Newsletter

December 9, 2006

Is Your Mind Open?

Market & Sector Review
Leaders and Laggards

Largest Changes In Raw Numbers (21 Days)

This Week's Economic Reports

NOTE: It's that time of year again! Next weekend I have an extremely heavy schedule of Christmas parties to attend (lucky me!). In all probability the Prudent Trader weekend update and the newsletter will be delayed until Saturday perhaps Sunday. Hope your schedule is likewise full.
Is Your Mind Open?

Do you have an open mind? Think about it a moment; an open mind is a free mind. Your inner winner image emerges as you open your mind to new ideas, new thoughts, new concepts, new people. If your mind is closed to new ideas and concepts, you are closing a door that imprisons your own mentality.

Prejudices occur when you close your mind and lock the doors. Intolerance cuts off the flow of ideas between your subconscious and your conscious mind. It also cuts off communication with others that may brighten your horizons.

About 100 years ago, The Wright Brothers decided to invent a flying machine. History tells us, the majority ridiculed them. In fact it was the closed minds of that majority; that rejected the concept, the idea. Luckily for us all The Wright Brothers listened to their inner selves. Your inner winner (self) is a voice that encourages you to try and try again. That voice will give you the courage in the face of ridicule.

If you are working on a project and seem to be stuck, or if you are unsure of what to do about your investing and trading dollars, then form a brainstorming partnership with at least one other friend. Share with them your problem, your confusion, your wishes, your desires, your concerns, and ask for help. Put the power of two or more brains to work on the situation. The Wright brothers succeeded because they put the power of more than one brain into their dream.

After more years in the markets than I sometimes care to admit, I still seek out others with new, different, and perhaps fresh ideas. It does not matter if they are 60 years in the market or just 1. Many times it is the new or relatively new trader who has a fresh and different perspective. While I may see caution written all over his or her words, it often sparks an idea that I will give further attention to.

You will discover that brainstorming forces your inner winner to come to the surface. The more you use it, the more it will work to assist you.
Market & Sector Review
Leaders and Laggards

Depending upon the average or averages you like to follow the May/June/July corrective lows occurred between June 13 (NYSE, S&P 500, DOW Industrials and both the Russell 1000 and 2000) and July 21 to 24 (NASDAQ Composite, NASDAQ-100, S&P Mid-Cap, and S&P Small-Cap). The gains since then have been phenomenal.

Certainly no one is disappointed, unless you purchased the wrong stocks. Interestingly the second poorest performer over this time frame is also the most talked about average; the DOW Industrials. The best performer and with a late start, and I might add; also the one with the most published negativity, at least amongst the bears; the NASDAQ-100. I have no idea if any one I know purchased that low or not, if you did however, allow me to offer my sincerest congratulations.

Let's say now that you followed that old market cliché "Sell in May and Go Away"; you decided to take the summer off and travel the world. You returned the day after Labor Day and noticed that several indices had broken above their June and August highs and said hey maybe this market rally is for real. How would you now have done with respect to the advances since Labor Day?

Nothing to be ashamed of and you took the summer off to boot. If you trade the indices via index futures, or index options you are certainly sitting pretty. The out performance of the NASDAQ and NASDAQ 100 is now even more apparent. Note that the largest index gains came from the NASDAQ, but what areas did the most to move the averages? Where did the leadership lie? For this we will look to sectors and sector performance over the same time frames. The sectors used are the 31 Hemscott sectors that I post charts for twice a week.

From the June 13 lows in the averages the best performing sectors were: Metals & Mining; Computer Hardware; Leisure; Telecommunications; and Real Estate. All outperforming the above mentioned major stock averages, advancing 25% or more, in a short six month time frame. Is it the same if you took the summer off to travel the world? Did the leadership change?

That spectacular return in Leisure (23.4%) in but three (3) months represents an annualized rate of return of a whopping 93.6%. An obvious out performance over all other sectors as well as the major averages and double the performance of the best performing average the NASDAQ-100.

This begs two questions: First were there signs that would have caused us to act; two what within the sectors would we have purchased? We will look for purposes of this newsletter at the Leisure sector alone. For reference the Leisure sector is made up of the following industry groups: Lodging; Resorts & Casinos; Restaurants; Specialty Eateries; Gaming Activities; Sporting Activities; and General Entertainment. Leisure Sector weekly chart first:

First thing to notice: in the week ending June 30 (first blue arrow) the Leisure sector advanced 3.3% on almost double the moving average of volume and the highest volume in a year. Was this an urgency to buy from institutions? Perhaps! Now look at the second blue arrow after the bottom (slightly breaking the channel line), Leisure up 4.7% on a large increase in volume. Good clues don't you think? How about the composite charts I post twice weekly, more clues?

Enough clues to make you want to look further at the seven (7) industry groups within Leisure? I have no doubt! I have always viewed being a technical analyst, as very similar to another profession -> a detective (Sherlock Holmes comes to mind); searching for clues, searching for footprints left by the major institutions. Were there footprints, clues in both charts above? You decide!

We are now bumping up against the top of the channel from the 2004 lows and ripe for a correction. Will the correction (should I be correct) lead to an outstanding buy opportunity or will another sector take over the leadership?

I am currently in beta-testing, a new section of the Prudent Trader. I believe this new section will be a great aid in determining not only strength but emerging strength. It will also help you spot sector rotation as it happens. It will take you down a road. A top -> down road to stock selection, i.e. Overall Market Conditions -> Super Sector -> Sector -> Industry Group -> Individual Stocks.

Earlier this week I asked several of my professional trader friends to view this new section, at their convenience, and offer criticism and suggestions. I now invite all our members to preview this new section; A Work In Progress. Please read the instructions carefully and play around awhile; then let me know how it can be improved to suit your needs. All comments, questions, and suggestions will be appreciated!
Largest Changes In Raw Numbers (21 Days)

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.