|
From: R. A. Christy
Editor/Publisher, ‘The Long and Short of
It’
President/CEO, Christy Investment Group
http://www.christyinvestments.com
Date: April 27, 2008
| NYSE Bullish
Percent |
Xs @ 46% |
OFFENSE |
| OTC Bullish
Percent |
Xs @ 32% |
OFFENSE |
| Optionable Bullish
Percent |
Xs @ 42% |
OFFENSE |
Long/Short
The market over the past month has been on a tear. When
our indicators went to OFFENSE a while back, I was deluged with emails
asking me why I was not heeding the sage wisdom of the all-knowing
talking heads. In my defense, all I can say is this: when the “Money
Honey” and the rest of her friends tell me to do something, I will
continue to ignore them and listen to the indicators. The reason is that
the indicators have a better track record and they don’t have an agenda.
The
Long/Short Portfolio went positive last week and I for one am quite
happy to see the numbers back in the black. This has been one of the
toughest markets that I have ever seen.
Which leads me to this – please DO NOT be fooled by the
markets rapid rise. Now is not the time to throw caution to the wind and
dive headlong into the market. The market breadth is pretty narrow. The
best returns will come from being in the right sectors at the right
time.
In terms of Bullish Percent, the most favored sectors
today are: Biomed, Gas Utils, Housing, Protection, Electric Utils, Food,
Waste Management, Building, Precious Metals, Chemicals, Oil and Oil
Service.
The reason that it’s important not to get fooled is this:
(1) Wall Street is a long only kind of place which means that buy
recommendations from research and investment banking still drive the fee
machine; (2) they still believe long term investing is still the way to
go and that 20% percent swings in your portfolio are quite normal; and
(3) if you’re 100% invested at all times, then your not going to miss
the next upsurge.
The bottom line is this - a lot of Wall Street’s favorite
names are reporting lower earnings or lowering their outlook and yet
their prices continue to rise. Bandwagon jumpers are more likely to lose
than they are to gain in this market. The last one to the party is going
to be truly sorry.
With all the false/positives tempting investors, what’s
the best course of action to take?
The first thing to do is to look over your portfolio and
get rid of any name that you aren’t comfortable with. For me, if I have
a stock rated a 2 or lower, it’s an automatic sell. We’ve made a few
sales recently and I’ll keep repositioning as conditions dictate.
The second thing that I am doing is ranking the sectors
from top to bottom. If I own a name, in a lower sector, I am bumping up
the stop loss and marking it as a sell on any rally.
Next, I am adding to some of the names that I already
own. If I have the stock rated a 5 and it’s in one of the top 5 sectors,
the risk/reward is no doubt favorable. In this kind of a market where
you have so many unknowns, the best watch list contains the names of
stuff you already own.
I should note here that I am going to use a number of
strategies here, so don’t be surprised if you see me buying call options
in lieu of the outright stock. I may also sell put options to generate
some cash and to help lower my cost basis. When the time is right to
act, I am going to use the strategy that gives me the best upside with
the least amount of risk.
Since all of the sectors aren’t positive, I am going to
be looking for names to short as well.
The last thing that I am going is to reset my stop loss
zones. I want to have limited downside exposure in case something comes
out of the blue. This year has been one surprise after the other. I for
one am tired of reacting.
Interest Rates
On the rate front, the word is that the Fed is going to
lower rates again next week. The talk is something like 25 basis points.
The probability of a rate cut is 70% and falling. I don’t know about
this – my gut tells me the Fed may hold steady and not do anything. The
action in Treasuries this past week points to the Fed doing nothing. It
will be interesting to see what happens.
FOREX
As many of you know, I have been trading currencies for
the past couple of years with some pretty good results. The market
environment that we live in is changing and if you haven’t taken a look
at FOREX, you are doing yourself a huge disservice.
Click here to visit my forex site. If you’re interested in a managed
forex account, just send me an email (rac@christyinvestments.com).
More
Commodities are short supply – which means that we need
some rice, wheat and other grains. Wednesday's Fed policy statement will
upstage Friday's payroll report but I suspect the wording will be vague
enough allowing the Fed to either resume or remove monetary
accommodation at will.
There's plenty of upcoming economic news, but the big ones are Q1 GDP
(Wed), April ISM (Thu) and April payrolls (Fri).
In addition, the Treasury outlines its borrowing needs Monday afternoon
and details the May refunding auctions Wednesday morning. Also on
Monday, the IRS begins electronic remittance for the first of 130
million economic stimulus payments.
Modern monetary policy is kinetic and subject to inertia.
Change does not come quickly and the first (at rest) and last rate (in
motion) cuts in an interest rate cycle usually require the greatest
deliberation.
As I've been saying for some time, the Fed runs the risk
of over-stimulating the economy but cutting rates further than they need
to. You'd hardly think this is an economy benefiting from stimulus at
all right now but the 300 bps of cuts in place before Wednesday have
barely registered in the real economy. They likely won't until we get
toward the end of the year.
I believe the Committee's policy statement will not lock them into any
position leaving them flexible enough to address the outlooks for both
growth and inflation. The markets should respond with the sense that the
policy action at this meeting puts the Fed in a long pause.
Writing
In case you missed them, I posted a couple of new
articles. Just click the links to read them:
Are Mistakes Killing Your Performance and
The List.
That’s about it for now.
Robert Christy
The Intelligent Trader
PS. Despite the sub-prime sell-off, the credit crunch,
and high oil prices, The Intelligent Trader continued to deliver
outstanding profits for subscribers in 2007. In total, our entire
portfolio finished the year up better than 17% --that's more than 3
times better than the S&P 500 up only 5%. We're going into the second
quarter with even higher expectations-despite the risks most investors
will face in the months ahead. If you’re not yet a subscriber to our
Long/Short
Trading Service,
why not make an investment that’s sure help your bottom line.
P.S. Please fee
free to forward this to your peers, friends and associates you think
would benefit from its contents. They will thank you for it - and so
will I!
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Robert Christy is a professional stock
trader, money manager and author. Mr. Christy is the President CEO of
Christy Investment Group, Ltd., a registered investment advisory firm.
He is also the Managing Partner and Portfolio Manager of Plato Advisors,
LLC. At the time of publication, Mr. Christy may from time to time write
about stocks in which he, Christy Investment Group Ltd or Plato Advisors
LLC has a position. In such cases, appropriate disclosure is made.
Under no circumstances does the information in this column represent a
specific recommendation to buy or sell stocks. Mr. Christy appreciates
your feedback and invites you to send it to
rac@christyinvestments.com.
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