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February 15, 2002 For a free copy of my E-Book "Make Money Trading Stocks" just click here How to trade and make money in the stock market. Stocktracker has the stock tracking software and the strategy to make trading profitable and simple. For the period January 1, to February 15, the stocktracker portfolio is up 3.77% Exposure to the stock market represents 79% of equity. Cash represents 21.00% of equity. Short positions represent 53% of total exposure and long positions represent 47% McClellan Oscillator for Week Ending February 15 , 2002 Monday Feb 11 - 8.03 Up 59.67 Tuesday Feb 12 - 12.94 Down 4.91 Wednesday Feb 13 + 17.28 Up 30.22 Thursday Feb 14 + 9.66 Down 7.62 Friday Feb 15 + 3.64 Down 6.02 The Dow Jones Industrials remains below its 50 day moving average, its 200 day moving average and the psychological level of 10,000. The McClellan Oscillator is telling us that the market is very weak. Investors are selling into the rallies. Lowery's buying power index shows weakness and the Selling Pressure Index tells us that the recent rally had more to do with an absence of sellers than any increased appetite for stocks. The selling pressure index is now rising. As I mentioned a few weeks ago I expect the market to retest the September 21 lows soon. One gets the feeling that the stock market is looking for some excuse to roll over. For that reason any market strength will be used to realize profits on long positions, and be a bit more aggressive on the short side. Rather than open new long positions as soon as they flash a buy signal for the first time, we will wait on the market to become oversold before making any new commitments. Operating earnings / Pro Forma Earnings The current focus on the quality of earnings being reported is understandable. One problem is the lack of consistency in the type of earnings being reported. Some companies report operating earnings - that is earnings before interest, depreciation, taxes and amortization. Others report pro forma earnings which are operating earnings before extra ordinary items - and that figure in many cases usually just enough to cause the company to beat expectations by a penny. Investors are therefore left to ferret out the debt burden being carried by the company and determine if operating income is wiped out by carrying charges. In a contracting economy debt becomes extremely burdensome and in a deflationary recession its like the tide that goes out suddenly, exposing all those in the water without bathing suits. Earnings next week The earnings season is just about over. Companies that will be reporting next week include the following:- Agilent Technologies, Medtronic, Wal-Mart, BEA Systems, JC Penny and PG&E Economic Reports The Conference Board's Index of leading indicators is expected to have some influence on the market next week. Our Outlook We continue to feel that the economy is struggling against a background of heavy corporate and consumer debt. The market in our opinion has already factored into stock prices a stronger economic recovery than is likely to take place in the short run. Additionally the accuracy of current and past earnings is being seriously questioned. There is a waning of interest in the stock market that Wall Street is doing its best to counter. Larry Kudlow is on CNBC daily, telling investors that the economy is going to grow by 3-4% in the next quarter. Most investors would rather move to the sidelines than risk going short the market. One good reason is that shorting stocks is a specialized field, and very risky. This is compounded by the fact that counter trend rallies tend to be sudden, sharp and explosive. According to Richard Russell of Dow Theory Letters "in a bear market the winner is the one who losses the least." He thinks the bear will hurt those long and those short the market. We however feel that trading the extremes based on our kind of strategy will yield good returns in both bull and bear markets. Regards,
Colin |
