1/31/06 No-Touch Portfolio Update

No-Touch Portfolio results year to date: (See earlier posts for makeup of No-Touch Portfolio.)
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Year to date through 1/31/06:
No-Touch Portfolio: 5.2%
as compared to:
Dow 1.4%
S&P 500 2.5%
Nasdaq composite 4.6%
Nasdaq 100 4.0%
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Change at the Fed. Today was Alan Greenspan's last day as chairman of the Federal Reserve, the private central bank given the power over our economy early last century. Supposedly created to provide stability, among other things, the Fed last century presided over two of the biggest crashes in our nation's history, not to mention the Great Depression of the 1930's. But enough of that.
...Farewell, Sir Alan. And good luck Dr. Bernanke. I suspect you will need it.

1/4/06 Pre-Market Notes

"Investors should start planning for a recession." That's the word from James F. Smith, finance professor at the University of North Carolina, Chapel Hill, NC. Mr. Smith's views are quoted because he finished first out of the 66 economists in a Bloomberg survey last year regarding forecasts about where interest rate yields would finish 2005. Now, Professor Smith says, "When the curve inverts, run for the exits. It will stay that way until the Fed realizes it caused a recession in 2007. Investors should start planning for a recession." Mr. Smith served as a Fed economist from 1975-77. His views are the exact opposite of Louis Navellier's MarketMail, linked in yesterday's blog. Differences of opinion are what makes a market.
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And what a market it was yesterday. Big numbers on heavy volume and happy days are here again, I see. But at the same time, I noticed that resource and energy stocks were up big, and the XAU gold index was up over 6%. The people who are driving the gold market upward are not betting on happier times.
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I finished 2005 with no trading positions, just core positions in my three mutual funds and the stocks I keep in the long term port. I initiated two trades yesterday morning, which I am still in. Went long on PCU, a copper play that has over a 9% dividend yield. Even when the trade is over, I may keep part of the position in the long term port to take advantage of the dividend. I have become fond of dividends in the last year or two. It is surprising what a difference they can make. Anyway, the reason I went long was because PCU made a new 20 hour high on the hourly chart and is trading above its 50 day moving average, so I bought the breakout. So far, so good. Since this is such a short term trade, based on hourly charts, I'll move the trailing stop up and keep my finger on the trigger for an exit on the short term position of the trade.
...The other trade was a short on XMSR. With the benefit of 20/20 hindsight, that already looks like a mistake since the stock was up big yesterday afternoon. But in the morning it was down and hit a new 20 day low. Since it is trading below its 50 and 200 day moving averages and has been making a series of lower highs and lower lows, I bought the breakout to the downside only to see it immediately reverse. But it still hasn't hit my uncle point, so still in that one, too. I don't pay too much attention to technicals on stock trades anymore, but as an old time techie, I do notice that the stochastic indicator is coming out of oversold, too, and that bodes ill for me regarding this trade. Basically yesterday the two trades offset each other and the core positions did well, so it was a good day.
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"...in 2005, people in the aggregate spent more than they earned -- the first time this has happened for a full year since the Great Depression," Dr. Irwin Kellner, MarketWatch chief economist. Good article. He notes that optimists think that businesses will pick up the slack when consumers start cutting back this year, but he doubts it.
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1/3/06 Pre-Market notes

...Futures up strong this morning. Looks like the market wants to get 2006 off to a good start.
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...Another great Jim Jubak article over on the MSN Money site. Mr. Jubak gives a lot of pertinent trading advice in this article. The points he makes are consistent with what I have learned over the years. Most of the things he talks about in the article are mechanical in nature, handling risk, going with the flow, etc. It's a great read and well worth the time. And for 2005 Mr. Jubak's Pick's Portfolio was up cool 33%. As I've said before, one could do a lot worse than just using his picks.
...What he doesn't get into that also relates to system building and handling trades is the emotional aspect of trading. I have found over the years that I am the weak link in my system. When I trade emotionally, I get beat. It is pretty much that simple. The market is masterful at playing off the emotional reactions of us little guys and taking our money. Trading isn't rocket science. There are mechanical setups that yield profits over time if you have the patience and discipline to wait for them, the courage to act on them when the setup occurs, then the patience and discipline once again to hold steady until the trade completes one way or the other. I can't tell you how many times I have sold out of a position on an intra-day dump just to see it turn around and end up doing what I thought it would all along, only without me in it. And I confess I still do that sometimes, and that frustrates the daylights out of me when I let that happen.
...One reason that I have always thought that a Christian should be able to trade well is that the two most widely recognized emotions on Wall Street are fear and greed. A Christian should not be controlled by either.
...Also worth reading today is Louis Navellier's MarketMail. MarketMail is a FREE weekly newsletter issued by Mr. Navellier and is quite a bargain at that price, IMO (g). I have followed Mr. Navellier for years. In this issue he is uncharacteristically frustrated by of all things, what he considers inaccurate reporting by the news media regarding the reported interest rate yield inversion. The article is worth reading for Mr. Navellier's explanation of yields, why they matter, and how the news media is getting it wrong, and why that is affecting the markets. It is unusual IMO to see Mr. Navellier this frustrated and pessimistic. I subscribe to his newsletter because I do respect his opinions and his usually optimistic focus differs from my own and a lot of the other stuff I regularly read. I sometimes like to read things from people who see sunny days at the beach while I'm looking for storm clouds - balance, you know?

2006 Guesses

...Okay I'll weigh in with my two cents, since everybody else does and nobody knows what's going to happen anyway. It's just for fun.
...I think it is going to be a rough ride for the markets next year. I suspect that all three major averages will be trading lower at this time next year than they are now. If you've read the past entries in this blog, some of my reasons will be familiar: debt, debt and more debt, both consumer and government; budget deficits; trade deficits; elected officials who are more concerned with staying in office than they are in fixing what ails us; the increased possibility of foreign nations, who have been paying for our profligacy, cutting back on their willingness to take our dollar, something that even Mr. Greenspan has admitted is a possibility; and then there's other possibilities in this modern world we live in that I don't even want to consider, that could hurt the markets severely.
...Using trailing PE ratios, the market is overvalued, and averages tend to revert to the mean over a period of time. I don't subscribe to the modern theory of using future PEs as if they are fact. It puts me into position of trusting those sell side brokerage house analysts. How often are they right? Also, we are going into the 2nd year of the Presidential cycle. It is historically the weakest of the four years, from what I hear. I have read that most of the gains in the second year of the cycle come in the last quarter of the year. The first nine months are often rough.
...Most folks expect the Fed to stop tightening at some point this year. Don't know if they will or not. But I read recently on John Hussman's site (can't find the article right now), interesting results that followed the last in a series of Fed tightenings. The market doesn't always go straight up like most folks expect. In fact, Mr. Hussman found that when the PE is above average, which it is now, the market can easily go down. I haven't sensed much genuine buying enthusiasm in the late year rally we just had, and the market internals that I look at seem to be weakening.
...And you may think that our fine representative in CONgress rushed the new bankruptcy laws through last year for the benefit of common folk, but I don't.
...I'm looking for folks to start cutting back on the extra spending, and getting concerned about how they are going to pay for those heating bills, etc. The economy needs the excess spending, and that may start slowing. Have you ever noticed about how the PTB have set up the system in the last several years to penalize savers? For example, if you have a savings account in a bank, you are getting an interest rate below the rate of inflation. And then to add insult to injury, you pay tax on the less-than-inflation rate of return you did earn!
...Last but certainly not least, I think that we have entered the last days before the return of Jesus Christ. I go into that more on my other blogs, but thought I'd mention it here because I think we have entered a point of time different from any other in the history of our nation. There have always been folks in this country who have been against God, and there always will be, but now for the first time we are saying officially that we are not a nation under God. And in so doing, I believe we are setting ourselves up for judgments, some of which may have already started in the recent past. So, there it is. I have more to say about those kinds of things in my other blogs. I try to keep this one market related as much as possible, but I do think that our decisions as a nation are going to have a major effect on the markets in the days and years to come. I pray the Lord's continued mercy on our nation.

2006 No Touch Portfolio setup

...I'm posting the No Touch Portfolio out here to keep track of during the coming year. I think 2006 is going to go down as a very challenging year in the markets for a variety of reasons, some of which I list here from time to time if you have read the past entries, and some I don't. It will be interesting to see how the No Touch Portfolio does vs the market averages during the coming year.
...No Touch Portfolio. Let's start it all over for 2006, based on the closing prices 12/31/05. Here's the funds and the percentages, using $10,000.
OAKBX 30% of port, $3000, closing price $24.98 per share, 120.0961 shares.
OAKGX 15%, $1500, closing price $23.47, 63.91138 shares.
BBHIX 15%, $1500, closing price $10.68, 140.4494 shares.
PEMDX 10%, $1000, $11.16, 89.60573 shares.
PSAFX 10%, $1000, $11.57, 86.43042 shares.
TGLDX 10%, $1000, $40.80, 24.5098 shares.
ICENX 10%, $1000, $31.95, 31.2989 shares.
...We'll match them against the Dow, S&P 500, and the Nasdaq. Those closed the year at:
Dow 10717.50
S&P 1248.29
Nasdaq 2205.32
...Once again, I don't use the No Touch Portfolio in real life. So I'm not going to put a lot of time into modifying it. I did check it out when creating it in late 2003. Just from looking at it, I would probably make a couple of changes, but it was designed to be left alone, and has performed satisfactorily to this point. One change I'd consider would be to reduce PEMDX, PSAFX and TGLDX by half, put one third of the extra cash produced by those moves into ICENX, and then trade the rest as follows: When the S&P is trading above its 50 and 200 day moving averages, buy a growth fund. When it is trading below its 50 and 200 day moving averages buy a bear fund (BEARX, URPIX, SOPIX, etc.). When the market is trading at any level other than the two just mentioned, keep the extra funds as cash. I suspect, without checking, that those changes might beat the No Touch Portfolio and still not need much monitoring or trading. But then again, the beauty of the No Touch is that it was designed to file it and forget it.
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...I also plan on putting a couple of model trading portfolios here and updating them throughout the year if I have the time.

2005 Wrap

...My Marketocracy account, established 1/28/05, returned 20.1% through the end of the year. I was overloaded in energy related stocks most of the year, and still am. Unless everything tanks, I still regard weaknesses in commodity related stocks as temporary. Things really are different this time. The emergence of China and India as 21st century powers changes the energy demand structure for the foreseeable future, IMO. As I've said before, China is hosting the 2008 Olympics and they will want to impress the world. I disregard all the frequent reports about Chinese demand slowing down. They've all been wrong to this point and I think will continue to be. When I think of China hosting the 2008 Olympics, I think of Germany hosting the 1936 Olympics and trying to make it a showcase to display their superiority.
...I ended the year at #148 in the ClearStation rankings. I don't know how many people there are on the site who make picks, but one of ClearStation's core pickers, Kensey is listed at #1436, so I know there are at least that many. I view ClearStation as a game. Because of the 20 minute delay before any picks are public, anyone who cares to could make the top 40 in short order. I try not to do that. To make it big there quick, all you have to do is watch CNBC or some other program in the morning, find out what the big movers are, then buy or sell them before the market opens. If they gap the way you intended, you make big bucks. If they don't, you sell them before 20 minutes into the trading day, and it is like you never made the trade. I wish my broker would let me do that in real life. I'd be richer than Warren Buffett.
...Took a look at the No Touch Portfolio I mentioned a few weeks ago. Since the beginning of 2004, just using share prices and not including any dividends, and not accounting for the share price reductions which occur when capital gains and short term gains knock the prices down, just using the share prices as reflected in Yahoo Finance, the account is up 16.5% since the beginning of 2004. So, actually if you took into account dividends and the reinvestment of the distributed gains, it would likely be quite a bit better than that.
...All the above are paper money. I use them for entertainment and as learning tools. In real life, I run four accounts. Two of them fared better than the Marketocracy account listed above, and two worse. I also use different methods in those accounts, always working on the game. And there is a lot of room for improvement, in fact a huge amount. I still look back at moves I have made in the past and shake my head. Thank the Lord for His protection.
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