May 2008 Portfolio Results

Following are year-to-date returns through May 31:
.
NoTouch Portfolio: +3.8%.
OOP Portfolio: +2.8%.
Dividend Portfolio: +13.4%. Three stocks in this portfolio have had spectacular runs in the first five months of this year: HGT up 49%; PWE 26% and NRP 21%. Their ytd returns are really even better, as this portfolio is only reflecting changes in share values. All dividends are being collected into a general cash pool to make the record keeping easier, and not allocated to the specific stock that produced the dividend. HGT and PWE pay monthly royalties and NRP pays a quarterly dividend.
.
All the model portfolios compare favorably to the overall market averages:
.
Dow: -4.7%.
S&P 500: -4.6%.
Nasdaq Composite: -4.9%.
Wilshire 5000: -3.8%.
.
The markets continue to be in rally mode. In my system, the Nasdaq March lows now have become long term lows, and the April lows have become intermediate term lows. At 2522, the Nasdaq is above its moving averages, and the 20, 50, and 200 day ema's are in proper bullish trend alignment. However, so as not to go totally in the tank with the bulls, Friday's close makes an interesting candlestick pattern and indicates some indecision. The close this week also could not exceed last week's high, so early trading next week will determine whether there is a short term continuation pattern or a potential reversal. The bulls need to clear the 5/19 high, or there is real potential for a selloff.
.
The S&P 500 is not as bullish as the Nasdaq. The index kissed its 200 day ema from the bottom side both Thursday and Friday, but could not penetrate it. Both the 20 and 50 day ema's are below the 200 day ema. It is possible the S&P held and marked a short term low this week, but the index needs to clear the distinctly negative short term pattern it printed on 5/19.
.
I had a good month in my real life accounts due to my continuing overweighting in energy and commodity stocks. The first half of the month was spectacular; it almost had me dreaming of lazy days on tropical islands, but then reality returned. It still was a nice month. I did lighten up more on some trading positions. I should have dumped RIO this week, too, but did not. It triggered a sell on the system I use, but I was away from the markets for a few days and by the time I returned it's Tues/Wed/Thurs results had carved a new short term low. If that low doesn't hold, I'll exit to protect my gains on this one. I've been in the stock long enough and it has advanced enough that I had intended to use a new 10 day low as my exit signal, and that happened Tuesday. I do not like to leave stop orders with the broker. I prefer to monitor them myself. I have enough of a gain in RIO to ride out some hits, but I still do not like to violate the discipline of my system.
.
I did not like the action in my all-time favorite stock, XTO, recently either. It has painted two distinct distribution weeks in the past six weeks, made a double top on the weekly chart, and if next week's price action is negative, will have marked a definite short term top. XTO is my longest held position. I know you are not supposed to fall in love with a stock, but this company has been great to shareholders over the years. Not only has it done well itself, but XTO has also spun off shares of royalty trusts CRT and HGT to shareholders over the years, and when they announced their latest 5:4 split, they effectively increased the dividend 25% at the same time, by not reducing the dividend amount when they increased the shares.
...XTO CEO Mr. Simpson gets paid like a rock star. I cringe every time one of those articles about overpaid executives comes out because I know he will be on it, and it sometimes has a short term effect on the stock. But at the same time, I think he is the best CEO in the oil/gas business, and I expect to be an XTO shareholder as long as he continues at the helm. I sometimes sell out of trading positions in XTO, but the core holding is about as untouchable as it gets for me.
...And I've become much more appreciative of the effects of royalty and dividend payments over the years. I never was interested in them before. I only used to be concerned about price movement. But CRT changed that for me. When XTO spun off CRT to shareholders, in retrospect that was a watershed moment for me, although I did not know it at the time. I logged onto my online account one day and saw shares of CRT there. At first I thought it was a mistake. At that time, I wasn't keeping up with my reading on my positions, another bad habit.
...I figured there wasn't enough of the CRT there to bother selling it, so I just left it there. After several months, I finally started noticing those monthly royalty payments. I bought more, and subsequently added royalty trusts HGT (another XTO spinoff), SJT and PWE to the portfolio. I also use the financial ETF PGF for the monthly dividend. I have tried from time to time to make ACAS a part of the mix, but have always been forced to sell out due to their price action. In fact, I have gone as far as to remove them from my watchlist. Once I have proved myself wrong too many times on the same stock, it is time to realize that I just don't have a feel for trading that one and move on.
...Years ago, I knew a trader (via bulletin boards) who used to make all his monthly living expenses out of dividend and royalty payments. I have always thought that would be a good way to go, but of course, requires a lot of capital, and probably a more austere lifestyle than my better half would tolerate. He had been the beneficiary of a large lump sum settlement and used those proceeds to get himself set up with the dividend/royalty paying stocks to pay his monthly bills. Then he would trade the rest of the money. I never met him personally, but he was very helpful to anyone who asked. He was always more than gracious to me, and gave expansive, detailed answers to all of my questions. I was pleased to see him featured in an article in Investors Business Daily some years after that. Although my present day style does not begin to resemble the methods I used in those days, the education I received from several people on those early Prodigy boards was invaluable. Several of the regular contributors on that board went on to become full-time traders, a couple of them fairly well known. I have never run across a similar group since.
.
OUTLOOK
.
It would not be surprising to see continuing selloffs in the commodity and energy stocks. While the longer term trends are firmly in place and are not going to change, imo, unless the world economies go totally into the dumper, there is considerable pressure being applied for price relief right now.
...From all appearances, there is already warfare going on between the countries that control resources and the countries that use those resources. It appears that President Bush went hat in hand to visit our supposed allies a few weeks ago to try and get them to help out with the oil situation, but they basically told him to forget it. That in itself is a major story, because if true, it would indicate that there is a genuine belief in that region that there is a power shift going on and that they do not have to worry as much about keeping the U.S. happy.
...A few days after his return, Mr. Bush lashed out against the oil producing nations in that region. In warning them that their resources were not going to last indefinitely, he may have also inadvertently confirmed the peak oil theory.
...Then a few days ago, European leaders were speaking out against high oil prices and publicly suggesting that there needed to be concerted efforts to bring the prices down. And, lo and behold, there was a commodity and energy selloff shortly afterward.
...It appears that oil and energy will still be key factors in the end-time scenarios that are shaping up. The major countries that are net importers of energy also happen to have more political and military clout, with a couple of notable exceptions, of course, than the countries that export energy. There are many folks, among them former Fed Chairman Mr. Greenspan, who state that the U.S. is in Iraq primarily because of oil.
...When the major powers that be are forced to step up because of the potential for civil unrest in their countries, that is something to keep an eye on. They can exert powerful pressure on nations, not to mention the markets that we trade. I have been lightening up on my resource stocks for over a month now. I am also keeping a close eye on DUG, which I use at times to hedge against my permanent portfolio energy long positions.
...This past month I also added the first tech stock that I have owned for quite some time. GLW is an industry leader in its field, with a 23% OR and 31% ROE. The weekly chart has formed a decent cup and handle formation, so I bought the breakout. I was looking for further diversification away from energy and up to that point did not have direct exposure to tech. The breakout is a favorite Canslim pattern. It would have been good to be in this stock long before now in 20/20 hindsight, but I was sitting fat, dumb and happy in my other positions up until I started getting edgy about the resource sector several weeks ago.
.
Shocked! How the Oil Crisis Has Hit the World, The Independent, UK.
Irate Europeans Protest the Soaring Price of Gasoline, New York Times.