5/8 Pre-Market Notes

...Garbage stocks outperforming value stocks is a hallmark of late stage rallies. Something to keep in mind as the cheerleaders remind us how close the market averages are to multi-year highs:
...Per the Hussman Funds Weekly Market Commentary for 4/3/06, S&P 500 stocks rated A have returned 1.01% year to date (as of 4/3/06); B rated stocks have returned 10.17%; and C rated stocks, or the lowest quality, have returned 16.90%. I don't invest in any of the Hussman funds, but do know some folks who love them. I use Oakmark for my mutual funds since I have been with them for so long and have been satisfied. But Dr. Hussman's weekly commentaries are free and well worth the read. I am one of those who is holding his nose, looking the other way, and picking stocks just because the markets are going up. But my bearish tendencies keep me watching the exits.
...The other factoid I'll mention this morning since we are hearing so much about the Dow being at multi-year highs: the Dow still has not taken out the December 1999 highs, so even when it gets back to that number it will just be getting back to where it was. And that is not taking inflation into account. If you use the inflation calculator put out by the Federal Reserve Bank of Minneapolis, the Dow would have to reach 14474.62 in 2006 to match thea 11908.50 reading in 1999 (December 1999 market high). Over the past eight years, the Dow performance has not even matched Treasury bills. That pesky inflation is an invisible tax. It really is the purchasing price of our dollars deteriorating.

NoTouch Portfolio Results thru 4/30/06

...Following are the results of the NoTouch Portfolio through 4/30/06 as compared to the market indexes:
NoTouch Portfolio: 8.8%
Dow Industrial Average: 6.1%
S&P 500: 5.0%
Nasdaq Index: 5.3%
Nasdaq 100: 3.4%
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...The NoTouch Portfolio is a mutual fund portfolio designed to 'set it and forget it'. It is comprised of: OAKBX 30%; OAKGX 15%; BBHIX 15; PEMDX 10%; PSAFX 10%; TGLDX 10%; and ICENX 10%.
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...Some catchup notes since I haven't posted in a while.
...Iranian oil bourse. Please see earlier links and notes on this potential trouble spot for the markets. It was scheduled to open March 20, but in the days immediately preceding that date, lo and behold, it turned out the opening was postponed indefinitely. At the time, it was announced that it could be delayed as long as into next year, but now in the past couple of days, there is word that it will open in this coming week. Only time will tell how significant this will be for the markets. There has been much concern, see earlier links in this blog, that it could be an event of much significance for the markets. At the same time, I have seen some writing that think it will be a non-event for the markets and the U.S. dollar.
...The markets have been doing well overall. It is a strange market environment, though. For instance the markets have been going up at the same time that precious metals and oil have. That does not normally happen. For quite a while, there was a non-confirmation going on for the Dow Theory folks. The transportation indexes were not confirming Dow highs. That has now been resolved to the upside. There are still some major technical divergences out there, but they may be in the process of being resolved as well.
...I don't pay nearly as much attention to technical analysis as I used to years ago, as stated in earlier blogs. It is my contention that the PTB paint charts and set traps for the little TA guys. There are no free lunches in trading that I have found, but overall I have found that price and volume are still the best indicators for both the markets and individual stocks. When a stock is going up and its up days have higher volume than its down days, that generally means the stock is being accumulated, no matter what the PTB may be saying to the contrary. And vice versa. You can also tell when they are dumping one no matter how much they trumpet their love for it.
...One market indicator that I still keep an eye on as a secondary indicator is the New High/New Low daily tally. I am particularly interested in the number of new lows. When it starts going up and gets near the new high number that gets my attention. I have not done research on it, but it seems to me to be a pretty good indicator. And it is simple, much like the price and volume information that I use as primary data points when making stock decisions. Friday's action, according to Yahoo Finance showed 375 new highs and 60 new lows on the NYSE, and 274 new highs and 34 new lows on the Nasdaq, so no warning bells there.
...Here is a link to see my Marketocracy.com portfolio performance. I set up the account 1/28/05. It is a great practice tool, and I recommend it to anyone who wants to try their hand at running a mutual fund or practicing different portfolio management techniques. You start out with a million dollars to set up a mutual fund. Complete compliance rules are on the site. To date, my fund is up 36.47% since inception as compared to 15.87% for the S&P 500 over the same time. The annualized return is 27.77% vs 12.32% for the S&P.
...I try to keep the fund at no more than 40 stocks. As you can see from the portfolio mix, I have been riding the energy/commodity bull pretty hard. I still expect some dark days ahead for the markets, but have just been following the bouncing ball and trying to trade what I see, not what I think - so far, so good.
...Our national debt is over $8 trillion dollars now, and is going up at the rate of nearly $2 billion a day. We are dependent on foreign money to keep all the balls in the air. I still do not think that can continue forever, but so far it has. There is an old saying among shorts that the markets can remain insane longer than you can remain solvent. A lot of shorts have found that out over the past year, trying to play divergences and other technical indicators. I still think that the Fed hiding the M3 number plays into the scenario, too. I'm sitting at the table, but I still keep one eye on the exits.
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