Tag Archives: stocks

Timely Dow 2 Signal For 2016

The following is from this year’s Note 16 of The Kelly Letter, which went out to subscribers last Sunday morning. The market continues confounding bearish pundits. The Dow Jones Industrial Average closed above 18,000 for the first time since last July, and from its Friday close at 18,005 requires only a 1.5% rise to eclipse its all-time high of 18,272 recorded last May. The year is going well for us, helped along by the strong outperformance of our preferred small- and mid-cap stock sectors in the past two weeks, and I’m already tempted to declare the changes in Tier 3 a success. Our goal there was to reduce the drag of forecasting on the overall portfolio by putting an even larger percentage of capital under the guidance of reactive systems. The two new ones in Tier 3 are Dow 2 and Mo 1, with the speculative portion of the tier reduced to just a fifth of the allocation. Dow 2 sensed the time to move out of Intel ( INTC $31.64) and into Wal-Mart ( WMT $68.72), which has been great. As Intel works to realign itself with a growing emphasis on mobile devices at the expense of personal computers, its stock price is struggling. As Wal-Mart benefits from a turnaround plan that’s farther along and should produce a leaner retailer, its stock price is appreciating. The differential between the two stocks, with INTC down 8.2% and WMT up 12.1%, is a 20.3-point spread. This translates into a significant improvement for us, given our high allocation to the Dow 2 plan. We invested $69,091 in WMT on January 4. It’s now worth $78,478. Had it remained in INTC, which we sold that day at $33.93, it would be worth just $64,427. We’re $14,051 ahead, thanks to the Dow 2 signal. … The last two weeks have provided a convenient case-in-point for why our reactive systems are such a fine way to benefit from the financial markets. They are low-stress and run on autopilot, beating the frantic pros who continue demonstrating their shortcomings with newly failed predictions. I was able to leave the plans alone through a busy schedule that included major earthquakes [in Kumamoto, Japan] as a disruption, and what did I find upon returning? Our money beating the market and therefore most professional money managers. The S&P 500 is up only 3% so far this year. We’re up 5.6%. Even more impressive, unlike most price-only comparisons, these are more accurate total-return comparisons. Stay true to intelligently reactive plans built on decades of market behavior. They are beatable by dumb luck only, which pundits call skill, and which we know to be unreliable. Guessing is best reserved for fun and games, not money management for a better future. In the end, steadily and surely, automated intelligent reaction outdistances professional guessers by a wider and wider margin, while costing far less in fees. Just ask Bill Ackman at Pershing Square, the billionaire hedge fund manager who lost 20.5% last year and another 25% in this year’s first quarter. That’s some bang-up expertise for hire at a high price, eh? No thanks. We’ll stick with what works, and what’s cheap. How convenient that they’re the same thing.

What Is Your Sell Criteria?

Every stock market cycle has its darlings – the stocks investors believe can do no wrong. I remember 1999 all too well. Microsoft (NASDAQ: MSFT ) and Dell (private since 2013) were two of the stocks that investors fell in love with during that era. However, those investors soon learned that loving a stock could have nasty consequences, because it is difficult to part with something you love. These stocks, and many others, were devastated in the ensuing months and years. The “unattached” owners of these stocks disposed of their holdings as prices dropped or earnings failed to materialize. These disciplined investors had pre-defined criteria to alert them it was time to sell. The stock lovers lacked such discipline and went through various stages of denial, justification, rationalization and other emotions as they watched their beloved stocks sink lower and lower. In the current market cycle, it’s hard to imagine a stock that is more loved than Apple (NASDAQ: AAPL ). Back in 1999, it was despised, and many analysts were not convinced the company would even survive, let alone flourish. Fast forward to 2012, it became the most valuable company in history in terms of market capitalization, surpassing Microsoft’s December 30, 1999, valuation. Yesterday, it was still the largest component of the S&P 500 Index, accounting for 3.17% of the Index. However, Apple’s stock price peaked 14 months ago at $133. On Tuesday, it closed below $105, and yesterday it closed below $98. That is more than 26% drop in 14 months. Apple released its quarterly earnings report, which is the reason for the new downdraft. Earnings fell short of expectations by coming in at $1.90 per share, which was 10 cents below expectations and 18.5% below a year ago. Revenue fell by 13%, marking its first revenue decline in 13 years, and the first ever since the stock achieved “darling” status. Apple also reported that iPhone sales fell for the first time in history. Now might be a good time to ask yourself if you are an investor or lover of Apple stock. It is already in a bear market, so if you haven’t sold it yet, then when will you sell it? You didn’t sell when it dropped 15%, and you didn’t sell when it dropped 25%. What will it take? A 50% drop? A 70% drop? Two quarters of declining revenue? Many people are selling their Apple shares, perhaps because it posted its first revenue decline in 13 years or perhaps because its price dropped below $100. Then again, an equal number of shares are being bought. It’s a high volume day for Apple. I’m not predicting further demise for Apple stock, as this could turn out to be a great buying opportunity. What I’m suggesting is that you objectively consider your criteria for selling Apple or any other stock. Be sure to have an exit plan, preferably before you buy. As expected, the Federal Reserve took no action at the conclusion of its FOMC meeting yesterday. Analysts are parsing the contents of the press release, so you can expect to see some forecast revisions for when the Fed will make its next move. Sectors: Signs of a significant sector rotation are visible again this week. The smokestack group of sectors, discussed here a week ago, are firmly in the leadership role again today. Energy and Materials swapped the top two positions, with Energy now completing its climb from last to first in the span of three weeks. Materials, now in second, has been no lower than fourth place for eight consecutive weeks. The Industrials sector rounds out the trio by maintaining its third-place position. Financials was a big upside mover, jumping from eighth to fourth. Healthcare also climbed four spots higher to grab sixth. These ascents forced the higher yielding sectors lower with Telecom sliding one place to fifth, Real Estate dropping to eighth, and Utilities plunging to tenth. Technology lost momentum, but it was able to hang on to its ninth-place ranking. Consumer Staples is now the weakest sector and sits on the bottom for a second week. Styles: Small-Cap Value assumed the lead, ending Mid-Cap Value’s seven-week stint at the top. Small-Cap Value has been the most volatile of the style categories, bouncing between second and sixth during these past seven weeks. Mid-Cap Value did not fall far, easing just one spot lower to second, while remaining prepared to resume the lead if Small-Cap Value’s volatility returns. Micro-Cap was the big upside mover, climbing three spots to third after being in last place just two weeks ago. Mid-Cap Blend fell four places to seventh, becoming the largest casualty of the relative strength rankings. However, it only gave up two momentum points in the process, while Mega-Cap lost six points and held its decline to a single spot. Large-Cap Growth is on the bottom for a second week. Global: The upper tier of the global rankings remains very steady with Latin America and Canada supplying the one-two punch for nine consecutive weeks. Pacific ex-Japan and Emerging Markets have not been as consistent as the top two, but the third and fourth place duo have held those spots the majority of these nine weeks. The top three are all resource-rich regions, and they are benefiting from strength in the Materials and Energy sectors. Fifth through tenth-place categories are compressed, allowing Japan to jump four places higher without much effort. A week ago, China was above this grouping, but it plunged six places lower and now sits at the bottom. Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned. – See more at: http://investwithanedge.com/what-is-your-sell-criteria#sthash.AfaA2gBD.dpuf