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November 18, 2006

Are You Patient Enough? Market & Sector Review Year End Tax Selling Can Spell Opportunity Largest Changes In Raw Numbers (21 Days) This Week's Economic Reports Samuel Adams, father of the American Revolution: "It is therefore recommended ... to set apart Thursday the eighteenth day of December next, for solemn thanksgiving and praise, that with one heart and one voice the good people may express the grateful feelings of their hearts and consecrate themselves to the service of their divine benefactor ..."—November 1, 1777 (adopted by the 13 states as the first official Thanksgiving Proclamation)

No Newsletter Next Week - Enjoy your Thanksgiving Holiday Weekend Please Remember: Give Thanks for what you have - while working to attain what you desire! Are You Patient Enough? It requires about 3 years before a grapevine will bear grapes. It requires 18 years before a newborn becomes an adult. A generation or more of time passes before a forester can harvest many trees. Most of our giant corporations were doing business for decades before becoming strong, highly profitable enterprises. And it takes many years of patient dedicated effort to become a successful musician, surgeon, engineer, teacher, or expert in any field. Why is it then that many new traders and investors expect to be successful immediately and without the commitment to learn and spend the time required? We live in a "now" society. When we turn on the TV, radio, dial a number, turn the key in our car we expect immediate results. In making investments we likewise expect a big return in just a few weeks or months. The people you know can be divided into three categories: the impatient; the passively patient; and rest who are persistently or actively patient. The impatient want instant gratification, and are often intolerant of others. Sometimes the grass appears greener on the other side. But most often it is not! The passively patient are whatever-will-be-will-be people. Their philosophy is time will take care of everything. The status quo dominates their thoughts. "Don't rock the boat", "don't try anything new till someone has proved it works", "don't take any unnecessary risks"; this illustrates well their attitudes. The persistently patient are a different breed. They reason like this: "Everything takes time, but I'm going to do all I can to shorten the time required. I am going to promote actively what I'm doing so that my goal is accomplished correctly and with a minimum expenditure of time". Persistently patient people know that substantial time and considerable effort are required to achieve anything worthwhile. Persistently patient people are determined to build not only for themselves but also for future generations to follow. Take a few moments to think about which type you are. If you are to become a successful trader/investor you must learn persistent or active patience. Learning in this business is a never-ending process. Techniques that work in one type of market may not work in another type of market. Reading is an integral and essential part of learning. Build libraries of books as well as periodicals. About once every generation the Stock Market enters a severe bear market. That bear market usually does not end until most investors just give up, throw in the towel, and swear off stocks forever. It is the persistently patient who are still around; making some profits, ready to pick up the once-in-a-generation bargains. It is not a question of if, it's a question of when the next bear market strikes and presents those once in a generation opportunities, will you still be around? Market & Sector Review Year End Tax Selling Can Spell Opportunity As we approach the end of this year an intriguing potential opportunity also approaches. At this time of year, through most of December, mutual funds and financial institutions begin rebalancing their portfolios. In order to make year end reports look as good as possible their tendency is to weed out the losers from their portfolio and add to their winners or select new stocks that have been winners this past year. Likewise many investors do a year-end portfolio checkup. Their main goal is to assess performance: "How did I do this year"? In addition to the how did I do this year, and especially if an individual is facing an ominous tax bill, they will have a tendency to take losses where they exist in order to offset at least some of their gains and reduce their tax liability. To put it another way, they let the tax man run their portfolio. Regardless of what the major averages do this coming month tax selling will begin now! Not after Christmas. Tax selling shouldn't be done lightly because depressed stocks often rebound in late December or in January. If you are in a position where you need some tax losses, it may be worthwhile sell a stock in which you have a loss now, wait 31 days, and then reinvest. However, here is where the potential opportunity lies. So how do we recognize these potential opportunities? A very interesting technique is: Don Wolanchuk's climax indicator: Selling climaxes occur when a stock makes a new 12-month low, but then closes the week with a gain. They are a sign of accumulation and indicate that stocks are passing from weak hands to strong ones. Buying climaxes take place when a stock makes a 12-month high, but closes the week with a loss. They are a sign of distribution and indicate that stocks are moving from strong hands to weak ones. Our work shows that sellers into buying climaxes and buyers into selling climaxes are right about 80% of the time after four months. I decided to look back to last year at this time and look for weekly reversals off of a new twelve (12) month low during the month of December 2005. I've deleted from the list all mutual funds, income and municipal bond-funds, real estate mortgage companies, and bond funds. The list was further culled by requiring a close equal to or greater than five. No volume considerations were made (although they perhaps should be). The following spread sheet shows the list along with the date of the weekly reversal off the 52 week low and the close when it occurred. I then included the closes on April 28, 2006, approximately four months plus later. Seventy (70) issues are displayed, other than the deletions mentioned above, no other considerations were made. The average for all the stocks in the above list is a gain of ten (10) percent. That is to say if you put equal dollar amounts into each security listed and sold everyone on April 28, 2006 your gain would be ten (10) percent or at an annual rate of return of thirty (30) percent. The largest gain came from Nevada Chemicals (NCEM) of fifty-six (56) percent; the largest loss came from Chesapeake Corp, a nineteen (19) percent hair cut. Let's take a look at four charts of the more widely known stocks in the list above: Comparing the major averages during the first four months of 2006, approximately the same time frame as above; The S&P 500 advanced 2.6%, the Dow Jones Industrials 6.1%, and the NASDAQ-100 3.2%. It is indeed "A Market of Stocks"! As a very interesting aside, note of the seventy (70) stocks listed above fifty-four (54) or seventy-seven (77) percent advanced, very close to Don Wolanchuk's research above. For sure some were very minor advances, but advances nevertheless. While no one in their right minds would use this technique blindly, I do find it very interesting, with what in this look back has turned up. First: several "household names" and secondly if you were to look back at the charts and the volume there were technical reasons besides the reversals to buy. It all depends upon your criteria and your outlook. Since some unique opportunities may present themselves in the near term future: a New Hot Market Scan has been initiated, which I am calling the Climax Scan (see members area under Hot Market Scans). The criteria: A new 250-Day low or high (buying climax); a close under/over the close 5-trading days ago; a minimum of one years trading history; and a minimum close of 5. There are no other conditions. While this scan is not based on a calendar week (except of course the Friday evening scan) it could give a good heads up on some issues to watch into the weeks end. I have been running this scan recently and finding far more buying climaxes than selling climaxes, however that may change. The scan will be run against the entire Tele-Chart database and I will not remove funds as I did for this exercise. I'm quite confident this scan will uncover some unique and interesting situations on both the long and the short side. Only seven issues and some very thinly traded stocks appear on this first scan posting. We'll have to see what shows up as the year winds up. Happy Hunting! Largest Changes In Raw Numbers (21 Days) Report Explanation 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.