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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
REPORT - WEEK OF 05/21/2007: Could the i-Wave be broken? Will it never relax from its High Risk posture? Who's supporting these high P/Es? Don't they ever worry? What's the downside risk right now? Does anybody care?
Well, in checking the health of the i-Wave spreadsheet, I find that the IW historically still has the same average value and the 10% extremes haven't shifted enough to be noteworthy. So, it doesn't appear there's anything wrong with the spreadsheet. Neither Value Line or Barrons have changed their format in the data sections, so there doesn't seem to be anything wrong there, either. So, what does that leave us? Let the gods forbid that it's a New Paradigm!!! Those never seem to work out.
So, my view is one of continuing caution. Just call me Chicken Little.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
As stated in the past, it would be nice to have a second or third component confirming this high risk condition. It takes very little rise on the part of the other components to drive our i-Wave even further into its X-OverBought territory. Other than to continue to suggest caution in a risky environment I don't have any further comments.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
If there's any good news to report, it would be that there's lots of discussion about market tops, summer doldrums and even a China Bubble. This may be enough worry to keep the exuberance rational. My bet is that Mr. Lichello's model will again be proved correct. If you are finding your cash reserves fully funded be thankful for the 4-5% interest you are accumulating for the short term. I think this will be a welcome component of our portfolios looking into the near future.
Of note in this week's Value Line were that four major domestic air line stocks were on the "Worst Performers" list. Generally when several companies from one industry are showing up there it is an indication of that sector being "over-sold." There are some who would argue that the air line industry can never be oversold and they may be right. However, if there is even one good airline, this might be a good time to check it out as most likely the price/share will be favorable.
My retirement account continues its steady performance as seen below:
The rather heavy burden of cash this account is carrying has slowed performance for a while. We may do some restructuring should the market risk relax enough to justify some rebalancing of the Equity/Cash ratio.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
I don't remember a time when Value Line has had a lower 3-5 year appreciation potential for their universe of stocks than now. Currently it is showing only a 35% potential gain over the next 3-5 years. Previous market highs have actually had better appreciation potentials than this. 40% seems to be a common high at previous market peaks. Compared to market lows of the recent past it suggests caution. The March 14th, 2003 Edition shows a 100% potential gain over the following 3-5 years. Sept 21, 2001 just after the WTC - Pentagon attacks we see it at a +105% potential. With traumas like those as background for what Value Line deems a reasonable chance for a "double" we see the meager current expectation in a different light.
Note this week that we now see the Smaller Cap i-Wave in its own X-OverBought range. No doubt there's some smaller cap stocks that haven't been discovered yet, but with the Best Performer in that group up 429% in just 13 weeks, we see there's some moderate speculation at work. I'm beginning to think that the '90s conditioning of investors to accept extreme valuations was never undone in the bear market that followed. High P/Es, far beyond growth expectations, is the norm still. While P/E may not be as peculiar as it was at the end of the last bull market run it isn't healthy by historical standards. In the "old days" investors believed a stock to be fully valued when its P/E was equal to its annual growth rate. So, a 30 P/E was justified if the growth rate was 30% per year. It wasn't a bargain, it was fully priced. In that light, do we expect the 1700 stocks of value line to be able to grow at 19.3% per year right now? That's what its current P/E would indicate. I would agree it's a stock picker's market - there just aren't many bargains from which to pick.
Mr. Steinhardt, mentioned above, said in the closing of the article on him,
"The bell is beginning to ring. We're not too far from the end of the bull market."
With his impressive history as a hedge fund manager, I'm listening carefully to his words and for the peal he expects.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
For me, I'm not sure it is of any importance at all. For them to be wasting so much of their own form of band width seems to be more like numerology or astrology. Here's some things that I feel are important:
With such a scenario, Earnings reports MUST be excellent over the next few weeks and quarters to maintain the markets' current levels. All good news is apparently priced in already. This translates to "No Room For Error."
The same problem we've had in the last couple of years of reaching a market ceiling and then having to wait for earnings to reinforce the structure supporting it is happening again. In each of the last i-Wave High Risk periods we've been lucky to see the Earnings come in solidly and carry the market to modestly higher levels.
It takes a 38+% gain to make it into the "Best Performers - Last 13 Weeks" in Value Line. It takes only an 18% drop to make the "Worst" list. In the Smaller Cap arena, it takes a 54+% gain to make that group's "Best" list while only a 32% loss to make the "Worst." This week the "Best Performer" in all of Value Line is up over 121% in the last 13 weeks. This is statistically modest, actually. When you also know that the "Worst Performer" is only down 47+% you begin to understand the imbalance. The imbalance is worse in the Smaller Cap market. There the "Best" is up 502% in just 13 weeks while the "Worst" is down 79%.
How long can this sort of thing go on? The i-Wave has been above its "average" for over two years!
Looking at a different period, here's 2001 through the end of 2003, for instance. Here we see a steady high value for the IW-AB and then a long period of below average risk and descent which eventually ended around the beginning of 2005.
It is of note this week is that VONAGE (VG) is in its sixth week of having the dubious title of "Worst." Yet it's price seems to have stopped dropping. Someone should take the time to study why the price had fallen and whether it's been over sold.
So, while I'm delighted to see my holdings near their highs, delighted to see my cash reserves forcing VIEW Savings and Loan to expand, I'm very cautious about taking on any more risk at this point. It just doesn't seem the Risk/Return ratio favors extending the risk envelope.
This week I noticed in the group of periodicals related to investing a new publication. It's called Roger Conrad's Utility Forecaster ( http://www.utilityforecaster.com ) and hails from Falls Church, VA. This is as nice a digest for dividend paying stocks as you might ever find. There's both U.S. and foreign utilities listed in areas of Natural Gas, Electric Power, Telecommunications, etc. So, if you're looking to build your own utility mutual fund, this newsletter might be of some help. Check your own local library to see if they carry it.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Here I sit with gobs of cash just waiting to pounce on great bargains when they arrive and none seem to want to appear. My Retirement Account hit a new all time high since starting the new program in 2002. My taxable account is bumping on all time highs, too. This is just unfair. I want a solid market correction so I can become a REAL investor again, not just a partial investor like AIM has made me!
Worse than not having a bear market is that many of the holdings I am managing are near their 52 week highs and forcing me to do more selling. That's not what I want. Why won't anyone give me a chance? If you are also feeling frustrated, we'll all gather with our towels and have a good cry. I know that will make me feel better and hope it will you, too.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Wishing things were different doesn't seem to be a very productive use of our investment process, however. What is nice is when we have some reasonable confidence in the various inventory items we hold for the long term. Then when markets get more volatile or a Bear comes along we can buy more shares, following AIM's direction, and feel we're going to be okay in the future.
The i-Wave for both the larger and smaller caps are hovering right on the edge of their respective High Risk territories. Here again I could wish things were different, but that doesn't seem to change much. I very much dislike having to report this continued high valuations and its effect on our risk indicator. Both the larger and smaller cap P/E rose this week (along with the market indexes). Currently the larger caps are showing a 19 P/E while the smaller caps come in at 20.1. These lofty P/Es could be justified with the assumption that future earnings are going to continue to be excellent. I guess we need to wait to find out how the earnings reports over the next few quarters play out.
Speculative activity on both the larger and smaller cap markets continues to be mild. Divergence, which had started to rise a few weeks ago, has remained in its Neutral area and not very informative. We will continue to watch this component very carefully into the near future.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Looking back on a long term graph from today's lofty elevations it's hard to even notice the little pimple caused by the so called "crash." But, if you experienced it, you remember it! Huge percentage drops were registered that day and things really didn't get better until after early December. I'm glad I was experimenting with AIM at the time. It reflected what I was doing already, but in a much more business-like manner. I bought heavily into that decline and the gains made during the next year kick-started my use of AIM now for almost 20 years.
Now why, you might ask, is Tom bringing up old ghost stories in this week's Newsletter? Well, we're pattern recognitions beasts. A significant portion of our survival talents depend upon pattern recognition. You might say we're programmed for it. Okay, but what does that have to do with Black Monday?
October 19th took essentially all individual investors by surprise. It seemed to come out of the blue. My own account in 1987, mid Summer, was fat with cash from my pseudo-AIM activities. Most other investors were not liquid at all. Relative Valuations had been very high preceeding the "crash" but most of the other indicators had been mild, hovering in their respective Neutral positions. Here's a graphic showing the period of time before and after the "crash."
So, here's why I bring it up. Take a look now at the current composite graphic:
How many times have you watched the movies ALIEN or Predator? Yes, they're scary and fun - even when viewed multiple times. Unless you are well prepared, you don't want to see a re-run of the Crash Of '87! It was educational, but it really wasn't that much fun. To me, the current markets have a 'feel' similar to the pre-"crash" markets. There's not enough fear around to get the markets to correct themselves and get valuations back to normal. But, if things don't start moving in a sustained direction, we'll start to see worry and confusion grow. Divergence will be there again as our last warning. This time around it appears it will be not just the U.S. markets that will have a myocardial infarction. Just take a look at the beginning of March if you want to see a preview.
For quite a while I've left the closing of the Newsletter the same. I think I will again this week.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
If you tune into CNBC almost any time during market hours you can hear the latest bad news and worries. They have been nonstop on discussions about energy, weather, crops, mortgages and real estate for weeks now. All of those discussions have been bent to the negative side. One guest today said, "Well, at least with all the worries we can feel good that the market's Wall Of Worry is being built on solid footings." or some such comment. Yes, this is true, if investors worry enough they may be more cautious than they've been for a while. The i-Wave has shown reason to be concerned that there wasn't enough worry around in the last few months. Some healthy concern is healthy for the markets overall. So, the i-Wave is slowly settling back a bit from its recent peak of 54 the week of March 5th.
The AIM-Users bulletin board has been a great place for the discussion of ideas. Recently "Clive" from England has been discussing Dividend Yields and how they relate to bullish or bearish pressure. This has me thinking there is another piece of the puzzle that needs to be examined in some detail. I've been reviewing the Value Line Dividend Yield in relation to market indexes to see if there's anything to be divined there. It is interesting that P/E and Dividend Yield don't always move contrary to each other. Another think I'm observing is that Dividend Yield and Short Term Interest Rates are not necessarily linked either. It makes me think there's room to build a better Relative Valuation component that includes dividends. More on this later.
I noted earlier in the day that my accounts are again positive for the year to date. If it lasts another day, I'll be able to report a March result with positive figures. While not galloping ahead, it is nice to see some progress.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
It will be interesting to see if the Profit Takers step in tomorrow and chew on these new green sprouts.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
BARRONS this week has its own share of scary articles. Please enjoy them at your leisure. I do find it amazing that all this news that has been known for a long time is suddenly getting so much press. Could it be that the entire housing boom since the turn of the century was built upon a foundation of sub-prime loans? I hope not! In any case, those with large cash reserves for investing in stocks, bonds and in real estate may be the real winners in the long run. While CASH is a "four letter word" it is one of the good ones. Make sure to use it wisely.
It has been interesting on the AIM-Users Bulletin Board to see all the discussions recently. Where CNBC has had one panic stricken pontiff after another telling the world what went wrong two weeks ago, the AIM-Users have been calmly discussing various measures of business activity as ways to better qualify potential investments. A calm and collected group! If CNBC interviewed the average AIM user it probably wouldn't make for as riviting sensationalism, however.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
With Speculation both Larger and Smaller Caps had quite average levels of "traditional" speculation. It's starting to drop a bit here.
Larger Cap Stocks:
Divergence, as I measure it, shows lots of people running in opposite directions. There's lots of new 52 week highs and lows simultaneously. This schism is usually not a healthy sign. The good news is it usually rather quickly mends itself.
Finally, we see that my Zeal measure which takes into account Initial Public Offerings balance against companies going private or being delisted.
So, the IW is still being driven primarily by the Bearishness of the Relative Valuation component while it didn't like the influence of the rise in Divergence. This has been a quick and substantial move for the indexes but it doesn't feel as though it has completed itself as of yet. I think these graphs help confirm my feeling. There weren't very many bargains two weeks ago and while many equities are better priced this week, they still aren't bargains. A quick look back at the 2002 thru 2005 period will give you a better feel for what a "bargain" market looks like with the IW.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Well, I can say for a fact that as of the end of the day on Tuesday, there was more cash around than before the day started. It was one of those days where there just weren't any buyers around. Today, Wednesday, at least some bargain hunters came back around. Or are these Circus Performers doing their Falling Knife Act?
Not a single Buy Limit Order here at VIEW tripped yesterday. I guess that shows the day's events weren't spectacular enough to trigger anything that Mr. Lichello would have noticed. Across my portfolio almost everything was down for the day, but still well above my standing buy orders. Since AIM's been showing signals closer to the Sell side for a long time, prices needed to fall a lot further than that one day drizzle to get me interested.
So, other than that one-day-wonder I don't have much else to report. My portfolios were off by 1.75% yesterday while the Dow, NASDAQ and S&P 500 were all off over thee percent. Maybe my account should be considered a "hedge fund!"
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
AIM and the i-Wave have lead my portfolio to good liquidity. I now am awaiting the conditions where AIM and the i-Wave will tell us that it's a great time to be "planting" instead of "harvesting."
In the mean time...................................
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
With the latest quarter's mixed bag of earnings reports I don't have the confidence even of a year ago. Back then we were anticipating a couple more quarters of good performance. Now there's expectation of flat earnings - not growth. So, how's the market going to move further upward now?
One way one index might move ahead of another is through Sector Rotation. That is a real possibility as we see the money hunt for the best place to be under the circumstances we currently see with the i-Wave.
I updated my Non-U.S. ETF Model this week. To be sure, it did well again in 2006. Each component was up for the year, some more than others. Some had stellar mid-year performance only to settle back and not quite regain former grandeur, like EWJ.
A well balanced portfolio of U.S. and non-U.S. ETFs managed with AIM would have done nicely in the last year. Throw in a healthy bond and money market holding and one would be better than The Ultimate Portfolio.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
Back in February of 1997 the i-Wave had been in High Risk territory for six weeks with the Dow 30 at 6807, the NASDAQ Comp. at 1335 and the S&P 500 at 785. All were under stress at the time. Here it is 10 years later and currently the i-Wave is again at High Risk and has been for several weeks. This time it's our Relative Valuation component that is doing the major damage. This week it rose again enough to keep it steady on the edge of the High Risk border.
I thought it might be instructive to look back over the long term history of my retirement account and see how it's held up over time. From 1990 to Sept of 2002 it was invested in a single "diversified" professionally managed mutual fund. It did remarkably well at first, but then as it got "big" it fell behind the NASDAQ Comp. Index's performance.
In 1999 they decoupled and the NASDAQ took off for the sky. There was a good buying opportunity in 1998 and we exercised AIM's abilities in buying shares. We'd had SAFE for the Buy Side at zero for nearly a decade and even so we built up what seemed to be an unreasonable amount of cash. So, in 1999 we pretty much quit selling to keep the account more fully invested. As you can see on the graph, this was a terrible bit of folly! We'd also been used to rather quick recoveries, so spent Cash every time AIM suggested. So, when the market started to come undone in 2000 we quickly burned through our cash, running completely out in the IRA by the first part of 2001- a year and a half before the market finally bottomed.
By September of 2002 I was completely fed up dealing with a "professionally managed, diversified mutual fund." Boy how Mr. Lichello's words rang in my ears!!! At that time I converted the account to individual sector funds and a high yield bond fund. I also, since nobody seemed sure (except the i-Wave) that the market had truly bottomed, secured a reasonable cash reserve at that time. You can see how the account's total value and cash reserve has been recovering since. However, it's a sad story to see just how long it has taken to get the account back to where it was in 1999, and we're still not back to the peak of 2000. All that time just lost.
In the above line graph you can see some relative performance of the retirement account and the NASDAQ. Another way to graph this is as an "Absolute Value" where you convert your account's value to be equal to the index's value at the starting point and then see how well you track it. In this next graph you can see the history from 1990 through the end of the first decade in 1999.
Here it's easy to see how we handily beat the NASDAQ Comp. for the first two years. From that point on, we saw steady erosion of our lead right through the end of 1998. Viewing the performance this way shows us that not only did our conservative AIM cash reserve hold us back but the managers of the fund also underperformed this index. They held it steady from 1993 through the beginning of 1996, but it became more and more evident that they just weren't keeping up thereafter.
Well, how about since 2000? I reset the base 100 at the beginning of 2000 to see how we've done since then. Actually here the mutual fund showed that it could not sink as fast as the index! However, they were both sinking as the first graph above showed.
It was only a few weeks after I made the change from the diversified mutual fund to my own mix of Exchange Traded Sector Index Funds that the market started to recover. I actually lost ground to the index during the first year as the NASDAQ raced ahead. However, since late in 2003 you can see that our performance has essentially matched the index. We've been able to match the index closely enough to not lose ground on a month to month basis. This, of course is with a much more conservative portfolio than the NASDAQ Composite Index itself. The account has been 30% to 40% Cash this whole time with about another 20+% of it being allocated to a bond fund.
While I'd prefer to brag about how I'd whipped the NASDAQ Composite thoroughly for all this time, you can see that I haven't. I've created what would be viewed as a "growth and income fund" using sector funds and a high yield bond fund. The cash reserve is there just in case the market decides to change directions one of these days.
All of the graphs above make me think of a song Rod Stewart made popular some time ago - "I wish that I knew what I know now when I was younger!" While I actually did a better job of cash management in my taxable account, I somewhat neglected this retirement account. Had I switched the SAFE to the Buy side like I had in my taxable account in 2000 and then implemented an "only once a month" buy rule, the cash would have lasted longer. Recovery might have been more swift having bought deeper into the decline. Taking back control of the components of this account, I feel much better about the performance of my own "growth and income" account than the "professionally managed diversified mutual fund" I'd owned before.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
More next week.
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
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Large Cap. iWave
Large Cap. It now shows the "raw" total rather than the "smoothed.")
iWave Large Cap Components:
iWave Small Cap Components: |
Read along for free at the Silicon Investor AIM Bulletin Board.
