouragement. It's just that valuations are anticipating rich earnings gains for the near term. Time will tell if the market participants are right or if the AIM Users selling has been more appropriate.