Newsletter

December 3, 2005

Are You a Winner ?

Market & Sector Review

This Week's Economic Reports

Are You a Winner ?

Not everyone is ready for success. Some people secretly fear it. The reasons will differ from person to person. Some will not want to out-earn their parents. They fear that if they improve their social status, friends and loved ones may no longer care for them in the same way. Other people just don't believe they deserve success. Winners, however, don't have such worries. They are comfortable with themselves and comfortable with what they are trying to accomplish in life. No self-doubts! They have a firm commitment to their goals, and know that if they work hard enough, they'll achieve what they set out to achieve. When it comes to enduring success as a trader, the odds are against you. Every year, thousands of would-be traders try to make it, but very few realize their goals. Even those who make it, for many, success is short lived. Achieving and maintaining success is largely a matter of psychology. If you approach trading with the right mindset, you'll increase your odds of success.

Many people, although they will rarely admit it, think they are just not deserving of success. To be a winning trader you must firmly believe that you are deserving of success. If you believe that you don't deserve success, you will give back any winnings you take out of the markets. Instead of giving back profits why not strengthen you internal attitude. Accept more success into your life, feel worthy of success and visualize yourself as a successful trader. As much as we want to become profitable traders, or stay profitable, it's often difficult to truly believe that it can be done. We are all aware of the failure rate, and all of us know that staying successful requires work. You must keep working to stay successful. Nevertheless, the first step is to truly believe you can be successful and stay that way if you work hard enough.

Once you decide to be successful, you also need to believe you are worthy of success. For many, it is an issue of self-image. Successful people see themselves as "winners" who can do anything if they set their minds to it. If you have a low self-image, visualize yourself as a success occasionally. Imagine working hard and beating the odds to gain success and keep it. Imagine taking heroic steps to achieve the success you deserve, and the sense of accomplishment that you'll feel when you achieve success. Many people limit themselves psychologically, but if you are willing to redefine and stretch your limits, and start thinking of yourself as a winner, you'll get there and stay there.

Market & Sector Review

I certainly hope everyone had a stellar month in November, everyone but stubborn bears had to have profited somewhat. Regular readers are well aware that I was bearish in mid to late October, but I am never stubborn on the short side, on longs maybe, sometimes. For the month of November the DOW + 3.5%; the S&P about the same; but as pointed to in one of the October Newsletters the NASDAQ was outperforming on a relative strength basis, which was nicely reflected in its out performance, with a better than 5.3% gain in November, in fact it is still outperforming being up today while the other broad indices were lower (see chart below). It has been the case for decades now that when the NASDAQ leads its good for the market as a whole, keep that in mind. This is one of the primary reasons this site has gravitated rapidly towards the increasing importance of relative strength, use it, profit from it.

I think it also worthy of note this week that gold quietly crossed $500 per ounce, slightly breaching a double top on the monthly charts. The precious metals markets (Gold, Silver, Platinum, and Palladium) suffered a roughly 20 year bear market from 1980 through 2000, whose to say we are not in the very early stages of a 20 year bull market? Certainly not I! If gold were to just match its old highs of 1980, we still have a 30+% rise ahead of us. While I still retain about 50% of the positions I mentioned in previous newsletter's I will be watching the next correction via the group and index reports on site for an additional add too points. When gold and gold stocks enter their next correction (it's not a question of if, it's a question of when and from what level) watch the relative strength action for advance clues. While everyone else is watching the DOW, keep your eye on this one. In my humble opinion it will be an out performer for perhaps years to come. If for any reason you are leery of the mining stocks remember there are two ETF's that hold the physical metal and will trade in line with the metals price (GLD and IAU).

I have to say that as this market rallies I am becoming increasingly bearish as we head into the New Year (we'll talk more about that in the last December newsletter, with an outlook for 2006) I am not currently calling for or even looking for a top and I am personally not looking to short just yet, but as a general statement, I am cautious and nimble on the long side. It's always fun to attempt to call the top or the bottom, but it's an ego exercise, nothing more. I have found over the years actually attempting to pick tops and bottoms to be a losing proposition.

We seem to be in the midst of the rally I was looking for over the summer that would turn sentiment bullish enough to then look to get short leaving some room of course. The long term and intermediate indicators are still very much in tune for a continuation of this bull market, although divergences abound. Mark Hulbert of CBS Market Watch and the Hulbert financial digest maintains stock market and gold sentiment gauges based on advisory sentiment and I think they are pretty good although sometimes a bit early you can read about them here: Mark Hulbert If you are not a market watch subscriber you'll have to sign up but it's free.

I believe it was early this year that I talked about the years ending in 5 phenomena (years ending in 5 have always been up) and wondered with the 4-year cycle top due, if this would not be the year ending in 5, that broke the string. With less than a month to go and the DOW needing to close above 10,783 (12/31/04 close), I wonder if at this stage it will not become a self fulfilling prophecy? DOW close today 10,877.5

In response to our core group's discussions I have decided to slightly alter the reports, hopefully for the better sometime this coming week (if programming can be accomplished). The % above/below the relative's strength linear regression line will be given for today only so you may notice the strongest today. In discussions we deemed that very often corrections last longer than 21 trading days (approximately one month) so we will instead be presenting the direction of the linear regression line (of relative strength) as a simple + or -. The changed reports will reflect the direction today, 3,21,34 and 55 days ago. The linear regression line of relative strength is still for a 21 day period. In addition we will change the compare stocks within groups to reflect the stocks action against the broad market and against its sub-sector, utilizing the same time periods.

On Wednesday evening I decided to do a quick exercise to demonstrate one way to look through the reports very quickly and come up with maybe some good ideas. The entire exercise (not counting making the fancy chart below) lasted less than 15 minutes, add somewhere between another 30 to 60 minutes for viewing sector, group, and individual stock charts. I sorted the groups report by % of linear regression line today, in this way the best performers today appear at the top of the report. I quickly scanned the report looking for those groups whose relative strength not only was above its linear regression line but whose direction changed to positive from negative today. I found 4 groups fitting that situation. At this stage I have no idea if I am personally interested in any. I then go back and pull up the technical data tables and check these groups to see what is going on visa vie PPO, PT-Momentum, Accumulation, Directional Movement, and Parabolic SAR and make a few notes. I normally use a columnar pad and pencil and draw the arrows seen below, I do not make a fancy Excel chart. The number inside the parenthesis is the number of trading days that direction has been enforce

STOP reading for a moment and study the above picture, does anything pop out at you?
When scanning through the various reports and data what will and should pop right out will be reflective or your own individual trading style your desired trading time frame, and any other personal criteria you may have. Remember we are all different in what we are looking to accomplish and how we trade. What I personally do may or may not be suitable, for a variety of reasons, for any other member and vice versa.

For those of you who do not have access to sector or group charts we now have a section of sector charts on site that will display the daily chart and the weekly chart side by side which will make it easy to see if the daily action one way is well within the confines of an on going longer term movement. Let's utilize that feature to look at the sectors the above are a part (Charts on site are 30% larger).

Again, STOP - do not read any further for a moment. Look again at the spreadsheet, then scroll down look at the charts, back up then back down. Anything stand out?

For what it's worth here is what popped out at me. Of the four sector charts above, 3 have broken out to new multi-year highs and one is near the top of its range, looking as if it wants to break out. Another interesting thing or two comes right to the forefront, Health Service (MG520) is in a very pretty upward channel for several years yet one of its component indices Hospitals (MG525) is in a well defined downtrend, seems odd to me. Then looking at Manufacturing I see another nice multi-year uptrend yet one of its components, we just found, is just barely turning positive, textile manufacturing.

Here is what I think is happening, people (and institutions are made up of people too), realizing we have two hot sectors here, Manufacturing and Health Services, are reaching for components of those sectors that have not moved yet. These are the weak groups within strong sectors, I don't know about your style, but I will pass thank you very much (although there is one Hospital stock that is making new highs). So that leaves us with two more groups Beverages - Wineries and distillers, and Metals and Mining - Industrial Metals & Minerals to look at. Looking at Wineries and Distillers there are only 4 stocks in the group and in my humble opinion one good one (certainly a possibility here). So now we are down to one group Industrial Metals & Minerals.

While as a group this is underperforming its sub-sector what has been interesting about this market is the rotation that is taking place. Industrial Metals and Minerals were in favor not that long ago and they may become in favor again (they are not exactly out of favor). Some good stocks certainly worth considering. The important thing I wanted to show today is although I didn't find anything here that I personally wanted to buy, the entire exercise only took me somewhere between one half an hour and one hour (of course not counting the chart and picture making). I do this the night before every trading day and most times do not find what I am looking for, and that's fine because you are not going to find something great everyday. I'll look again tomorrow and over the weekend, who knows what may turn up then? But a half an hour to lets say an hour and a half each night, hmmm, your kids probably have more homework than that, and we're talkng about real money!

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.