Newsletter
October 1, 2005
Most Beginnings Are Small
Market & Sector Review
This Week's Economic Reports
Most Beginnings Are Small
By: Vic Johnson Click Here to visit his site"
"Most beginnings are small, and appear trivial and insignificant, but in reality they are the most important things in life."
In this one of James Allen's lesser known books, Byways of Blessedness, he devotes the entire first chapter to beginnings. Mostly the right beginnings.
In my experience, it's not only the right beginning that is important, it's beginning in the first place. In other words that powerful six-letter-word: Action.
Without action, you could have the greatest idea and the greatest plan in the world and you would still fail. Whereas a modest idea and an incomplete plan often produces success when accompanied by enough action.
Hugely successful people, the kind who go from mediocre to millions almost overnight, know that the major key to their success was taking MASSIVE ACTION. When Jeff Bezos decided to start Amazon.com, he left his job on the East Coast and headed to Washington State. He had his wife drive him and their belongings across the country so that he could stay on the phone constantly, convincing potential investors and vendors why Amazon would be a success.
Even the smallest of actions, the ones James Allen called trivial and insignificant, can lead to great success. Sir Isaac Newton's principle that a "body at rest tends to remain at rest and a body in motion tends to remain in motion," definitely applies to the action principle. Once you've taken the first step (even a baby step), the next steps seem easier to take.
And that's worth thinking about.
Market & Sector Review
In last week's newsletter the first section was entitled "Knowing When to Stand Aside" - it may have been one of the more timely topics in quite some time. If you are confused and bewildered about this market rest assured you are by no means alone. Often when I am confused and bewildered, I will, if I am able drive to a peaceful place with no TV, no internet, no news, maybe some soft jazz, sit down, think, and make some notes on a yellow pad as to the bullish arguments and bearish arguments, both technically and fundamentally, and attempt to compare and see if one, in my mind, outweighs the other by a significant amount. Wednesday afternoon just such an opportunity presented itself, I took it and made quite of few notes, let me just summarize quickly the salient points:
The Bear case:
- High oil prices along with rapidly rising commodity prices in general -> Inflation?
- Rising interest rates, not even Katrina could stop the FED from raising rates;
- Declining prices in Mid and Small caps, previous leaders;
- Negative breadth both on the NASAQ and NYSE;
- A lot of bearish intermediate term technical indicators;
- Two back to back natural disasters;
- Company after company reducing their next quarter outlooks due to the natural disasters;
- Certainly questionable economic fundamentals;
- Then on Wednesday a crash in the stock price of FNM (another multi-year low) amid questions of accounting irregularity, and a sharp decline in the Philadelphia Bank Index. I would think how much more do you need to drive prices down?
The Bull case:
- It’s still a bull market by almost any definition;
- At best indicators are confusing and directionless;
- Sentiment however has turned decidedly bearish I can’t remember when I’ve seen so many calls for a crash and from some well known market analysts.
- According to TrimTabs - corporations and insiders are buying while retail investors have been selling during the last several weeks, that is bullish.
- According to the latest survey by AAII (American Association of Individual Investors) 68% report they are out of the market and within a few percentage points of a recent 4-year high.
Question: The bearish arguments both fundamentally and technically far outweigh the bullish arguments, so why hasn't this market just fallen out of bed? Hmm! If oil is the big concern that everyone says it is then why is Japan, possibly the most dependent on imported oil of all the developed countries on a tear up something like 20% since July and making new highs? Hmm!
I guess oil is not the problem it's made out to be. If you remain confused and do not see a good speculative opportunity remember cash is a viable investment option. If you have a hard time staying in cash during times like this, then I suggest you examine your emotional make up because you could be showing a tendency towards being a gambler rather than a serious trader or investor. Most, well at least some of you, remember the song by Kenny Rogers; the "Gambler". In that song is some profound trading advice, "you got to know when to hold them, know when to fold them and know when to walk away." Discipline not emotion is the name of the game and there are times, I do not care if one is a day trader or a long term investor, when one should not feel comfortable trading because the markets and the indicators associated with those markets are not acting as they should, hence cash. I state all this simply because outside of my metals positions and a few long-term core holdings I remain in cash looking for opportunities. That may change during the week, who knows.
Two emails asked if I would continue to follow the exit strategy for AAUK and GLD so they may follow these trades through to there eventual conclusion. It's a fair question and I am happy to oblige. To review the strategy re-visit last weeks letter: 9/24 Newsletter I was stopped out of 20% of GLD and another 20% will be stopped on the next close under the 5-day average of the lows. The AAUK remains 100% long as the moving average has yet to be violated on a closing basis.
The most improved report that is published each week in this newsletter is in picture format. What that means, as was explained to me by a good friend, is that you can copy the picture to your desktop so that when you are looking through the various scans during the week it becomes easier to spot potential opportunities. For instance in last weeks report MG633 (Lumber and Wood Production) was the 6th most improved as measured by the Prudent Trader Price Percent Oscillator. This week it remains on the list. Wednesday evening when putting the various reports together jumping out were two members of this group, UFPI (Universal Forest Products) made a new 5-year high, and GP (Georgia Pacific) appeared on the divergence report with a bullish divergence in Prudent Trader Accumulaton. While I have not, at least as of this writing, bought a single share in any member of this group, these stocks are now on my radar list. With the exception of UFPI (92% relative strength ranking) most of the stocks in this group have very low relative strength rankings. The moves here could be nothing more than hurricane affects, but I'll be causually looking as time goes on, just in case that begins to change.
This weeks most improved and certainly some good ones for the future:
Bottom Line: I remain bullish looking for new highs but I am by no means aggressive here. I think it's just as possible that we decline towards or under 1200 basis the S&P 500 before we go up, as it is possible we go straight up. I continue to look for opportunity but I am being a lot more stringent and cautious than at many other times.
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.
|
|
