|
Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
|
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.
|
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.
|
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."
|
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.
|
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.
|
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.
|
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.
|
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.
|
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!
|
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.
|
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.
|
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: |
|
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.
|
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.
|
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.
|
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.
|
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.
|
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.
|
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.
|
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!
|
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.
|
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.
|
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.
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.
|
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.
|
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.
|
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.
|
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: |
|
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?
|
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.
|
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 Smal |