Newsletter

July 22, 2006

There is no Such Thing as Failure

Market & Sector Review
Where's The Beef?

Largest Changes This Week

This Week's Economic Reports
There is no Such Thing as Failure

There is no such thing as failure. There are only results. Most of us have been programmed to fear this thing called failure. Successful people don't see failure. They don't believe in it. It does not compute. Successful people aren't people who do not fail, but people who know that if they try something and it doesn't give them what they want, they've had a learning experience. They use what they have learned and simply try something else. They take new actions and produce new results.

What is the one benefit, the one asset, you have today over yesterday? Experience! Many of you have not previously experienced a vicious bear market. Some of you, old enough, have experienced a bear market, and the action we see is not new. We have learned from the past, from our experiences. We do not fear the bear, but we respect him. People who fear failure make internal representations of what might not work in advance. This is what holds them back from taking the action that could ensure the accomplishment of their goals. Failure is something that is just not perceived by people who achieve. They don't dwell on it. They don't attach negative emotions to something that doesn't work.

"Our doubts are traitors, and make us lose the good we oft might win, by fearing to attempt."
- William Shakespeare

Winners, in the market and elsewhere, understand that if you try something and you do not get the outcome you want it's simply feedback. You use that information to make finer distinctions next time. That's why we analyze our trades, both good ones and bad ones, to make finer distinctions on what went right and what went wrong. It's feedback for next time. We learn from our successes as well as our failures. Buckminster Fuller wrote, "Whatever humans have learned had to be learned as a consequence only of trial and error experience. Humans have learned only through mistakes." And I might add the mistakes of others.

Take a minute to reflect on the five greatest so-called "failures" in your life. What did you learn from those experiences? Chances are they were some of the most valuable lessons you have learned in your life. Treat your trading in the same way, failures are merely feedback, lessons to be learned for finer tuning the next time.
Market & Sector Review
Where's The Beef?

What a week! After all the volatility, after all was said and done the markets wound up relatively flat. The DOW industrials up 1.2%; Transports down 2.9%; S&P 500 up 0.3%; NASDAQ Composite down 0.8%; and the NASDAQ 100 down 0.7%; Oil down 5.8%; Gold down 6.24%. While I expect a summer rally to commence at any time, one that may even last a couple of weeks, this is exactly how bear markets behave - attempting to keep as many as possible in the bull camp. Just because I believe that we are in a bear market that does not mean all stocks and all sectors will decline.

Since I update the site I have the habit of checking the sector composite charts twice a week, but you should be doing that at least once a week, in order to see just what is happening sector by sector rather than just the popular averages. In the May 27 newsletter (available in the newsletter archives section) I discussed the fact that even if we do enter a severe bear market there will be sectors, groups, and stocks which may go opposite the general trend. During the 2000 through 2002 bear market those sectors were Tobacco, Health Services, Leisure, and Transportation. Some did extremely well while others advanced somewhat, however all in the face of sharply declining popular averages. Rarely do the leaders of previous bull markets lead new bull markets. As an example; technology as a sector (individual issues notwithstanding) did not lead this cyclical bull as they did in the 1990's. I wondered if the same might hold true in a new bear market, will the sectors that trended opposite do so again.

While everyone I know seems to be focused on energy, metals, and technology, let's take a deeper look at what I believe is really happening. My personal favorite indicator is relative strength rate-of-change on both a six month and a twelve month time horizon. With that in mind the following three sectors are at what I would call a point of recognition; simply meaning if the up-trends are to remain intact they must begin to once again outperform the market. In one man's humble opinion at this time those three sectors are:
  • Energy
  • Banking
  • Manufacturing
Five sectors still remain relatively strong and well positioned for possible future advances:
  • Metals and Mining
  • Automotive
  • Tobacco
  • Aerospace/Defense
  • Transportation
Interestingly three sectors have just recently begun to outperform the market on a relative strength basis:
  • Food and Beverage
  • Real Estate
  • Utilities
All other sectors are underperforming and in apparent down trends. Before we look at some charts, here is an interesting aside. When putting together this weekend's site update and specifically the Hot Market Scan -> New Multi-Year Highs, there was a total of 47 new five year highs, twenty five on the NYSE; twenty on the NASDAQ; and two on the AMEX. Eighteen of the forty seven issues or 38% are members of the three sectors we are about to look at. Check it out later!

The strength in the volume of advancing stocks minus the volume of declining stocks amidst the seeming lackluster performance of the advance minus decline line suggest the strength in this sector is concentrated within just a group or two. The fact that as a sector the relative strength over the last six months has crossed and remained above the zero line suggests this is a sector in play. The FOOD & BEVERAGE sector is made up of the following groups:(341) Food - Major Diversified; (342) Farm Products; (343) Processed & Packaged Goods; (344) Meat Products; (345) Dairy Products; (346) Confectioners; (347) Beverages - Brewers; (348) Beverages - Wineries & Distillers; & (349) Beverages - Soft Drinks.

The REAL ESTATE Sector is made up of the following groups: (441) REIT - Diversified/Industrial; (442) REIT - Office; (443) REIT - Healthcare Facilities; (444) REIT - Hotel/Motel; (445) REIT - Industrial; (446) REIT - Residential; (447) REIT - Retail; (448) Mortgage Investment; Property Management; & (449) Real Estate Development.

And perhaps the best for last:

And the UTILITIES sector contains the following groups: (911) Foreign Utilities; (912) Electric Utilities; (913) Gas Utilities; (914) Diversified Utilities; & (915) Water Utilities.

If you agree with the above analysis your next step is to look at the industry group's relative strength report. Try and determine which groups within each sector are the strongest or at least showing good strength. Leave the initial sort by industry group number so all the groups within the sectors are together. Remember though just click on any heading and the report will be re-issued sorted by that column.

Once you have narrowed down the groups of interest, search through the stocks within your groups to build your watch lists, make notes on which you favor, how you will attempt to buy, as well as your risk parameters. The notes are very important as they will guide you in the days and weeks ahead.

If you continue on at least a weekly basis follow the sector charts (posted Wednesday and Friday evenings) you will begin to notice changes as they occur, hopefully giving you a good heads up on what to expect.
Largest Changes This Week

This Week's Economic Reports

Have A Great Week!

Bill

Disclaimer: Trading in securities, of any type, may not be suitable for all individuals. The contents of this newsletter are not a solicitation to buy or sell securities. The opinions expressed are solely that of the author. You must do your own research, contact your own financial advisor for suitability of any investments. Data gathered is from sources believed to be reliable, but NO guarantee as to their accuracy is made.