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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________39% Up 2 - Average Risk Growth Stock Mutual Funds__________26% Up 1 - Average Risk IW Risk Oscillator____________________"+8" - Rising Risk |
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Value Line P/E ratio 16.1 + 52 week Treasury Rate 4.51 =____ 20.61 down 0.5 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 19.3 up 5.2 Bearish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 5.0 up 1.5 Bearish (Divergence) % change, # of issues on NYSE & NASDAQ_______________-1.8 up 0.1 Bullish (Zeal) |
1/5/98: NASDAQ Comp. = 1581; IW = 49% - just below the High Risk range. Gold was falling fast, Energy stocks were just as bad, and anything to do with Asia was looking awful. "As I've told you in the previous couple of weeks, when my Best/Worst Index drops into negative numbers, we're usually ready for a quick rally. Well, the week of Dec. 15th the index dropped below zero and has remained there for four weeks. The market, in fact, is starting back up a bit. Let's hope that the Best/Worst Index is right again! "
2/23/98: NASDAQ = 1728.13; IW = 47%, New record high for NASDAQ.
3/30/98: NASDAQ = 1823.62; IW = 49%, New record high for NASDAQ. "As of last Friday, the NASDAQ Composite Index was up over 16% year to date. Betterstill for those who enjoy larger cap stocks, the NASDAQ 100 is up over 22% YTD. It looks like so far this has been a large cap rally."
4/06/98: NASDAQ = 1855.40; IW = 50% - High Risk, "Why is it that when a Bull Market is MATURING, most investor act IMMATURE?"
5/11/98: NASDAQ = 1864.37; IW = 54% - High Risk, "I AIMed and hit a couple of Sells! When the IDIOT WAVE is showing high risk, I'm always pleased to be selling some of my inventory."
6/15/98: NASDAQ = 1745.05; IW = 51% - High Risk,
7/20/98: NASDAQ = 2008.76; IW = 50% - High Risk, "Hi/Low Logic is showing a bit of confusion as both the number of new highs and lows are quite large. This week, there's 356 new highs and 436 new lows simultaneously."
8/24/98: NASDAQ = 1797.61; IW = 45% - Ave. Risk, "I probably forgot to mention that the only way the IW gets to a Low Risk reading is through market pain and suffering!"
9/7/98: NASDAQ = 1566.52; IW = 43% - Ave. Risk, "Aren't you folks glad you have a Business Plan for your investments! I'm not saying that I was happy all week, but at least I knew that I was acting in a positive way for the long term potential of my account."
10/12/98: NASDAQ = 1492.42; IW = 33% - Ave. Risk, "Personally, I think the IW was right in calling it a high risk market all the way through to August 10th. Now, with the lowest IW reading we've had in several years, should we trust its ability to again call the market? The brief answer is "YES!" "
11/16/98: NASDAQ = 1856.56; IW = 28% - Low Risk, "I've already started to do "vealies" from this low base which feels REALLY GOOD. If Risk starts to rise, the IDIOT WAVE will tell us to start selling again and let our cash reserves rise with the risk."
12/28/98: NASDAQ = 2163.03; IW = 39% - Ave. Risk, Well, it's been a very interesting year. First the Best/Worst Index calls for a short term rally and the market responds by rising to new record highs in the mid 1800s. Then it pauses before making its run to above 2000 mid-summer. The Idiot Wave calls out for caution and by August the market is coming unravelled. Finally bottoming during the first week of October a solid 12% below where it started the year and about 30% off its mid-summer highs the NASDAQ was bruised and beaten. October is also when the Idiot Wave signalled the first Low Risk period since October of 1990! Now with the NASDAQ up about 50% from its low point, the Idiot Wave is showing rising risk and asking us to reserve more cash each week.
Many of us had our Cash Reserves depleted 2 to 3 months ago in what looked to many people like the end of the Bull Market. Now we've had a chance to sell shares and rebuild our reserves. AIM really is marvelous, isn't it? Thanks for sticking with me for yet another year. This is our second full year on Silicon Investor as a home for our bulletin board. It improves all the time. Over 14,000 visitors have found the AIM pages and 10,000 of them have read this newsletter in the last year! I find that very encouraging. Maybe we'll keep the bull market alive all by our selves!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________37% Up 1 - Average Risk Growth Stock Mutual Funds__________25% Up 1 - Average Risk IW Risk Oscillator____________________"+6" - Rising Risk |
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Value Line P/E ratio 16.6 + 52 week Treasury Rate 4.51 =____ 21.11 up 0.1 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 14.1 down 1.3 Bearish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.5 down 0.9 Neutral (Divergence) % change, # of issues on NYSE & NASDAQ_______________-1.9 up 0.2 Bullish (Zeal) |
It's hard to believe that Amazon.com was below $70/share in the Fall after dropping almost 50% from a previous high. Now the book retailer is propped up over $300/sh. I don't know how much these folks make selling their books, CDs and other things, but I sure hope it turns out to be remarkably profitable. It has to be the Shipping & Handling that makes them all the money otherwise why haven't bookstores led the market place before?
The first week of January will represent 13 weeks since the October low point. I'm going to be interested in looking back at that point and see just how much my various holdings have increased in value in that time. Many are up 50% and lots are up 100% since then. AIM was there to gather up shares when prices were low and has been here all along the way to take profitable dollars out of risk's way as the market has risen. It's hard not to like AIM when it acts so faithfully to care for our well being! AIM had me sell about 8% of the holding in SDS last week at $34-5/8 and also some shares of TWCUX at $34.06. Both these profitable sales served to keep the Cash Reserves for these holdings right at the IDIOT WAVE'S recommended levels. I hope you are having equal success.
The account that I started last week for my college fraternity's funds using UOPIX as the choice for equity got off to a brisk start. It went up 5% each of the first two days that we've owned it and is now just 5% away from triggering its first AIM Sell! That would be fun! Considering that the money had been only earning passbook rates in recent times, this looks like quite an improvement so far! More later.
The busy holiday times are here and to keep up with your AIM accounts, keep your Good Until Cancelled orders up to date. Like a modern day Scrooge, AIM will keep working even while we make merry! AIM will keep our "counting houses" running profitably, just like Old Scrooge and Marley would like!
It feels quite a bit more like winter here in Wisconsin the last couple of days. I left for my 2 mile walk to work yesterday morning with the outside temperature in the mid 20s, headed home at 5:00PM with the dial showing mid teens and got up this AM with the temp at +1deg F. This is the first true cold snap we've had this year. Until just a week ago, we still had dandilions showing their heads in the lawns! Old Bud, our cat, gave me dirty looks this morning when I opened the door for him to go out. He took one sniff of the icy air and turned right around and headed for a warm radiator. He doesn't think highly of my abilities at weather control and blames me directly for poor prowling conditions.
As we finish up another interesting and successful year of investing, I want to tell you all that I appreciate the email, both complements and questions, that has been coming constantly this year. Our AIM "habit" seems to be picking up momentum with lots of new users from all across North America and around the world. I hope this editorial each week has helped you keep focused on the important aspects of this business - having some fun!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________36% Up 2 - Average Risk Growth Stock Mutual Funds__________24% Up 2 - Average Risk IW Risk Oscillator____________________"+9" - Rising Risk |
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Value Line P/E ratio 16.5 + 52 week Treasury Rate 4.51 =____ 21.01 down 0.61 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 15.4 up 8.9 Bearish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.4 down 0.1 Bearish (Divergence) % change, # of issues on NYSE & NASDAQ_______________-2.1 up 0.3 Bullish (Zeal) |
A friend of mine bought shares of a Mexican Convertible Debenture this week for $0.38 on the dollar of face value. What's even better is that the bond was paying 8% at full value, so his effective yield is about 21%! Assuming that the company doesn't go out of business, or default payment on its bonds, he can afford to wait a while with that kind of yield. Dina is the company name. They make commercial busses. When I've done this sort of thing in the past, I've bought the bonds and an equal value in the common stock. That way I get a handsome yield overall and can AIM the common stock as it bounces around in price.
This week I took over managing the "endowment fund" of my college fraternity. We bought a govt bond fund to produce an income stream and bought into Profunds Ultra OTC Fund (UOPIX) as a growth vehicle for the account. Current yield on the bond fund is about 10+% and UOPIX looks like an interesting choice for AIM. I'll periodically post how this account is doing.
The big jump in the IDIOT WAVE this week comes with the "boomerang effect" of the market crunch earlier this fall. My SPECULATION measure, Veale's Best/Worst Index, measures the difference between the best and worst performers in Value Line. The week of October 19th brought the low reading of minus 4.9. That has always been a good short term bullish sign and was again this time. Now it's reading +15.4, well into the High Risk area. I'm less worried about this current reading, because if you count back 13 weeks, you know what sort of market it was then! If you look at theSPECULATION component of the IDIOT WAVE, you'll see that after each major dip (1987 and 1990) it has boomeranged back to high risk shortly afterwards. Also, this particular component can remain at high risk for long periods and if not confirmed by the other components, is relatively benign. Just the same, we'll be keeping a close eye on it during the next month.
Several AIM trades were registered in the last week. Most were pleasantly profitable!
The ICA purchase had been waiting for some available cash as that account had been fully "tapped" earlier this year. It's showing a loss and also negative cash reserve at this time. It's going to require some "healing" in the form of a firmer Mexican market for stocks.
It would be nice if all the problems of the world would suddenly evaporate and leave us to tend to our various businesses. Then we wouldn't need anything like "portfolio insurance." Since that's unlikely to happen, our AIM program with its Cash Reserve will have to work overtime to give us reasonable consistency. Let's all try to keep our objectives in our sights and hope that our AIM is good.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________34% Up 3 - Average Risk Growth Stock Mutual Funds__________22% Up 1 - Average Risk IW Risk Oscillator____________________"+10" - Rising Risk |
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Value Line P/E ratio 17.0 + 52 week Treasury Rate 4.62 =____ 21.62 up 0.30 Bearish (Relative Valuation) Veale's Best/Worst Index ______________________________ 6.5 up 3.1 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.5 up 2.0 Bearish (Divergence) % change, # of issues on NYSE & NASDAQ_______________-2.4 up 0.2 Bullish (Zeal) |
Veale's Equity Warehouse managed to trim inventories nicely in the last week, keeping the Cash Reserves growing.
There were some "vealies" during the week, but I wasn't as good at recording them for this report as usual. The fat LIFO gains certainly make me smile. Those shares we bought back in September and October have turned into very profitable inventory indeed. With the Idiot Wave rising I'll have to give up the "vealies" and start to sell again to have my cash reserve keep pace. I guess I don't mind either way - my net worth is on the mend!
It has been a very long time since we had updated the Idiot Wave graphs, but that was remedied last evening. If you haven't looked at it in a while, I think you'll be impressed with how well the IW did in calling this last market trauma. Take a look at the IW Components as well. You'll note that I've restructured the graphs to make them more read-able. I plan on some other improvements for them soon. Also, I should have time soon to update the Veale account graphs which have also been languishing for months.
Back in October, it took only a 16.5% gain in 13 weeks to get a stock listed as one of the Best Performers in Value Line. This week it takes a 50.7% gain to make the same list! Is speculation heating up? It would appear so. Has it over-heated yet? No, this is still mild compared to other times in the market. I've found over the years that the market will tolerate long periods of very large short term gains before it gets nervous. Also, we have to remember that when we start the new year, it will be just about exactly 13 weeks after the worst of the market conditions. This tends to skew the graphs a bit. If you look at the Speculation component of the IW, you'll see that there's a bit of a boomerang effect after major market set-backs like we saw in '87 and '90. We'll keep our eyes on this and report back.
The major indicies continue to lead the way higher. Our Small Cap. holdings are still lagging their Large Cap. siblings, however. This may also be part of the seasonal nature of ending the tax year. I'm hoping it might also mean a dandy January rally for Small Caps.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________31% Unchanged - Average Risk Growth Stock Mutual Funds__________21% Up 1 - Average Risk IW Risk Oscillator____________________"+5" - Rising Risk |
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Value Line P/E ratio 16.7 + 52 week Treasury Rate 4.62 =____ 21.32 up 0.1 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 3.4 down 1.9 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 2.5 down 1.0 Bullish (Divergence) % change, # of issues on NYSE & NASDAQ_________________-2.6 down 0.1 Bullish (Zeal) |
Periodically I try to make small improvements to the IW's calculations. The Idiot Wave needs these tweakings to keep our AIM on target. This is the second change this year. I modified the RELATIVE VALUATION earlier this year to include the 52 week Treasury rate rather than the 13 week. I'll be certain to post these changes as they occur.
Another solid week of AIM trading has added nicely to my growing Cash Reserves. As always, I'm keeping my "good until cancelled" orders up to date at the brokerage. This assures me that I'll get my designated trades even if I'm busy doing something else.
A bit of noise about the FED possibly raising "Margin" requirements managed to upset the market rather dramatically a the beginning of the week. We could almost pick the names of the stocks that were the most highly leveraged by watching which ones tumbled the furthest! It reminded me again of the funniest title for an investment book - the oxymoron of Mr. Fosback's STOCK MARKET LOGIC. Some days it's just hard to find any logic to what happens on Wall Street!
We all must be doing something right! More people every week contact me with questions about starting AIM accounts. It seems that as investors become more "seasoned" the more they appreciate AIM's sensible approach to portfolio management. Plenty of investors were coated with "seasoning" during the mini-bear market we had this fall. If you know someone that would benefit from the AIM strategy, why not give them the gift of Mr. Lichello's book and one of the fine software packages for running AIM! It's not too late to get your holiday orders placed!! Take a look at the AIM Software options available!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________31% Up 1 - Average Risk Growth Stock Mutual Funds___________20% Unchanged - Average Risk IW Risk Oscillator____________________"+6" - Rising Risk |
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Value Line P/E ratio 16.6 + 52 week Treasury Rate 4.62 =____ 21.22 up 0.2 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 5.3 down 2.4 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.5 up 0.3 Neutral (Divergence) % change, # of issues on NASDAQ_______________________-4.0 down 0.2 Bullish (Zeal) |
Some of my stocks have the luxury of already being fully funded in their respective cash accounts. This has allowed me to pull "vealies" to keep the AIM equity/cash ratio in balance and in concert with the Idiot Wave's suggestions. Here's the last week's AIM activity for Veale's Intl. Equity Warehouse:
So my AIM Cash Reserves rose as a Total and as a Percent with all this selling. What surprises me is that many of my stocks still have not had their first AIM sells since the rally started in mid October. Although most of these other stocks have risen in value (like VLSI from the low $7s to $12) it's still not been enough to trigger AIM's Sell mechanism yet. In many cases it has to do with the fact that I didn't buy as much stock as AIM would have liked at the very bottom. This was because there wasn't enough cash to go all the way around!
With the spectacular rise in some of the internet stocks in recent days, we can expect to see my SPECULATION index go back to High Risk soon. The excitement of the market's recent big mergers certainly is making things interesting. We need to see more "trickle down" to the smaller caps, however. The Russel 2000 is still 20% off its previous peak even while the DOW 30, S&P 500 and the NASDAQ Composite are all soaring. Are we ever going to get a Small Cap. Rally???
I want to say hello to my good friend Carl, whom I've been trying to coax into trying AIM for years. He has recently (the last year) become computer literate and now even knows how to find these pages! Carl's selected two stocks which to AIM and is off to a good start. He's had one buy and a couple of profitable sells. Congratulations Carl!
One more item - I made another attempt to reach Mr. Lichello last week. A Florida friend came up with a "newer" address and I've mailed an intro letter off to him. Let's keep our collective fingers crossed and hope we hear from him!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________30% Up 2 - Average Risk Growth Stock Mutual Funds___________20% Up 1 - Average Risk IW Risk Oscillator____________________"+8" - Rising Risk |
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Value Line P/E ratio 16.4 + 52 week Treasury Rate 4.62 =____ 21.02 up 1.08 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 7.7 up 8.2 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.2 unch. Neutral (Divergence) % change, # of issues on NASDAQ_______________________-3.8 unch. Bullish (Zeal) |
The other two components showing Neutral are the Speculation and Divergence measures. This week Read-Rite shows its skills with a score of 133.7% rise from just 13 weeks ago. By comparison, NovaCare numbed up its investors with a drop of 61.2% in the same period. We're starting to see a speculative imbalance here. In the Divergence measure, there were 179 new highs and 178 new lows last week - almost perfect balance! Unfortunately too high a value to keep this indicator bullish.
This week's BARRONS had an article titled BOOMERS' TIME BOMB on page 57. It relates to the demographic shift that will start to become apparent over the next decade as the "boomers" start to retire. The article asks who we expect to sell our equities to when we need cash in retirement. It suggests that the stock market may not be user friendly for a while after that point in time. It makes interesting reading, but unfortunately doesn't happen to offer us the ultimate solution to this problem.
During last week's market consolidation, my own account fell quiet with just a couple of trades taking place:
In the rapid pace of change the market has had recently, I neglected to keep my "good until cancelled" orders on the Buy side up to date. Some if this may have been subconciously intential, since my cash reserves had been drawn down so low recently. This became embarrassingly apparent when my OmniQuip stock (OMQP) cycled from my last sell point of $15.25 to around $12. I had a "gtc" order in at about $9-1/2 left over from a couple of Sells ago. I quickly changed the order to $11-7/8 where it should have been now, but alas, it was too late. The stock had been at $11-3/4 earlier in the day, but never visited those levels again before running back up over a dollar per share. The lesson is that we should really keep these orders up to date!!!
My email has been very busy and interesting as people find AIM and inquire about getting started. Mail from as close as 1-1/2 hours away by car to overseas mail from England have arrived in my email box recently. Thanks for all the kind words and continued interest in AIM.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________28% Unchanged - LOW Risk Growth Stock Mutual Funds___________19% Unchanged - LOW Risk IW Risk Oscillator____________________"0.0" - Steady Risk |
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Value Line P/E ratio 15.5 + 52 week Treasury Rate 4.24 =____ 19.74 up 0.9 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ -0.0 up 4.1 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.9 up 0.4 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-3.6 down 0.3 Bullish (Zeal) |
To confirm what's been going on, here's a list of the last week's AIM activity in my accounts:
With the NASDAQ up about 25% since hitting a recent low point, we have to recognize that risk is rising, too. If we subtract the IW Oscillator value from the Idiot Wave reading from two weeks ago (IW = 30, Oscillator = -10) we would have a low point of 20% Cash Reserve indicated for our AIM stock accounts. Well, our reading this week is 28%, so you can see that our fearless Idiot Wave is telling us that we need a bit more caution.
Most of my mutual fund accounts are already nearing their first AIM Sell points. One did this week, but it already had more cash than the IW was requiring, so it got a "vealie" instead. This is the first time I've had the opportunity to use the "vealie" strategy from a "low risk" market point in time. Mostly I've done them when the market and my stock prices have been near their high end, not recovering from a bear mauling. I'm very pleased with the results so far.
Mention was made in this week's BARRONS magazine that mutual funds will be selling for their own "tax loss" accounting. The article was on Page 27. It indicated that it could actually bring on an early "January effect" by selling the dogs off early and then letting the sell pressure off. After all, the institutions do most of the trading on the exchanges, so this makes some sense. Interesting article.
I hope you all are getting your own chances to raise cash for your AIM accounts as this recovery continues. It's certainly pleasant after the bashing we took earlier. It wouldn't hurt to evaluate your portfolio for those things that you feel are best for long term AIM accounts. If you aren't confident of your stock's future, maybe this rally is a good thing to use for some "reallocation."
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________28% Down 2 - LOW Risk Growth Stock Mutual Funds___________19% down 1 - LOW Risk IW Risk Oscillator____________________"minus 6" - Falling Risk |
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Value Line P/E ratio 14.6 + 52 week Treasury Rate 4.24 =____ 18.84 up 0.1 Bullish (Relative Valuation) Veale's Best/Worst Index ______________________________ -4.1 up 0.8 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.5 up 1.0 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-3.3 down 0.3 Bullish (Zeal) |
AIM's kept me busy the last week:
Many of my stocks have not yet returned to their 26 week Moving Averages. Several are still at half their previous highs. It's hard to believe that we could already be selling with the prices still so low. However, remember that AIM is a Proportional Control Device. The bigger the moves the bigger the action.
Isn't it nice to see all those green Bullish and Low Risk readings at the top of the page? I must again state that Low Risk does not mean NO RISK! Please don't get greedy now and not follow AIM's sell market orders. It's necessary that we rebuild our cash reserves as quickly as we can. So place your Sell Orders on a "good until cancelled" basis and let them happen. There will still be lots of shares left to sell at higher prices. Our Equity Warehouses are running along smoothly now. We have plenty of inventory and demand is building nicely. All we need to do is make sure we ship on time!!
Again this week I want to congratulate those of you that have just seen your first deep AIM cycle. Like many a "learning experience" it probably didn't seem very pleasant at the time, but you'll look back on it favorably. Thanks for sticking with AIM and me.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________30% Down 3 - Average Risk Growth Stock Mutual Funds___________20% down 2 - Average Risk IW Risk Oscillator____________________"minus 10" - Falling Risk |
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Value Line P/E ratio 14.5 + 52 week Treasury Rate 4.24 =____ 18.74 down 0.89 Bullish (Relative Valuation) Veale's Best/Worst Index ______________________________ -4.9 down 2.7 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.5 up 0.2 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-3.0 down 0.3 Bullish (Zeal) |
I hope you can sense my enthusiasm, because I'm feeling better about the market today than for a long time. I don't believe that all the world's problems have been simultaneously solved. I do believe that in recent weeks, the majority of those problems have been used to discount the prices of many equities to very attractive levels. It's a good time to put money where we find the best possible fundamental values.
Reviewing my SPECULATION index, I find this week some sample numbers:
Best Performers, Last 13 Weeks
Let's compare those numbers to the end of July:
Best Performers
The last item of our four components of the Idiot Wave to finally give a bullish signal is the RELATIVE VALUATION figure. This week we got a double gift with the drop in the Value Line P/E ratio AND a reduction in the 52 week Treasury coupon rate. This pleases me greatly to see a bullish signal finally after all this time.
Just a few trades to report for this week's AIM/Newport efforts:
Please let AIM guide your accounts back to healthy cash reserves. Remember that this may not be the end of the bad times, but just part of an interim trading range which will define the actual bottom. If we can nip a few buys and sells over the next quarter, we'll be very happy when the actual rally gets going. In the mean time, I'm delighted to have positive Cash Flow here at Veale's International Equity Warehouse. Congratulations to all of you who have been sticking with AIM, Newport and me through this recent ugly market. You'll be pleased you did. Thanks once again Mr. Lichello!!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________33% Down 2 - Average Risk Growth Stock Mutual Funds___________22% down 1 - Average Risk IW Risk Oscillator____________________"minus 8" - Falling Risk |
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Value Line P/E ratio 14.9 + 52 week Treasury Rate 4.73 =____ 19.63 down 0.4 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ -2.2 down 5.5 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.3 down 1.0 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-2.7 down 0.2 Bullish (Zeal) |
If we subtract the IW Oscillator value from the IDIOT WAVE itself, we end up with a reading well down into the Low Risk area. Risk seems to want to continue to fall, and as many have discovered there's some pain involved in the reduction of market risk. We may not have reached the bottom, but we're much closer than we were just a few weeks ago. The IDIOT WAVE has been kind enough to confirm that much of the excesses seen back from April through mid-summer have been removed.
Only 19 new highs were reached on the NASDAQ last week. That's out of 5598 issues traded. Realize, if you will, that there were simultaneously 2201 new lows registered! This gives us one of the lowest DIVERGENCE readings we've ever had. This is usually a short term bullish sign. Advances numbered just 760 issues while 4413 issues declined on the NASDAQ.
I'm always happy to see the SPECULATION reading in negative territory. This signals an over-sold condition. That's one of the sure ways to eliminate excesses from the market - SELL EVERYTHING!!! That's exactly what institutions and non-AIM investors have been doing for over two months. We AIMers have been there to bargain shop all the way. We may not see new highs in our favorite stocks for a while, but we should see a return to more normal valuations in the near future.
RELATIVE VALUATION needs only to fall 0.13 and it will bring this last component of the IW into the Low Risk area. I like it when all four components confirm Low Risk. It's never been wrong when this has occured. The "average" P/E for Value Line has fallen 20% since the end of July and interest rates are still falling. This is extremely good news, looking forward.
Here's what happened at Veale's International Equity Warehouse this last week:
A quick check of my account shows it down about 22% for the year to date. For the month of September, the account was up just slightly. My IRA has done better with break-even performance YTD and up just a bit for September. Inside my IRA, the Cash Reserve has fallen by 1/3 and now stands at 21% of that AIM portfolio value. New buy orders for more TWCUX in my IRA have been placed at $27.80.
So, my advise for now is to get those "Good until cancelled" AIM Sell orders placed! We don't want to miss a chance to capture a bit of CASH if the markets are feeling generous. Remember, we may have to churn some trades in a range before the market starts to track upward again.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________35% Down 1 - Average Risk Growth Stock Mutual Funds___________23% down 1 - Average Risk IW Risk Oscillator____________________"minus 4" - Falling Risk |
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Value Line P/E ratio 15.3 + 52 week Treasury Rate 4.73 =____ 20.03 up 0.2 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 3.3 up 2.7 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.3 down 0.2 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-2.5 down 0.4 Bullish (Zeal) |
Lots of orders, lots of negative Cash Flow for the Equity Warehouse. Those of you that use Newport Programs know that each time we buy or sell, we have to call our broker and adjust our next buy and sell prices. So, not only did we record all these trades, but we adjusted our "good until cancelled" limit orders for every one of these stocks. The best news is that the Sell prices that AIM/Newport now calculates for us is dropping.
Not since October 16, 1992, when the NASDAQ stood at 637, has the Idiot Wave shown as low a risk reading as it is right now. Although we're not to the LOW RISK end of things yet, we're closing in on it. Certainly when this week's statistics are added in we'll be that much closer. Today, Wednesday, the NASDAQ tested its recent low of 1499 and, unfortunately, didn't hold there. It closed the day at 1462.6 down 48 points or 3%. It's these breaking of barriers that usually upset the Technical Analysis folks. As you know, here at Veale's International Equity Warehouse, our motto is:
When we see stocks like BMY off 25% from recent highs we know that this is more than just a "sector shift" going on. This is what it takes to cook the fat out of the marketplace. Well, the burners are on HIGH! As I've noted in earlier newsletters, there's a good number of stocks in my portfolio that have stopped falling in recent weeks. Since my AIM Equity Sponge has soaked up almost all of my available cash, it's nice to see some stocks stop falling in price!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________36% Down 2 - Average Risk Growth Stock Mutual Funds___________24% down 1 - Average Risk IW Risk Oscillator____________________"minus 11" - Falling Risk |
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Value Line P/E ratio 15.1 + 52 week Treasury Rate 4.73 =____ 19.83 down 0.04 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ 0.6 up 4.6 Neutral (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.5 up 0.6 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-2.1 unchanged Bullish (Zeal) |
A better mix of AIM trades was experienced this week:
Although some stocks are rising back up (yes, even Amazon.com) many are still at or near lows not seen in a very long time. If you and AIM did your work accumulating shares, chances are you'll also get a chance to do some AIM related selling in the future. Good Until Cancelled limit orders to sell are a great way to assure yourself that those first sales will take place even if you aren't looking at that moment.
All in all, it looks like I may be able to put the GUT WRENCH back in the tool box for a while. I always enjoy putting that tool away!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________38% Down 3 - Neutral Growth Stock Mutual Funds___________25% down 2 - Neutral IW Risk Oscillator____________________"minus 11" - Falling Risk |
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Value Line P/E ratio 14.6 + 52 week Treasury Rate 5.27 =____ 19.87 up 0.2 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ -4.0 down 3.1 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.9 up 0.4 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-2.1 down 0.3 Bullish (Zeal) |
The biggest contributor to this week's risk decline comes from my Best/Worst Index which measures Speculation. WMS Industries is the Best performer in Value Line's universe of 1700 stocks this week with a gain of 73%. This is while MedPartners has LOST 77.9% of its value in the same 13 week period. Well if the biggest winner and loser were just about a wash, what about the rest of the lists? Consider the fact that it now takes a 54+% LOSS to get on the Worst Performers list while it takes just about 19% to be listed with the Best Performers. This shows how big the imbalance is. Everybody's bad, nobody's good! Sounds over-sold to me; how about you? The Best/Worst Index has been quite good at calling out bullish turns. A reading of minus four is decidedly bullish.
During the last week, AIM kept me busy:
What's longer that Gone with the Wind, has fewer characters, no plot and boring dialog? The clinton deposition. Why is Wall Street so worked up about this? Do they expect to see Perry Mason there? For better or worse, the next two years are "Lame Duck Session" for w.j. clinton. I don't think this means the end of the world, after all, we've already had 6 years of a benign presidency. Personally I'm tired of the daily soap opera "Days of our president!" What about Iran? What about Hurricane Georges? Why waste any more of the American people's time on a Lame Duck? Think of the quality people that run our favorite companies. These folks have had to make more decisions in tougher competition than any Washington Bureaucrat. They've continued to be innovative, cost conscious and productive in the face of a world of competition. Thank goodness Industry works with a different standard than does the Federal Government. Long live the American Industrialist!
There, I feel better!!!
With the IDIOT WAVE at 25% for mutual funds, I'm looking forward to a long string of tax free "vealies" before I have to sell any of these recently purchased shares. Most of the diversified mutual funds that I own have about 25% Cash Reserve left in their accounts. This week's Value Line update has the section on foreign country closed end funds. Most of the ones listed are selling at about 30% discounts to their Net Asset Values. It may take some time for the countries and these funds to start back up, but the prices are certainly more attractive than a year ago. My two country funds, Mexico Fund (MXF) and Hong Kong Fund (WEHKX) are WAY OFF previous highs. The whole group of foreign funds should be studied. There's still risk of currency problems in many places and many of the funds are trading at discounts to NAV for good reasons.
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Value Line P/E ratio 14.4 + 52 week Treasury Rate 5.27 =____ 19.67 down 1.7 Neutral (Relative Valuation) Veale's Best/Worst Index ______________________________ -0.9 down 9.5 Bullish (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.5 up 0.1 Bullish (Divergence) % change, # of issues on NASDAQ_______________________-1.8 down 0.2 Bullish (Zeal) |
Again, with Value Line's data base catching up with the market, my Speculation measure - the Best/Worst Index - has fallen into the Bullish area. If V-L used today's price for the Best Performer it would be even lower. However, they still show Amazon.com at $88 when it's really at about $79. Even so, it's still up either 86% or 108% in the last 13 weeks, depending upon which number you use. Compare that to Samsonite which is down 78% in the same period and you see that SPECULATION has been washed away in a flood of SELL orders for now.
Next is the DIVERGENCE measure. With 23 new highs two weeks ago and 31 new highs this last week, it hasn't been exactly a run-away bull market the last few weeks. Compare those numbers to the 2412 and 989 new lows (respectively) the last two weeks and we get a feel for why the NASDAQ Hi/Low Logic Index is now Bullish. As you can see, there was nearly NO divergent opinion about the market recently. If the market starts to recover, we'll see this number start to rise again.
Finally we have ZEAL. This measures the level of IPO activity to tell us whether the market can absorb these new issues. If we have a declining number of issues then dollars tend to concentrate into the remaining stocks. That's what we've had most of this year. This is a good long term Bullish indicator.
I've been spreading the remaining Cash Reserves around my portfolio where I how it will do the most good. A few of my stocks have continued to fall in the last week - VLSI and CGNX in particular. I've added shares there and in my SEE account. There's lots of talk about hideous tax selling that will occur before year's end as people sell off their losers to offset gains taken earlier in the year. This does happen and can extend the length of time for a recovery to take hold. In a brief conversation with my broker, he says that for the last two weeks their office has handled mainly SELL ORDERS, with the exception of my account and a couple of others where he's using AIM as his guide for his client's benefit. I know I'm contrarian, but I didn't think I was THAT unique! I have to admit, with my account down in value by 23% in the last month, I've had moments when I've questioned AIM's guidance and my stock picking abilities! Well, I've not lost faith, and hope you haven't either!
As you may have noted in the above boxes, I've changed the risk statement from Low/Ave./High to what I'll be using now which is Bullish/Neutral/Bearish. I hope this will make things clearer! Also note that if we were to subtract the IW Oscillator value from the current IDIOT WAVE reading, we'd actually be in the Bullish territory (formerly Low Risk). I hope you appreciate the fact that we've only had this occur briefly in 1982, and in 1988, and significant Bullish readings in 1987 and in 1990. So, if we get to a Bullish reading, it will be only the 5th time in 16 years and the first one since 1990. Tune in next week for the latest!!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________43% Down 1 - Average Risk Growth Stock Mutual Funds___________29% down 1 - Average Risk IW Risk Oscillator______________________"-7" - Falling Risk |
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Value Line P/E ratio 16.1 + 13 week Treasury Rate 4.93 =____ 21.02 down 0.73 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 8.6 down 0.8 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.4 down 0.2 low risk (Divergence) % change, # of issues on NASDAQ_______________________-1.6 down 0.1 low risk (Zeal) |
Considering how awful the week was, I'm relatively pleased that just 4 stocks are down from my last purchase price. Remember that during the week, the NASDAQ lost 4.46% and the DOW lost 5.11%. One week is a bit short for judging whether we've won the war, but at least we won the last skirmish!
Only one other time in all the history dating back to 1982 have there been fewer New Highs on the NASDAQ relative to the total number of issues traded there. That was the week of November 20th, 1987. This week only 0.4% of the issues hit new highs. A whopping 42% of the issues hit new lows!!! It doesn't appear there was much divergent opinion about the market last week! Again this last week, if Value Line was up to date with their data base, my Speculation index would look quite different. It shows 8.6 only by including Amazon.com as the Best performer, up 193.8% at $127. However, since it's not there any more, that data is somewhat "tainted." Using the second best performer (Yahoo) my Best/Worst Index drops to a negative 3.9 - a low risk reading. Of note, if we substitute that value into the IDIOT WAVE calculation, the IW drops to 42 for the week and the IW Oscillator drops to minus 12. So, it would appear that we have more of a risk contraction to be seen in the next few weeks.
Many of my stocks may need considerable time to recover to the point where they will be selling some shares again. I guess if I'm looking at LIFO gains while I wait, that's not all bad. I hope you all did as well with your purchases last week.
Bob Norman noted that NEWPORT added Idaho and Iowa to its list of States with users this week. That brings the number of States to 34 plus the District of Columbia where AIMers are active. I believe California still leads the way in total number of NEWPORT users. With cool fall breezes starting to blow through Wisconsin, it's none too soon to start thinking about an AIM Users Seminar in some warm, sandy place!! Now, if the market were to rise about 25% I could probably afford a ticket to..............
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________44% Down 1 _ Average Risk Growth Stock Mutual Funds___________30% Unchanged _ Average Risk IW Risk Oscillator______________________"_5" _ Falling Risk |
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Value Line P/E ratio 16.7 + 13 week Treasury Rate 5.05 =____ 21.75 up 0.01 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 9.4 up 1.6 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 0.6 down 0.8 low risk (Divergence) % change, # of issues on NASDAQ________________________1.5 unchanged low risk (Zeal) |
Out of Nasdaq's 5746 stocks traded last week only 39 hit 52 week highs! A whopping 1809 stocks hit new lows!!! Both numbers are impressive, Mr. Fosback's Hi/Low Logic formula calculates out to be one of the lowest values I've recorded in my data base from 1982 to the present! Value Line's data tends to be a little behind "real time" so Amazon.com is still shown to be up 190% at $129/share. As we know, this number doesn't hold water any more. Without AMZN's influence on my Best/Worst index, it would have fallen to a negative 1.9 (low risk). Maybe by next week, the data will reflect this. In the mean time, please remember that stocks need to only have a 13 week gain of 26+% to make the BEST list while it takes a loss of 48+% to make it onto the WORST list. The IDIOT WAVE will tell us when the true low risk period has begun. Risk is less than a few weeks ago, but it still hasn't fallen to the "average" value of 40% cash suggested for Stocks. Please reserve appropriate CASH amounts if you are starting new AIM positions.
Well, how did AIM and I react to all this ugly news? Okay, here goes:
That pretty well takes care of the last few days!!! I'm sorry I can't report the percentage purchases in this report, but I'm writing from home and don't have the data here. Some of the prices I don't have here either. Not every purchase was as large as AIM would have liked me to make. I allocated my Cash Reserve as best I could. This was the most aggressive buying I've done since 1987.
I mentioned in the Silicon Investor thread that brokerages had been hit hard. They traditionally don't do anything but make money in their retail businesses under such circumstances. Brokers like AG Edwards and Raymond James Financial are primarily retailers. As we've seen in many other sectors, there's guilt by association. These stocks should recover nicely assuming market volume doesn't dry up.
As you are learning (if you haven't been through a big sell_off before), AIM does its first buys at a nice discount, but they are small trades. Once the prices drop significantly, then AIM really kicks in and does serious buying. For me, it's been serious enough to just about tap my overall cash reserves dry. I still have quite a bit of cash left in my Mutual Fund accounts, but even after yesterday's buying, AIM's begging me to spend more. This is typical of AIM as it "pumps the brakes" in a rapid decline. With almost all mutual funds we're stuck not knowing just what price we're going to get until after the close of business. It's impractical to try to out_guess just how far a price might rise or drop, so we'll just have to complete the work later (if the price stays down).
I chanced to listen to CNBC for a short time during the lunch hour today. I've never heard such double talk! The condensed version is "All Bets Are Off!!!!" Some think the FED will lower interest rates, some think it won't. Some think the selling is over, some don't. If I hadn't been eating lunch, the time would have been completely wasted. Personally, I think today the market was celebrating president clinton's leaving the country! It's a reunion of old friends dating back to the early '70s, after all.
I'm still concerned about the upcoming Labor Day Weekend. The market's short term traders like to sell off speculative positions before long weekends _ especially if there's political or economic tension around. I'd say there's plenty of that. After the holiday, I believe cooler heads will prevail. We AIMers will be renamed the "Cool Hand Club!!!" If you are tapped out of cash, remember that you and AIM have done good, efficient buying. If we miss the ultimate bottom by some small percentage, it won't make much difference in a few years. If it's the end of life on Planet Earth, then it really doesn't matter, does it? As you can see from the above list of purchases, I firmly believe that AIM is acting as a good fiduciary, purchasing agent and inventory control manager. It takes guts to stick with any program that's this seriously Contrarian. If the market has made your head spin, just think how the poor person feels that was 100% (or more!) invested in mid_July!! AIM guided you safely to a hefty cash reserve, now let it guide you towards a fully stocked Equity Warehouse.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________45% Down 1 - Average Risk Growth Stock Mutual Funds___________30% Down 1 - Average Risk IW Risk Oscillator______________________"-6" - Falling Risk |
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Value Line P/E ratio 16.7 + 13 week Treasury Rate 5.04 =____ 21.74 up 0.07 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 7.8 up 4.8 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.4 unchanged low risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 unchanged low risk (Zeal) |
I probably forgot to mention that the only way the IW gets to a Low Risk reading is through market pain and suffering! We've been getting a small taste of undercooked Bear meat just recently. Believe me, it's no better when cooked well-done! I've noticed the harmony in many publications recently. They're all singing the hit-tune "I told you so." Amazing how clear all the signs are now that the market's given up considerable premium.
Why, then, would the IDIOT WAVE be dropping in its assessment of risk? Doesn't it understand that the world is on the brink of disaster? First of all, 45% Cash Reserve as a recommendation is hardly indicating "Happy days are here again." Since 1982, the average value of the IW has been about 40%, so we're still high of that mark. It's dropping fast, but still needs to fall below 30% before we feel that we're in a true Low Risk environment for new investing and for existing accounts. The last time was in late 1990.
What would it take to get the IW to a low risk reading? Zeal would have to remain the same, Divergence can't rise, Speculation has to drop to negative values and we still need to shed quite a bit from the Relative Valuation reading. Just eliminating Amazon.com from the Best Performers list in Value Line would take Speculation to -3.8, well into its Low Risk area, so this isn't where the problem lies. Relative Valuation seems to still be the culprit. Well, what has to happen to get that value to low risk? Do we really want to know? Low risk for Relative Valuation is when the number falls below 18.5; it's currently at 21.74 so it has to decline by 3.24. Let's assume that it all came from the 13 week interest rate reading - can we really expect 13 week Treasury bills to fall to 1.8% interest? Okay, then how about the Value Line P/E? Could we anticipate it falling from its current level to under 13.5? The last time we had P/E's that low was 1995. Does that mean the last three years in the market have been pure fluff? Maybe. If so, then the DOW would have to fall to about 6850 (about 27% below the previous high) or there'd have to be a surge in earnings. Lower fuel costs could help earnings this year. Will it help enough? Of the DOW Industrials or the S&P 500, how much of their total cost is related to energy?
So, maybe a combination of things could get the job done. A bit better earnings from low energy costs, maybe a dip in interest rates and a good old fashion rout in the market!
The only graceful way I can see for the above to happen is if money slowly starts to shift (for value reasons) to the smaller cap. stocks. A stampede will just disembowel one end of the market to feed the other. I don't anticipate the masses giving up on "momentum" investing, so I'm not expecting anything graceful to occur.
What has been more common for the IDIOT WAVE is for it to cycle from average to high risk and back rather than dropping from high risk almost straight to low risk. So, if we have it continue to drop to the middle of the Average Risk range, then maybe we'll see it stablize. If the components stay right where they are, in a few more weeks we'll be in the middle of the average area. Just think how smart we're all going to look when we get back to our first Sell Point in our AIM accounts.
I'm now getting AIM buy signals for which I don't have indicated Cash Reserves. This is the first time in about a decade that my accounts have been drawn this far down. Only my mutual funds have plenty of available cash. In the 1987 crash, mutual funds fell an average of about 30% from their summer highs. Funds that work good with AIM fell nearly 40%. So, let's use what's left of our cash reserves as wisely as possible. It will mean all the sweeter recovery.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________46% Down 2 - Average Risk Growth Stock Mutual Funds___________31% Down 1 - Average Risk IW Risk Oscillator______________________"-9" - Falling Risk |
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Value Line P/E ratio 16.6 + 13 week Treasury Rate 5.07 =____ 21.67 down 0.74 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 3.0 down 0.9 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 1.4 up 0.1 low risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 unchanged low risk (Zeal) |
Isn't it nice to see how quickly the Idiot Wave reacts to market situations. After slowly rising along with the market earlier this year, the last few weeks have seen it drop rapidly from the 50s to 46 this week. To non-AIMers, the last few weeks felt like getting too close to the fires of hell, but we know that it was just the excess fat burning off some of the pudgy stocks. Also encouraging is the IW Oscillator showing that risk is dropping quickly.
If we eliminated Amazon.com as the lead stock on the Best Performers list in Value Line, the Speculation Index would have already dropped into its own low risk area. Indeed, Amazon's 135% rise in the last 13 weeks is way ahead of the number 2 stock, which is up just about 75%. Samsonite is still lugging around a 77.3% loss for the last quarter. It takes a drop of 48.9% to get your stock listed on the Worst Performers list but only a gain of 21.5% to make the Best Performers. See how this imbalance displays how Speculation has disappeared recently?
My own buying slowed this week to just three stocks. I'm getting buy signals in two mutual funds and will answer those pleas for more $$$ yet this week.
The number of new highs on the Nasdaq remains very small this week while the new lows are still very high. This helps the Divergence indicator to remain in the Low Risk area. The number of new lows should start to taper off as the market bottoms out.
From the email I've been receiving, it would appear that AIM has done a great job of reducing anxiety among its users. I'm glad that it has been a good guide so far on your investment journey. AIM's not easily distracted by news from Wall Street or Washington, D.C. or Moscow or anywhere for that matter. Luckily, AIM's not suffering from any "critical lapse in judgment" such has befallen the President of the US. Maybe he should AIM to clean up his act!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________50% unchanged - High Risk Growth Stock Mutual Funds___________33% unchanged - High Risk IW Risk Oscillator______________________"-2" - Falling Risk |
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Value Line P/E ratio 18.1 + 13 week Treasury Rate 5.05 =____ 23.15 down 0.33 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 13 up 6.5 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 2.2 down 2.6 low risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 unchanged low risk (Zeal) |
The rather convincing arguement that the Big Bull is temporarily stumbling was not missed this week by the IW's Divergence component. As more and more investors become seriously concerned about the general health of the market, the number of new highs on the NASDAQ has evaporated from 356 the week of 7/17 to only 129 this week. The number of new lows swelled to 811 this week. Not much divergent opinion there!! With so many new lows, this has to be starting to tap heavily into most AIMers' Cash Reserves.
Some days it feels like one is standing in front of a moving freight train. My piddly little orders did nothing to slow the momentum (negative) that the market showed all day. Up and down my screen were negative moves. What confounds me is that many stocks should now be viewed as bargains, but so far there's been no buying support in these smaller cap stocks. The few green arrows I had on my ticker today had to work hard to actually go up today!
It's not as though we weren't warned by the IDIOT WAVE. Only three out of the last 17 weeks has the IW been out of the High Risk area, and then just barely. It's interesting to note that the week in early April that the IW turned High Risk, the NASDAQ stood at 1855. Today it's nearly unchanged from that value. In the mean time, the NASDAQ did hit an all time closing high of 2008 or about 7% above its present level. Easy come, easy go for the non-AIMer. If AIM was fast on its feet, it realized some profits since April. That's much nicer than giving it all back.
Jeff Weber has started another AIM chat site. It can be reached through his web site. You will need to register, but there's no fee at this time. I've only had a chance to register so far. I'm interested in seeing what the chat area has to offer.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________50% up 1 - High Risk Growth Stock Mutual Funds___________33% up 1 - High Risk IW Risk Oscillator______________________"+4" - Rising Risk |
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Value Line P/E ratio 18.4 + 13 week Treasury Rate 5.11 =____ 23.51 up 0.32 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 7.7 up 3.6 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 6.1 unchanged high risk (Divergence) % change, # of issues on NASDAQ_______________________-1.6 unchanged low risk (Zeal) |
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% unchanged - Average Risk Growth Stock Mutual Funds___________33% up 1 - Average Risk IW Risk Oscillator______________________"+2" - Rising Risk |
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Value Line P/E ratio 18.1 + 13 week Treasury Rate 5.09 =____ 23.19 up 0.26 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 4.1 down 2.8 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 6.1 up 0.9 high risk (Divergence) % change, # of issues on NASDAQ_______________________-1.6 up 0.1 low risk (Zeal) |
Amazon.com and Sunbeam share opposite ends of Value Line's Best and Worst Performer's rainbow for the last two weeks. This week Amazon.com is up 141.7% while Sunbeam is off 67.1%. Although this shows a bit of imbalance, it's still within my defined limits of what's "average risk" regarding speculation.
According to the news this morning, much of the increase in the DOW, S&P500 and NASDAQ can be attributed to a handful of stocks. As if to confirm this, IBM reported earnings in line with expectations, its price rose about $8 per share and the DOW rose 35 points! Then, Merck announced that their earnings growth might slow and suggested to analysts that they temper their enthusiasm regarding their stock. This triggered a bunch of reductions in ranking for Merck from strong buy to buy and from buy to hold. The DOW then retreated to negative numbers, even while IBM continued to do well. Amazing!
I've not caught up with the trades that have gone on in the last two weeks. I'll post those later. A good time was had by all the participants of the Watkins Glen and Elkhart Lake races during the last two weekends. I came home with no cuts or bruises on either my body or my '53 XK 120 Jaguar. That makes for a pretty good vacation!!
There's now over 5000 posts on the AIM bulletin board! We seem to be gathering some steam and bring more new and old AIMers into the group. Thanks to everyone for their participation!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% unchanged - Average Risk Growth Stock Mutual Funds___________32% down 1 - Average Risk IW Risk Oscillator______________________"+1" - Rising Risk |
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Value Line P/E ratio 17.8 + 13 week Treasury Rate 5.13 =____ 22.93 up 0.21 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 6.9 up 6.3 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 5.2 up 0.2 high risk (Divergence) % change, # of issues on NASDAQ_______________________-1.7 down 0.2 low risk (Zeal) |
Recently AIM and I added more SEE, IKN, UWW and OMQP shares to my inventory and sold a few shares of VTSS. I performed vealies on a couple of mutual fund accounts as well. I'd sure like to be following the market higher right now, but my own portfolio seems stuck in the Buy mode!
I had the delightful experience of having lunch with fellow AIMers Steve and Andy on Monday. Steve was here visiting relatives (Andy is one) from Texas and drove to Port Washington for a visit. Steve and Andy have both worked at AIM for a number of years after seeing Mr. Lichello on TV over a decade ago. However, both had let it go for lack of an easy way to handle it. In more recent times, Steve has been corresponding with me and "lurking" at S.I. while getting back up to speed. He'd devised many similar "adjustments" to AIM to solve some of its bull market peculiarities. Great minds must work alike!! His own examples looked like great AIM stocks.
I'll be in upper New York State for the next few days. I'm heading there on Wednesday to race at Watkins Glen for the first time. I'm quite excited about racing on a track with so much history. I've been reading about "the Glen" since before I had a driver's licence. So, if I don't get your email answered right away, please forgive me! If you live in the area, you might just want to take a camera and head to the races as there's supposed to be a really great collection of former Formula 1 cars coming along with the usual group of sports cars and other racers.
For midwesterners, the following weekend, we'll be racing at Elkhart Lake, WI in the Brian Redman Historic Races. They usually collect about 500 race cars there for that event. Definitely a Photo-Op!!
My AIM/Newport orders are all in place for while I'm playing hookie! Wish me luck!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% down 1 - Average Risk Growth Stock Mutual Funds___________33% Unchanged - Average Risk IW Risk Oscillator______________________"-3" - Declining Risk |
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Value Line P/E ratio 17.6 + 13 week Treasury Rate 5.12 =____ 22.72 down 0.32 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 0.6 down 5.9 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 5.0 up 2.0 high risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 unchanged low risk (Zeal) |
Market P/E as measured by Value Line has now eased quite a bit. Interest rates seem to want to remain on the low side, so maybe we'll work our way out of the over-valued state the market has enjoyed recently. A year ago, the 30 year Treasury notes were selling with a yield of 6.69% whereas this year, it's down to 5.67%. The lower interest rates go, the easier it becomes for the market to support the lofty P/Es.
The Amazing Amazon.com tops Value Line's Best Performer's list showing a heady 85% gain. Not bad considering the period was almost all in the IW's high risk area. Unfortunately, no similar rays of sunshine fell on Sunbeam Corp. as a photon torpedo knocked its share price down 73.2% in the same period. These numbers help to bring the SPECULATION index down to its lowest level since early February - near the beginning of the new year rally.
Only a few trades have passed AIM's approval since last week's report:
It's nice to have my IRA's mutual fund hitting new highs along with some of the market averages. TWCUX had been a bit sleepy for a while, but really got a good run going after the first of this year. It's up about 22% since January first including the Cash Reserve. That's performance and safety combined nicely by AIM. AIM is really a simple hedging strategy.
I'm guessing that within three weeks we'll have our 10,000th visitor arrive here and read the weekly newsletter. Nearly 15,000 visitors have accessed the AIM Users Group home page, so 2/3 of them stick around long enough to read this letter. That's not a bad ratio.
I heard from our fellow AIMer in India recently. He says that the country's nuclear tests nuked his portfolio as well. AIM has now used up much of his cash reserve and he's beginning to wonder how long he's going to have to wait for a recovery. I know the feeling! I vividly remember the last 2-1/2 months of 1987! I hope your wait isn't too long!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________50% down 1 - High Risk Growth Stock Mutual Funds___________33% down 1 - High Risk IW Risk Oscillator______________________"-3" - Declining Risk |
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Value Line P/E ratio 17.9 + 13 week Treasury Rate 5.14 =____ 23.04 up 0.11 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 6.5 up 4.6 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.0 unchanged ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 down 0.2 low risk (Zeal) |
Here's my AIM trades since the last report:
Good Guys are the Great Guys this week showing a 132.1% gain in just one quarter. I didn't check to see if it's a buy-out or just good news. The second best was only up about 90% which makes me think something unique is happening at Good Guys. Like an old pillow, Boston Chicken has been losing its feathers for some time. It currently has lost 69.5% of its shareholders' equity value in the same quarter. The rest of the lists of Best and Worst Performers is in pretty good balance right now.
The NASDAQ Advance/Decline data has improved in the last week. However, it still shows that the market average is advancing on a relatively small number of issues' price improvement. As of a week ago, the market was still not convinced that a rally might happen. New NASDAQ Highs only numbered 175 while New Lows stood at 683. Since there's very little DIVERGENCE in opinion about the market direction, we can consider this a slightly bullish reading for the short term.
We'll soon be in the 5 digit area of readers of this weekly report! Thank you all! New email comes in all the time from new quarters. I had a great letter from a fellow in Germany that's just getting started with AIM. I'm happy to say his English is better than my Deutsch!!
I'm re-reading Mr. Lichello's book right now as a refresher. I had forgotten how many really great quotes there are in there! Here's one of Titanic proportions:
"When too many of a ship's passengers attempt to flee in the same lifeboat, the liveboat will sink. There's nothing wrong with the idea of a lifeboat. It works fine - until too many people attempt to clamber aboard."
I had missed that opening remark by Mr. Lichello on each of my previous readings. That's exactly the problem with a "Stop Loss" order. Those of you that have been stopped out of a position and not received the amount you expected know just what he means in this quote.
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Value Line P/E ratio 17.8 + 13 week Treasury Rate 5.13 =____ 22.93 down 0.95 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 1.9 down 1.9 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.0 unchanged ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.3 up 0.1 low risk (Zeal) |
The big change is in the Value Line P/E ratio. It dropped a full point from the previous week's reading. While 17.8 isn't exactly bargain territory, it's sure better than where it peaked at 19.7 back in late April! This time the market unwound faster than earnings could drop, so the P/E came down a bit. However, the Relative P/E remains in the High Risk area for now.
I'm writing this report from my home computer and don't have all my buy reports handy. I guess if I said "More of the same!", it would pretty well cover what I've been doing this last week. I'll have to check, but I'd guess that 3/4 of my portfolio has now had at least one buy in the last month.
I don't know what lasting good the manipulation of the Dollar-Yen ratio will have for the market. It was dramatic to see what it did for just one day, however. If reforms do take place in Japan relative to their protectionist trade activity, it still will take a long time for any US company to see any change to its bottom line. However, Wall Street didn't view it that way!
Handleman's was the Best Performer in Value Line last week, showing an 89.1% gain in just 13 weeks. Boston Chicken looks like it lost the cock fight giving up an impressive 71.9% of its shareholder's value during the same period. My Speculation index has now fallen back to the low end of its Average Risk range. This means that the speculators have taken a break for now. If we look at the last stocks on the Best and Worst lists we find that they are almost back to balance. Vanguard Cellular is up 30.9% while Teradyne is down 29.6%. There were only 174 new highs on the NASDAQ last week while 605 stocks posted new lows. This shows very little Divergence in opinion and that is usually a short term bullish sign.
I am not good enough to say whether the market decline is over or not, but I am glad to see some of the IDIOT WAVE components coming down to more reasonable levels. The way the market moves from sector to sector, it may just work its way out of its problems. I'd be happy with a shift to the semiconductor sector, personally! :-)
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________52% down 1 - High Risk Growth Stock Mutual Funds___________35% down 1 - High Risk IW Risk Oscillator______________________"-4" - Declining Risk |
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Value Line P/E ratio 18.8 + 13 week Treasury Rate 5.08 =____ 23.88 down 0.68 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 3.8 down 1.7 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.0 up 0.7 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.4 down 0.1 low risk (Zeal) |
I am delighted to report that the Idiot Wave is backing off. It still has a good long way to go to get back to the middle of the Average Risk Range, but at least it's started to fall. Two points in two weeks is a good start. My Best/Worst Index has turned down dramatically. Greentree provided the most Greenbacks for those that invested 13 weeks ago, according to Value Line. It managed to sprout an 88.1% gain. Applied Magnetics, however, failed to attract investors and reversed polarity with a -57.2% loss in the most recent quarter.
During the last week, at AIM's suggestion, I managed the following trades:
It won't be long before we start hearing rumors of the next quarter's earnings for our companies. We'll just have to keep our fingers crossed, I guess. I'm reading in more and more places that the fall-out from the SE-Asia recession is passing over the rest of the world markets. The most worrisome report, for me, is that mutual fund average cash reserves are at very low levels, historically. This means that they aren't as willing or able to support the market with their "buy on the dips" activity. My overall cash reserve is comforting me as I watch my stocks drift or fall in value. As much as I love to average down and replace shares I've sold profitably, I think I prefer to be selling rather than buying! Well, as I've mentioned here before, I guess we have to plant seeds to create a harvest for later.
Sometimes in a "trading market" the price range of the stocks isn't large enough to get AIM motivated to do any buying or selling. So far I haven't had to worry about that! As AIM buys more shares, the price of the next AIM sell falls, too. I guess that means we will be recovering our cash reserves profitably that much sooner.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________53% down 1 - High Risk Growth Stock Mutual Funds___________35% down 1 - High Risk IW Risk Oscillator______________________-3 - Falling Risk |
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Value Line P/E ratio 19.4 + 13 week Treasury Rate 5.16 =____ 24.56 down 0.16 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 5.5 down 0.6 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 2.3 down 1.6 low risk (Divergence) % change, # of issues on NASDAQ_______________________-1.3 down 0.1 low risk (Zeal) |
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________54% unchanged - High Risk Growth Stock Mutual Funds___________36% unchanged - High Risk IW Risk Oscillator______________________"0" - Steady Risk |
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Value Line P/E ratio 19.4 + 13 week Treasury Rate 5.16 =____ 24.72 up 0.08 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 6.1 down 3.6 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.9 down 0.5 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.2 down 0.2 low risk (Zeal) |
AIM and I have been busy - mostly spending money! Here's a summary of the last two weeks' efforts:
I checked the Closed End Funds this week in BARRONS as they usually get hit more than their open ended cousins in a down market. Well, so far no screaming bargains, but I did note that Equus II Fund (EQS) and Alliance All Market (AMO) both have rather impressive records. Here's a picture of their most recent three years work:
Looks like pretty good performance with a bit more spice than the S&P 500. These might just be worth keeping an eye on as potential AIM accounts.
Good Guys finished first with a 13 week gain of 94.6% according to Value Line. Boston Chicken laid a rotten egg by dropping 56.1% in the same period. That's a lot of guano!! Can Boston Chicken re-coup? Is today's price inTyson? (sorry!)
I'd better quit before I drive any of you faithful readers off! 8700 times since last January people have dropped by to see what this is all about. I will attempt to get this darned newsletter up by Tuesday night most weeks. The last couple of weeks were rather distracting and I appologize for my deliquent reporting.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________54% unchanged - High Risk Growth Stock Mutual Funds___________36% unchanged - High Risk IW Risk Oscillator______________________+2 - Rising Risk |
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Value Line P/E ratio 19.5 + 13 week Treasury Rate 5.14 =____ 24.64 up 0.42 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ 9 down 5.2 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.4 up 0.9 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.0 up 0.1 low risk (Zeal) |
As you can see above, the IDIOT WAVE hasn't eased its conservative position here. Three components rose while one fell this week. The net effect was almost no change. Maybe in 5 years we'll look back at the price of our favorite equities today and say that they were bargains, but for the short term, it looks like a tough market for a while. If nothing else, the market's consolidating gains from the first of the year.
My own trades this last week show a new direction for one area. It would appear that the medical technology and biotech area are starting to thaw after years in the freezer.
Well, there's nothing dull about a high risk market. There's buy-outs, mergers, IPOs, anti-trust action, riots, nuclear tests and who knows what else! The best news seems to be that the market is a bit worried about itself. With luck, the market will continue the consolidation without much upset. My Cash Reserves aren't as high as they've been at other times, but they should last out a minor storm if it comes. Right now I'm very happy just to let AIM build up more reserves where it can.
We recently passed 8000 visits to this newsletter since early in 1997. That's also 4000 visits since early December, so it looks like the "rate" is increasing. Thank you! I'm sure whomever collects Mr. Lichello's royalty checks also thanks you!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________54% up 1 - High Risk Growth Stock Mutual Funds___________36% unchanged - High Risk IW Risk Oscillator______________________+1 - Rising Risk |
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Value Line P/E ratio 19.1 + 13 week Treasury Rate 5.12 =____ 24.22 down 0.55 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +14.9 up 1.2 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.5 down 0.5 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.1 up 0.1 low risk (Zeal) |
During the last week AIM managed to adjust my inventories as follows:
If the large cap. stocks have given up market leadership, where will it turn next? DeKalb Genetics 'A' has been purchased and the buy-out gave the shareholders a 158.8% gain in just 13 weeks. Briefly last week, we saw a small cancer research firm shoot for the moon in price as an announcement was released about its therapy. Are we starting to see a revival of the bio-tech area? Certainly the large pharmaceuticals are fully priced, but they also have lots of cash. They just might use that cash to supplement their own research by buying up small bio-tech research firms. Zenith Electronics managed to be Value Line's worst performer again this week by turning in a hideous 47.3% devaluation for their shareholders during the last 13 weeks. This is the third week for that dubious honor. Are the big gains a sign of speculation or market rotation?
Market confusion and earnings reports have combined to take a small edge off the Value Line Price/Earnings ratio this week. However, it still sits at an unrealistic value. As we saw a week or so ago, even a hint of interest rates rising shocks the market badly. That combined with unrest continuing in S.E. Asia could make further market advances hard to obtain. I'm continuing to sell on each AIM sell signal and will until each account is fully funded with Cash Reserve. As the IDIOT WAVE moves higher, it allows my AIM accounts to sell and reduce inventories further.
An AIM user contacted me recently with his own enhancements to AIM. He will take an initial position with a stock and follow AIM. Then, if he wants to add to that position, he first adds to the CASH side of the AIM account. When AIM next tells him to BUY, he uses 1/2 the surplus cash to add to his position as well as execute the AIM buy. Then if there is continuing buying, he doubles the size of each AIM buy, using the remaining "Surplus" Cash Reserve to supplement the AIM buying. This way he works his way into the larger holding with "efficient" buys directed by AIM. Great idea. Thanks from all of us!!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________53% up 1 - High Risk Growth Stock Mutual Funds___________36% up 1 - High Risk IW Risk Oscillator______________________+4 - Rising Risk |
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Value Line P/E ratio 19.7 + 13 week Treasury Rate 5.07 =____ 24.77 down 0.05 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +13.7 up 0.2 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.0 up 0.6 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.2 unchanged low risk (Zeal) |
I realized that I haven't reported any trades in a while. Well, part of the reason is that there haven't been many. However, here's my attempt at catching up:
Dekalb Genetics 'B' again topped the Good Guys list in Value Line this week. It shows a mutated price up 139.8% in just 13 weeks. It takes a 55.3% gain just to make the list! However, Zenith seems to have hit its Apogee after falling 44% from its recent Perogee. The Bad Boy's list only requires a fall from grace of 14.6% to show up there. Note the big discrepancy between the best and worst performers lists. This is a sure sign that SPECULATON is under way.
I looked hard at the list of drug companies in Value Line this week. Talk about richly priced! It makes me think twice about the wisdom of using "vealies" on such stocks as Bristol Meyers-Squibb even when I'm heavy in cash for the account. Merck and others are also fully priced. Several are already above the low end of their 3 to 5 year estimates that Value Line is guessing.
There's a couple of stocks that I've been interested in for a while, but have been hesitant about starting new AIM accounts during a "high risk event." I guess we'll have to see how this plays out. Since we know the pendulum swings in both directions, maybe I'll just wait a while!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________52% up 1 - High Risk Growth Stock Mutual Funds___________35% up 1 - High Risk IW Risk Oscillator______________________+4 - Rising Risk |
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Value Line P/E ratio 19.7 + 13 week Treasury Rate 5.12 =____ 24.82 up 0.35 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +13.5 up 6.4 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.4 down 0.4 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.2 unchanged low risk (Zeal) |
With the first shock behind us, what can we now expect? Numerous companies have announced stock repurchase plans and this usually helps to support the market through a shift in the Supply/Demand ratio. P/E's contract rapidly on a numerical basis when they are as high as they've been. This acts as a tonic to the market as well. Sectors that have been beaten down in recent times should remain "safe" for investments, since they have most of the fat trimmed already. Secondly, they may be the first to recover after the market settles a bit. All that selling activity yesterday only creates another delemma for investors - where do they go with their money next?
The AIM investors, on the other hand had cooly been reducing the risk ratio of their portfolios as the market's 1st Quarter rally had driven the price of their equities to near-term highs. Very few equities fell enough in just one day to trigger any AIM buying, so we have the luxury of time to watch how the dust settles. Also, our earnings on the CASH RESERVE portion of our accounts continues to pay us well (about 5% for most money market accounts) compared to the lean dividends that most stocks pay. This was a quick turn-around on the seeds we planted at the end of '97 to the harvest that we've taken recently. The NASDAQ rose about 20% from early January to last week's peak over 1900. That's nothing to be ashamed of over a two year period, let alone a 3+ month time frame!
With Value Line's Best Performer turning in a grand 148.4% gain in just 13 weeks (DeKalb Genetics 'B') while the Worst Performer (only) fell 54.3%(Zenith Electronics), you can see that there's a bit of imbalance between the two lists. If you remember back in December, the pendulum was at the other extreme of its arc between FEAR and GREED. Back then, the best performer turned in just 66% gain while the worst was down 87.5%. Once again this simple measure of SPECULATION has given us a yardstick with which to measure whether AIM has been a good employee for our Equity Warehouses.
Even with the rather poor performance turned in the last two days of last week, investors were still confident that the market would move in an upward direction. This is shown in the DIVERGENCE measure. A reading of 3.4 isn't quite to the Low Risk area, but is way down from the confused market condition indicated by the 8.3 reading at the beginning of the year. We can expect this value to rise quickly if the market's behavior for the remaning days this week is as ugly as yesterday. So far this AM (Tuesday) the market is in the recovery mode, but that sort of knee-jerk reaction is common after a shock like yesterday.
We have been in a period of the market following the FED more than Fundamentals. It has rallied on the drop and then sustained low interest rates. It will be a period of Investors Behaving Badly even with the rumor of interest rates rising.
Finally, my ZEAL measure is still in the low risk area, but after reading in WORTH magazine about the number of NASDAQ issues switching to the NYSE, I feel I've been mis-reading this value. Since it measures only the NASDAQ issues traded weekly, it has seen a net decline in total issues in recent times. Well, if I combined the NASDAQ and NYSE values, would we have seen a net increase in issues traded? I'll need to do some serious research to answer this question. More later!
In closing, I'd just like to thank AIM for its devoted, unswerving loyalty and hard work. Again, AIM gets the EMPLOYEE OF THE MONTH! award. Congratulations to all of you that have let AIM be your guide.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________51% unchanged - High Risk Growth Stock Mutual Funds___________34% unchanged - High Risk IW Risk Oscillator______________________+2 - Rising Risk |
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Value Line P/E ratio 19.3 + 13 week Treasury Rate 5.17 =____ 24.47 down 0.02 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +7.1 down 2.4 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.8 up 0.9 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.2 up 0.2 low risk (Zeal) |
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________51% up 1 - High Risk Growth Stock Mutual Funds___________34% unchanged - High Risk IW Risk Oscillator______________________+1 - Rising Risk |
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Value Line P/E ratio 19.4 + 13 week Treasury Rate 5.09 =____ 24.49 down 0.1 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +9.5 down 0.7 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 2.9 down 0.1 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.4 up 0.1 low risk (Zeal) |
DeKalb Genetics 'B' has green sprouts all over it this week growing to the top of the Best Performers' list in Value Line. It managed an 88.2% gain in just 13 weeks. A hard pill to swallow is the loss of 49.7% of the value of Dura Pharmaceutical's stock during the same period. My Best/Worst index, which measures speculation, sees this spread as just average risk.
I've had some excellent correspondence recently via email and have posted a few more Questions and Answers at the Silicon Investor pages. Please keep the questions comming. I'll keep filing the information away for all of us to share. I found yet another AIM web site and have sent off email with an invitation. I'll post more info after I've heard from them. Jim Battaglia's web site continues to develop. More on that later as well.
I've had a few trades the last week or two, but don't have them all written down as I type. One was a recent new AIM investment of mine - ADCT. I bought into that stock in February at $21-1/4 and had my first Sell last week at $26-3/4 for 10% of my position. That's a nice 25.8% gain in just a couple of months. The telecom equipment companies seem to be getting back on track again.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________50% up 1 - High Risk Growth Stock Mutual Funds___________34% up 1 - High Risk IW Risk Oscillator______________________+3 - Rising Risk |
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Value Line P/E ratio 19.4 + 13 week Treasury Rate 5.19 =____ 24.59 up 0.33 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +10.2 up 0.9 high risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.0 down 0.4 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________-1.5 up 0.1 low risk (Zeal) |
I don't enjoy reporting that we've gone back into the HIGH RISK area of the IDIOT WAVE's range, but as we've witnessed in recent weeks, the IW has been steadilly rising. It is the first week that we have two components in the high risk area, but we still have one in low risk. If the article in BARRONS this week proves true, we're in for a round of IPO's. That could erase this last area of low risk - the ZEAL component. Through the end of last week, investors were still convinced that the market was going to continue to rise according to the DIVERGENCE reading. As we've seen in just the first two days of this week, that sentiment can change rapidly. Lastly, the SPECULATION index is back at high risk again. It only takes a setback of 12.7% to get your company's stock listed on the Worst Performers list in Value Line (I presently have four stock thus listed! ADCT, CGNX, DIGI, and VLSI) while it takes a 13 week gain of 52.7% to find your companies listed on the Best Performers list. Don't think this is just sour grapes on my part, either. Who would have guessed that Apple Computers would bare fruit of 109.7% during the last quarter while sickly MedPartners gave up 47.6% of its shareholders value?
It's not that the gains or losses are that unusual, but that they are out of balance. Sometimes this happens after a particularly severe round of tax selling like we had at the end of 1997. The pendulum swings too far one way and must seek a return go regain equilibrium. It's my opinion that it has been too much too fast for market stability. This will be the first full quarter's results since the Asian Flu hit and the Idiot Wave is cautious.
I have no trades to report this week! However, I did pull "VEALIES" in ANCFX, TWCUX, TX and XON. When I have plenty of cash reserve for an account, rather than sell, the "VEALIE" helps to keep an AIM account more fully invested. Now that the IDIOT WAVE has gone back into the High Risk area, I'll have to think seriously about whether I will next sell or pull another "vealie."
As we saw last fall, the IDIOT WAVE can remain in the high risk area for quite some time, even while the market makes new highs. However, usually there's a point where the market just can't fool anyone any more. Market Timing Musical Chairs isn't a game that is any more rewarding than Russian Roulette if you aren't in the right place at the right time. AIM's conservative approach of asset allocation suits me much better. Several of my stocks and funds have plenty of cash in reserve while others are a bit strapped. With the overall cash reserve still plentiful, I think I'm ready for whatever the market brings. As has been pointed out on the BB many times, it's very difficult to bring oneself to buy when the market looks ugly. Those of you that have been through a year or so of AIMing know that Mr. Lichello's methods work. To the newer members of the AIM Clan, I can only suggest that you remember why you are investing in the first place. That reason is to buy low and sell high - AIM's Modus Operandi!!!
Best regards, Tom Veale in Wisconsin
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% unchanged _ Average Risk Growth Stock Mutual Funds___________33% up 1 _ Average Risk IW Risk Oscillator______________________+3 _ Rising Risk |
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Value Line P/E ratio 19.1 + 13 week Treasury Rate 5.16 =____ 24.26 up 0.54 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +9.3 up 1.3 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.4 unchanged ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.6 down 0.1 low risk (Zeal) |
I'm humored by this week's Best and Worst Performers in Value Line (page 33 of index). The stocks are from the same general sector, but are separated by a tremendous performance variant. Health Management Systems managed a 13 week gain of 111.6% while MedPartners lost 51.3% in the same period! Sounds like MedPartners should buy one of Health Mangements's systems!! It takes 49.4% to make the Best list, while a loss of 17.1% puts you in with the bad boys. All in all it's been a good quarter for most people.
I only had one trade since the last report. I sold off another 6% of my ASND position. That sale represents a FIFO gain of about 21% since last October when I started that account. Through AIM's help, the account is up 23% (pre_tax). That represents both performance and safety when using AIM.
With only a few days left for people to add to their IRA's (for 1997) there should be one last surge of cash comming to mutual funds. After April 15th, things may slow down for a little while. I looked over the list of closed end foreign mutual funds briefly this week. Value Line has more than a dozen listed. The premiums and discounts are astounding! Almost anything related to the Pacific Rim is way off former highs but most are showing a fat premium to their respective NAV. I saw this happen with Mexico Fund in 1995 after the Peso crash, too. In the mean time, Central and South America and many of the European funds are trading at healthy discounts to their NAVs. Many of these funds are still off previous highs.
I was going to pull some stupid April Fools prank on all of you today, but I feared whatever I might do would be overshadowed by the real market gyrations! In fact, both the DOW and the NASDAQ started the day on the down side and ended with strong finishes. Why play pranks when we can witness the real thing in the marketplace!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% up 1 _ Average Risk Growth Stock Mutual Funds___________32% unchanged _ Average Risk IW Risk Oscillator______________________+1 _ Rising Risk |
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Value Line P/E ratio 18.6 + 13 week Treasury Rate 5.12 =____ 23.72 up 0.12 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +8.0 up 1.0 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.4 unchanged ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.5 up 0.1 low risk (Zeal) |
Here's the list of AIM trades from the last few weeks:
I've been working on last year's Capital Gains for my taxes. I'm most the way through the pile and so far it looks like there's not as many sales as there had been the previous year. I use the FIFO method of figuring my taxes so each sale requires a bit of archeology to discover what the cost base was for any particular transaction. Some of those older tickets go back to the early '90s! Some day I'll get organized and all these calculations will be done as they occur rather than cramming them all into the last few weeks before Uncle Sam's Birthday!
Everyone's pretty excited about the 110.3% gain in EXCITE's stock in the last 13 weeks! The 52.1% loss in value to Danka Business, ADR shares garners no thanks from shareholders, however. This week it takes a 42.7% gain in the last quarter to make Value Line's Best Performers list while just 21.1% off your share price in the same period gets you Black Listed to their Worst list. Just over the last few weeks a number of oil service stocks have shown up on the Worst Performers list. I've mentioned before that any concentration of stocks from one sector usually is a signal of an over_sold condition. It's best to take a look at the healthiest stock in that sector as well as the bad boys. Sometimes you can buy the best stock in that sector at a nice discount and then ride the next speculative wave upwards. AIM will guide your management of risk.
We continue to receive email from new and seasoned AIMers that are "discovering" our site. All seem genuinely pleased at what they are finding at this site and the Bulletin Boards. Lots of questions come along as well. Please don't hesitate to write if you do have questions, I'll answer them as quickly as I can.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________48% up 1 _ Average Risk Growth Stock Mutual Funds___________32% unchanged _ Average Risk IW Risk Oscillator______________________+3 _ Rising Risk |
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Value Line P/E ratio 18.9 + 13 week Treasury Rate 5.26 =____ 24.16 up 0.28 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +7.0 up 0.5 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.4 down 0.1 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.6 down 0.2 low risk (Zeal) |
Again this week, we're getting an "early warning" of high risk as the sum of the IDIOT WAVE and the IW Oscillator equals 51% _ the High Risk Zone. Be selective in the stocks you buy. Look for good value and a reasonable multiple of that value in price. We saw what a little bad news can do to a high multiple stock this last Thursday.
I'll be off_line for a few days, but will catch up on correspondence as quickly as I can.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________47% unchanged _ Average Risk Growth Stock Mutual Funds___________32% up 1 _ Average Risk IW Risk Oscillator______________________+3 _ Rising Risk |
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Value Line P/E ratio 18.6 + 13 week Treasury Rate 5.28 =____ 23.88 up 0.27 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +6.5 down 0.7 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.5 up 0.4 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.4 unchanged low risk (Zeal) |
This week we have that disturbing EARLY WARNING happening again. If we add the IDIOT WAVE value to the IW Oscillator number for this week, it adds up to 50%. That is an unofficial warning of High Risk. We don't really get too worried until the IW itself gets there, but it does indicate that the market has, for various reasons, gotten a bit ahead of itself. Maybe just a little rest period is in order. Please be cautious about starting new AIM accounts right now. Also, let's not hesitate in getting AIM/Newport's recommended Sell orders executed.
Speaking of order execution, here's the latest from Veale's Intl. Equity Warehouse:
Value Line lists Pacific Scientific as the Best Performer for the last quarter, up 108.7%. The science of accounting seems to be a bit of a problem for MedPartners with a deduction of 57.2% from its shareholders net worth in the same period. There's no clear sector showing as either over_bought or over_sold on either the best or worst performers list this week. Only one of my stocks is listed in either place and that's IDTI.
With 585 new highs on the NASDAQ last week vs only 211 new lows, it sure looks like the market wants to keep on rising. The Advance/Decline values also looked good last week. Both sets of numbers confirm the upward movement of the market. Neither is that good at predicting the next move, however.
The surprise for me is the lack of expansion of the NASDAQ. My ZEAL index is still showing a net reduction in the number of issues listed with NASDAQ. Historically, this is a bullish sign. The reason is based upon Supply/Demand equations. If there's fewer issues in which to invest, the available money will concentrate in the remaining issues. With the Price/Earnings ratio as high as it is for the general market, I'd think that everybody would be trying to go public.
I have one computer in for some repairs and when that one is back, I have another to send off for service. Both are laptops and both spend most of their time as desktop units. I cracked the screen of the older laptop about a year ago and by the time I get it fixed, it might be cheaper to just buy another! Wouldn't it be nice if this were true of houses! Mr. R. Buckminister Fuller stated in his book "CRITICAL PATH" that the net result of technology improvements is to do "more, better, with less." This sure seems to be the case with computers! My hope is to not be off line at all with the work.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________47% up 1 _ Average Risk Growth Stock Mutual Funds___________31% unchanged _ Average Risk IW Risk Oscillator______________________+2 _ Rising Risk |
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Value Line P/E ratio 18.4 + 13 week Treasury Rate 5.21 =____ 23.61 up 0.28 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +7.2 up 3.7 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.1 down 0.6 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.4 unchanged low risk (Zeal) |
If we see good earnings reports come out for this quarter, maybe we can soften up the Value Line P/E a little. It's been disturbingly high for many months. That in combination with a stabile 13 week Treasury rate has kept the Relative Valuation component of the IDIOT WAVE in the high risk area for months.
Pacific Scientific heads up the Best Performer's list from Value Line this week. It shows a 111% gain in just 13 weeks. Continuing troubles in the health care sector has depressed the share price by 57.1% at MedPartners. For those of you that have been reading this newsletter for some time, please note how the performance ratio of the best to the worst has shifted recently as the market has been climbing back from its 1997 year end lows. This is an obvious and measurable way to get a feel for speculative activity in the marketplace. It now takes a 44% gain just to make the Best Performers list while a slip of about 26% gets your company listed with the Worst Performers! This is almost the complete reverse from the first week of January. My how things have changed!
Since the last report, AIM has guided me to make the following trades:
Someone will soon be the lucky 10,000th visitor to the AIM Users Group home page. It's less than 150 away from that magical number! That page counter was reset right around January 1st of 1997. Thank you all for your continued support and participation. Let's hope 1998 continues to be both an excellent investing year and a growth year for AIM users!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________46% up 1 _ Average Risk Growth Stock Mutual Funds___________31% up 1 _ Average Risk IW Risk Oscillator______________________+2 _ Rising Risk |
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Value Line P/E ratio 18.1 + 13 week Treasury Rate 5.23 =____ 23.33 up 0.59 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +3.5 up 1.1 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.7 down 0.3 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.4 down 0.1 low risk (Zeal) |
Our IW's other components remain in the moderate to low risk areas. Speculation and Zeal are both low and Divergence is shrinking. The market has chosen a direction and it's up. As we know, this school of fish can turn very rapidly, so please stick to AIM's advise and sell any shares that it suggests. We want to keep our Cash Reserves as fully funded as AIM will allow when Relative Valuation is as high as it is. In keeping with this, during the last week, AIM and I :
I have been archiving my weekly reports and find that the file is getting rather large! I guess I should back it up or put it some place where it will be "safe!" Looking back over the last year, I have to say that it's been an interesting if a bit emotional year. In the first part of '97 the market was pretty happy. Then in March and April, it looked like maybe the fun was over for a while. Like a Superball, the market soared to all time highs by fall only to fizzle at the end. AIM and I kept my broker busy. The number of weeks that went without any trades was small.
Pacific Scientific found the formula for success, rising in share price 96.3% in just 13 weeks. This makes it the Best Performer in all of Value Line. At the same time, it looks like the members of MedPartners should have taken an accounting class along with their medicine studies! It fell 60.2% in share price during the last quarter. I noted that a former "bad dog", IDEXX _ a veterinarian supply house, has emerged from Obedience School with no flees! From a low of $9_1/4 last summer, it's doubled to $18_7/8 recently. With a 52 week High of $38 and that $9_1/4 low, even AIM would have been hard pressed to tame this beast!
Over 9500 visits to the AIM Users Group home page in about a year is indicative that we're a growing and healthy group. This "freebee" newsletter has more than 6000 readers logged in. I thank you all for being a part of the AIM Users Clan Gathering! I'm getting tired of Wisconsin in the Winter, so if someone wants to organize our first annual AIM Seminar in some warm and sandy place, I'll be happy to Em Cee it! There's enough of us now to put together a good program covering a variety of topics relative to investing. You'll be able to tell which one is me, I'm the guy with absolutely NO TAN!!!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________45% down 1 _ Average Risk Growth Stock Mutual Funds___________30% unchanged _ Average Risk IW Risk Oscillator______________________0 _ Steady Risk |
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Value Line P/E ratio 17.5 + 13 week Treasury Rate 5.24 =____ 22.74 up 0.03 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ +2.4 up 3.5 ave. risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.0 down 1.1 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.3 down 0.2 low risk (Zeal) |
Station Casinos, along with several other gaming properties, are really on a roll! An 88.5% gain was registered within the last 13 weeks putting it at the top of Value Line's Best Performers list. MedPartners managed to fall 61.5% in the same period to collect the dubious honor of the Worst Performer. As you can see, the Speculation index is no longer in the Low Risk area, but is still low by historical measures.
The market seems to have picked its new direction and with that choice has come a reduction in the Divergence level, now back in the average risk range. Last week there were 436 new highs and just 238 new lows registered. This is just about the reverse from mid January. I'm just glad the latest direction is UP!
Last week AIM and I had a busier and happier time than we've had in a long time! Here's the trades as they took place:
This week I started a new page at Silicon Investor. I'll be posting a link to it on the AIM Index page and cross references to it at the main AIM site on SI. On this page, I've been copying over some of the questions and answers from my email files. I felt that this would make a good supplement to the FAQ page here. I hope there's something there for everyone. Please let me know what you think of the note string.
After a few of these market and sector rotations, AIM really starts to make some sense! Since the Cash Reserve requirements are comming down as indicated by the IDIOT WAVE that means we can start using "vealies" all the sooner! I have plenty of selling to do before I get to that point on several stocks, however. Stick with AIM as the market rises so we'll all have lots of cash in the next down turn.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________46% unchanged _ Average Risk Growth Stock Mutual Funds___________30% unchanged _ Average Risk IW Risk Oscillator______________________+1 _ Rising Risk |
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Value Line P/E ratio 17.5 + 13 week Treasury Rate 5.21 =____ 22.71 up 0.40 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _1.1 up 2.4 low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 5.1 up 1.4 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.1 down 0.1 low risk (Zeal) |
Just one AIM trade last week. AIM and I sold about 8% of my IDTI shares at $13. It was both a LIFO and FIFO gain. You can view my AIM history with IDTI as it's the featured Example this week.
Value Line's Best Performer this week gambled and won 82.4% in the last quarter. Station Casinos seems to have known how to place its bets. Oxford Health has been feeling poorly for some time, and still shows up as V/L's Worst Performer, but recent merger talks may move it up from its indicated 80% loss in the last 13 weeks.
The regional Bells have been ringing loudly in recent times. If you are an owner of some of these, I'd guess you are nearing some AIM sells. Lagging the baby Bells seem to be the telecom. equipment suppliers. Lucent isn't rationally priced, but many of the others are much closer to reasonable valuations.
It looks more and more like something good is happening in the bio_tech and smaller pharmaceutical stocks. I recently added HQL to my holdings as a catch_all for this sector. That plus my other individual holdings represents a goodly chunk of my overall portfolio. It keeps my attention!
I've mentioned in recent weeks that my Best/Worst Index rarely goes into negative values without being followed by a nice short term rally. I'm hoping that IDTI Sell is just the beginning of a long string of sales in my account. Veale's Intl. Equity Warehouse is pretty well stuffed with stock certificates and I wouldn't mind a small reduction in inventory!! It looks like I'll get a nice boost in my Hong Kong shares (WEHKX) based upon their overnight strength. Jim Battaglia, our regular contributor regarding Mutual Funds, is quite high on the Pacific Rim funds right now.
The amount of email I've been receiving indicates that people are finding our AIM pages at an increasing rate. Both new and old AIMers have been writing. I appreciate the mail and don't mind answering the questions at all. Silicon Investor seems to be a good home for the AIM Bulletin Board as so many stocks that we follow are discussed there. As SI gets better so does our AIM BB! We have passed the 9000 mark for visits to the AIM home page. I'm delighted with the response in our first year since leaving Prodigy. Thank you all!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________46% down 1 _ Average Risk Growth Stock Mutual Funds___________30% down 1 _ Average Risk IW Risk Oscillator_______________________4 _ Falling Risk |
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Value Line P/E ratio 17.2 + 13 week Treasury Rate 5.11 =____ 22.31 down 0.29 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _3.5 unchanged low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.7 down 0.1 ave. risk (Divergence) % change, # of issues on NASDAQ________________________1.0 down 0.4 low risk (Zeal) |
It's darned hard to find companies that are expected to grow at a decent rate that aren't way overpriced by historical measures. It's like there's way too much demand and not enough supply. It seems like we have to search the back alleys to see who's been mugged recently to find any bargains! I've been working very hard at finding some bargains in the market and have been continually frustrated in my attempts. In the mean time, the stocks that I'm holding look like good bargains but have been behaving badly in recent times.
Speaking of behaving badly, here's the stocks that AIM and I have been buying this last week:
Book value on DIGI for 1997 is shown in Value Line to be $11 per share. That puts the Price/Book Value at 1.70. Let's compare that to Lucent which is selling at $86 per share and has a book value of $5.25 or a P/BV of 16.4!! Both companies are slated to about double sales and book value in the next three to five years. Which one looks like the better value to you? A similar story is told with VLSI and INTC. VLSI is selling at 1.65 times book value while INTC is selling at 6.4 times book. I sure hope I'm right!! As a contrary indicator, the Semiconductor industry recently posted the lowest Relative Strength since mid 1996. Maybe it's time that it start improving!
The NASDAQ moved strongly above the 1600 level today for the first time since early December. It's still about nine to ten percent below its previous all time high, but also up about seven percent from recent lows. It's encouraging to see some nice moves up on fairly heavy volume. I've mentioned in recent weeks that my Best/Worst indicator has been pretty good at calling out short term rallies. Let's hope this is the beginning of one!
I was asked recently to prepare some form of analysis on a major index. I have chosen (since it's already in my database) the NASDAQ Composite Index. What I plan on doing is to run a comparison of Buy & Hold VS AIM using the index as the "price." It will be interesting to see just how it works out. I'll post the results here on the AIM pages when I've finished.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________47% down 1 _ Average Risk Growth Stock Mutual Funds___________31% down 1 _ Average Risk IW Risk Oscillator_______________________4 _ Falling Risk |
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Value Line P/E ratio 17.5 + 13 week Treasury Rate 5.10 =____ 22.60 down 0.25 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _3.5 unchanged low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.8 down 0.7 ave. risk (Divergence) % change, # of issues on NASDAQ________________________0.6 down 0.2 low risk (Zeal) |
The mail holiday on Monday seems to have slowed things down enough that the dog sleds just delivered the Value Line supplement today. Sorry for the delayed report. However, as you can see, the Idiot Wave is looking better all the time. Not only is it down another point this week, but the IW Oscillator is indicating that there's plenty of downward pressure left. In case you haven't noticed in your own portfolio, the ending of a protracted High Risk period isn't without some pain. Usually the market is attempting to reverse direction and has plenty of false starts. Certainly with all the international news adding to the confusion, it may take a bit longer than usual to get back on track.
In the mean time, there are some very nice stocks with their Price/Book Value ratio now well under 2.0.If you compare that to about 6 months ago, they are relative bargains. For your AIM accounts, please try to buy stocks that are fundamentally sound. They should do well as the market gets back on track. Speculation has had a hard time showing its face around Wall Street recently. My measure, the Best/Worst Index shows it is nearly non_existant. For 6 weeks in a row the Best/Worst Index has said that Fear replaced Greed. It's time to do some bargain shopping!
Pegasus Gold is still listed in Value Line while it has on_going Chapt. 11 Bankruptcy in process. It's singed wings may never carry investors very high again after loosing 88.5% of its value in the last 13 weeks. Thirteen weeks ago your best buy was again Best Buy. Its stock rose 70% during the last quarter. Must have had a good holiday season. If you were AIMing the stock, you would have a nice comfortable Cash Cushion on which to rest!
Other than AIM/Newport selling 9% of my shares in OMQP last Friday, it's been a dull week. I'd say that on a whole, I'm still nearer my AIM buy points than the Sell prices. At least it appears that I've stopped loosing ground! ;_)
I'll be attempting to get the Idiot Wave graphs freshened up soon. You'll be pleasantly surprised by how well it's guided us again. There's been lots of noise on CNBC about poor prospects for the next couple of quarters for many companies. It's hard to gauge what this means on a Price/Earnings basis, so fall back on Price/Book Value as a separate measure. P/BV of between 1.0 and 2.0 should indicate a good candidate for further study. Some stocks are still way over_priced by historical measures, so be selective.
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________48% down 1 _ Average Risk Growth Stock Mutual Funds___________32% down 1 _ Average Risk IW Risk Oscillator_______________________3 _ Falling Risk |
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Value Line P/E ratio 17.6 + 13 week Treasury Rate 5.25 =____ 22.85 up 0.32 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _3.5 up 0.2 low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 4.5 down 3.8 high risk (Divergence) % change, # of issues on NASDAQ________________________0.4 down 0.4 low risk (Zeal) |
I was particularly pleased that some of my own equities took part in the day's climb. It's about time!!! I'm please to see that my Best/Worst measure of market speculation is low risk again this week. Since it shows the market as being over_sold, there's almost always a nice rebound afterwards. The last time that the Best/Worst index managed to get all the way into negative numbers was last May when the NASDAQ was at 1305. The NASDAQ rallied 33% to 1739 afterwards. The year before, the market rallied 13% after one of the Best/Worst dips into negative numbers. Let's hope for a repeat performance! AIM/Newport users have been busy scooping up shares being dumped by those with a short term focus on the market. Those share prices will look "cheap" as the markets start their recoveries.
Cincinnati Financial managed to show up at the top of the Best Performers list in Value Line this week. It managed a respectable 65% gain in the last 13 weeks. Not the easiest 13 weeks to manage that! Poor old Pegasus Gold has been lame for so long it's hard to believe there's any stock price left! It's down 88.9% in the last quarter. That doesn't leave shareholders much left.
I've added a few new things to my account in the last week. A coincidence led me to the shares of Jabil Circuits (JBIL) and I started a brand new AIM/Newport account with it at $35_3/4. The stock has a 52 week low of under $16 and a high of $72! Looks like AIM might be busy with this one! Another new item for my account is the shares of a closed end fund by Hambreck and Quist (SP?) with the symbol HQL. It is a fund that invests in the stocks of the biotech "industry." Price range is between $11_3/8 and $16_1/8 which should be enough to get AIM moving. JBIL will generate an AIM buy at $29_3/4 and an AIM sell at $44_5/8. HQL will generate an AIM buy order at $11_1/2 and an AIM Sell order at $14_3/4. Those look like rational prices based upon the previous year's ranges.
During the last week AIM/Newport has again taken care of business for me. Here's the list of
transactions:
I had to add cash to both the WEHKX and FGLDX accounts to accomplish continued buying.
It's not as though there aren't still some things to worry about if you like doing such things. The Middle_East is still uneasy as the UN inspectors try to complete their inspections. The whole SE Asian situation is making many an economist, analyst and investor a bit nervous as well. Let's hope that none of these pots boils over! I'd like to cook up some tasty profits in '98 and try out this new Capital Gains Tax Rate!
While talking with the folks at American Century, I found out there's a money market fund that's a bit better than the old Cash Reserve account. The old one starts with the numbers 026_ but this new one starts with 921_. They invest in basically the same portfolios, but the newer one, which comes from the Benham side of the business, has a lower cost of operation. This translates into] a slightly better yield for us. Recently the difference was about 5.2% VS 5.3%. That's enough to merit a switch. Hope this helps!
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% unchanged _ Average Risk Growth Stock Mutual Funds___________33% unchanged _ Average Risk IW Risk Oscillator______________________+2 _ Rising Risk |
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Value Line P/E ratio 17.1 + 13 week Treasury Rate 5.43 =____ 22.53 down 0.21 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _3.7 down 1.1 low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 8.3 up 4.4 high risk (Divergence) % change, # of issues on NASDAQ_______________________0.0 down 0.2 low risk (Zeal) |
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Suggested Cash Reserve For New AIM Accounts Using: Individual Stocks____________________49% down 2 _ Average Risk Growth Stock Mutual Funds___________33% down 1 _ Average Risk IW Risk Oscillator_______________________4 _ Declining Risk |
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Value Line P/E ratio 17.3 + 13 week Treasury Rate 5.44 =____ 22.74 up 0.13 high risk (Relative Valuation) Veale's Best/Worst Index ______________________________ _2.6 down 2.2 low risk (Speculation) NASDAQ Hi/Low Logic Index__________________________ 3.9 down 2.5 ave. risk (Divergence) % change, # of issues on NASDAQ_______________________0.2 down 0.2 ave. risk (Zeal) |
As I've told you in the previous couple of weeks, when my Best/Worst Index drops into negative numbers, we're usually ready for a quick rally. Well, the week of Dec. 15th the index dropped below zero and has remained there for four weeks. The market, in fact, is starting back up a bit. Let's hope that the Best/Worst Index is right again! The range for the Best Performers in Value Line is 41 stocks up between 28% and 66%. The Worst Performers range from _44% to _87%. As you can see, the Worst outweigh the Best and that's why we can assume that market speculation has been pretty well trampled for now. As I've mentioned before, the Worst Performers list will usually contain a few very nice out of favor stocks. Right now it's the tech sector that shows up most, with about half of the list representing that sector. Happy hunting!
While the new year was rolling in and I was out of town, AIM and Newport were busy on my behalf. Last week two trades occurred on Good Until Cancelled orders placed earlier:
What a difference a couple of weeks has made for my VLSI stock holding. My last buy was at $18_3/4 and today it closed at over $24. This helps my net worth quite a bit! Take a look at the recent update of the AIM Stock Example to see. Another example of AIM's fine work has been with IDTI. The stock is up 11% for the Buy&Hold investor over the period that I've owned it. AIM, however, has managed a 25% return. Not bad! That certainly seems better than just having it in the bottom drawer of my desk!
Without AIM as my business plan for running my Equity Warehouse, what would the last few months have been like? My VLSI fell from the high $30s to under $20, my DIGI fell from around $30 to under $20, IDTI fell from the mid 'teens to $9, and others were beaten up as badly. All I'd have done as a buy and hold investor is to sit around waiting for the stocks to recover. With AIM the drop was less painful (because of the Cash Reserve) and the recovery will be quicker. I hope you all will continue to follow AIM's advise as well!
Bob Norman at Newport Programs said sales of his AIM program were brisk during the month of December. Hope your Newport software brings many happy returns!!!
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