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From The Trading Turret
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From: R.A. Christy
Editor, ‘From the Trading Turret’
President/CEO Christy Investment Group
http://www.christyinvestments.com
Date: 12/28/06
Markets:
Column Bullish Percent
NYSE X
74
OTC X
58
S&P 500
X 78
The indicators tell us that we’re still
on OFFENSE, but we are really starting to push the envelope because RISK
IS RISING.
Major Market
Sectors: Column Bullish Percent
Consumer
Discretionary X 72
Consumer
Staples X 84
Energy O
74 (Just reversed columns)
Finance
X 90
Healthcare X 70
Technology X 66
Industrial X
84
Materials X 78
Telecomm X 100
Utilities X
92
You can also see from these readings
that the market is really stretched out. Using the Bullish Percent
indicator, we want to BUY when the BP is in a column of Xs and below 30.
That’s right 30. We want to SELL when the column changes over from ‘Xs’
to ‘Os’ and falls below 70 (Just like energy just has).
This isn’t an exact indicator but one
that has served me well over time. From my perspective, I’m ready to
raise cash in a heartbeat and run the DEFENSE onto the field. New ‘BUY’
positions should be initiated with care and your STOPS set really close.
From these levels, the first decision I would make is how much do I want
to ‘LOSE’ on a position versus how much do I want to make.
This week’s comment …
The market is giving us a pretty decent
Santa Claus rally and this is due to every money manager in the universe
prettying up his/her portfolio for year end picture taking. In other
words, we’re in “window dressing” season. Stocks that are rough around
the edges are being dumped in favor of prettier looking names. It
happens every year and this one is no exception.
Unless something really bizarre happens
between today and tomorrow, stocks will finish up for the 4th
straight up year.
As we look forward to next year, it’s
apparent that the Federal Reserve is engineering a “soft landing” for
the economy. Valuations from a fundamental perspective seem reasonable
and the up-ticks should continue into the first quarter.
One of the reasons that I am loved by
all (I wish) is my penchant for trying to find the fatal flaw. It’s easy
to be a perma-bull where all we have to do is BUY – HOLD – HOPE - PRAY,
but this is the real world. So off with the rose colored glasses.
After turning over a lot of rocks, I’ve
come up with a number of things that could cloud the picture. This is
why I get paid the big bucks. Will what I’m about to cover happen? I
don’t know, but I am in charge of finding the fatal flaw.
The potential pitfalls that I see come
from three categories: financial, political and biological.
Financially, there are three areas that
I have my eyes on. The first is the bond market. Right now, yields are
fairly benign. The risk would come in the form of soaring bond yields.
The second financial storm would be any kind of oil shock. Any
disruption in the supply would have serious consequences for us. The
last financial calamity would come from another hedge-fund blow-up. Risk
and reward are becoming disproportional again and the hedgies are really
stretching their portfolios as they stretch for returns. Leverage is a
two edge sword that cuts both ways. Let’s hope it’s not the case.
On the political front, the change of
control from the Republicans to the Democrats could make for some
interesting times. Right now the talk is all about bi-partisanship, etc.
That’s today. Three months from now, the picture should be awfully clear
that the Democrats will do doing everything in their power to ensure
that they never lose control of Congress ever again. My Washington
sources tell me that most of the groundwork is already laid. The minimum
wage, socialized medicine and more … all are on the way.
Also, trade barriers will be a major
political topic. What if Castro dies? Do we resume trade with Cuba? And
no discussion of politics would be complete without a diatribe on North
Korea, Iran and Iraq.
As the year un-folds, most of the
Presidential hopefuls will have their hats in the ring. I’m already on
record saying that the Clinton-Barack ticket will be the one to beat. On
the other side of the aisle, it’s McCain’s turn, but he has no chance at
all of winning. Gov. Mitt Romney has the inside track to the GOP
nomination. Anything to the contrary will be a surprise. Let the
coronations begin.
Politics aside, the
third and final pitfall may be biological. I’m thinking that SARS and
bird flu could throw us for a loop.
There you have it – the
pitfalls.
What else?
The consensus is that just about
everyone thinks that next year will be a lot like this year. Bull
markets historically end when everyone who wants in is “in” and rampant
optimism is the headline of the day. Economist Ed Yardeni – a favorite
of mine – is worried about a “melt-up” because he’s not seeing any
investor anxiety. Investors are once again using rationalization and
leaps of logic to justify future forecasts
As for the market, he thinks is could be
flat which is the camp that I’m in. We’ve had an extended period of
earnings growth and that doesn’t go on forever. Logic says that earnings
growth should revert to the mean which means lower and slower growth.
So for 2007, I’m going to keep both eyes
on the charts. I’m also going to work on self-control. I don’t have to
be in the market each and everyday to be successful. My inner skeptic
will be given equal time so that decisions aren’t emotional, but thought
through before I act. I won’t be afraid to hold cash. It’s liquid, safe
and the yield is at least positive.
The last thing I want to
leave you with is that there is a lot of greedy money out there. As
investors stretch for return, they’ll take a casual approach to risk.
Things could turn ugly if greedy money becomes fearful money.
As the old sergeant on Hill Street Blues
used to say – “Let’s be careful out there”
Until next year,
RAC
The Stock Trading Advisor
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R.A. Christy is a professional stock
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He is also the Managing Partner and Portfolio Manager of Plato Advisors,
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