Investment Moats

Trend Watch:Weekly Trend Analysis 06 Sept ’09 $spy $eem $gdx

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We have a small correction this week, but is it enough to bring down from over bought conditions? I was right about last week that a correction could be there near term, but before we get a significant level it went on its way up again.

Intermediate

SPY Weekly

The weekly SP 500 chart is filled with freaking bearish signals. The MACD is still showing that divergence. RSI looks toppy. The area of 95.44 looks a possible first target. Carl Swenlin seems to spot a rising wedge in the SPY, which have bearish implication.

EEM Weekly

Ditto for the emerging markets. The retest of the trend support looks to be significant, but a bubblish behaviour might be brewing. I think it has the capacity to go higher, but the higher it goes a bigger correction in the intermediate term awaits us.  Very likely to go non-directional as well.

GDX Weekly

What a week for the GDX, missed all the shit rally here since i decided not to play with anything in USD until i get the rates right. What cause this massive climb is any body’s guess.  but man does the picture on the weekly chart looks good.

A divergence at the RSI, Stochastic turning up and the MACD histogram moving to positive territory. I am tempted  to get into this. However, this is gold equity we are talking about and in contrast to the SPY picture it makes it difficult for me to make what of this.

Short Term

SPY Daily

i like to think that a successful bounce off the 26 day MA bodes well for short term. The good thing is that it isnt at overbought level.

EEM Daily

Putting $36.50 behind them should be the catalyst for a nice short term rally. MACD looks good.

GDX Daily

In all honesty i have no freaking idea that it will break up this way. So how do we play this now? Right now its flirting with a important resistance. It might fail or breach it but i am not gonna guess here. The weekly picture tells me that it is probably gonna succeed. Perhaps a flag formation will be form here. Anticipate the success and failure of it and make the play accordingly.

Summary

Alot of nice bullish short term scenario. lets hope it turns out to be a good trading week.

Bill Miller is back and smelling bull!

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Mutual-fund manager Bill Miller, whose Legg Mason Value Trust was slammed in the market’s collapse, continues to see a brightening light at the end of the tunnel.

In a quarterly report to fund shareholders, Mr. Miller said that a new bull market is under way and that technology and financial-services stocks would be among its leaders.

[Bill Miller]

Bill Miller

“Bull markets typically begin when the following four conditions are present: the economy is bottoming; profits are bottoming; the Fed is stimulating; and valuations are low,” Mr. Miller wrote in commentary published Wednesday. “That’s where we are now.”

Mr. Miller lauded technology as a sector that, “on average, has a great balance sheet, is flush with cash, and trades at a large discount to the market on a free cash flow yield basis.”

He also pointed out that financial stocks have been standouts in the market’s rally, “just as they were off the bottom of the last banking crisis in the late 1980s and early 1990s. Banks still face mounting credit losses for the next year or so, but that should not impede their performance.”

About 55% of Value Trust’s (symbol: LMVTX) assets were in technology and financial-services companies as of June 30. Its largest stakes included eBay, State Street, Yahoo, Hewlett-Packard and Cisco Systems.

Mr. Miller’s noteworthy performance so far this year — Value Trust is up almost 20% through July 21, topping its benchmark Standard & Poor’s 500-stock index by 12.6 percentage points — stands in contrast to the battering the fund manager has taken in the past few years.

His commitment to financial services in particular proved costly in the market’s meltdown that began in the fall of 2007. Value Trust lost 55% in 2008, trailing the S&P 500 by 18 percentage points. The fund sank to the bottom of its large-blend category in each of the past three calendar years, according to investment researcher Morningstar.

Through it all, Mr. Miller stuck to his guns against a wave of criticism and a shareholder exodus, remaining optimistic even in the market’s darkest hours.

“The worst is behind us,” he told fund shareholders in April 2008, following the collapse of Bear Stearns. “This too shall pass,” he wrote in late January as stocks were tumbling to new lows. And in May, he said the market’s rebound since March seemed real — not a bear-market trap that would end badly for buyers.

Mr. Miller did warn of some specific risks to his forecast: rising interest rates; a sharp spike in commodity prices, especially oil; and mistakes by policy makers in their efforts to restore confidence in the financial system.

Global REIT Boom Ends here?

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Readers of my previous article would know that i think there are certainly some bargains on the REIT front. In this article, Eric Roseman summarizes what happened, why REITs got hammered and whether there are opportunities out there.

One of the biggest casualties of the global financial crisis is the big bust now underway in REITs, or real estate investment trusts. Until mid-2007, U.S. REITs dominated global investment performance in the post-2000 technology stock “bubble” era with eye-popping 25% annualized returns.

International REITs were even more profitable, especially for dollar-based investors as foreign currency returns boosted profits combined with rising dividend distributions. A blizzard of international and regional REIT mutual funds and exchange traded funds (ETFs) were launched since 2005 as global demand went off the charts.

Singapore and Western Europe spearheaded some of the most impressive returns over the last several years with eye-popping double-digit annual gains, including a profitable recommendation for one of Singapore’s largest and oldest commercial REITs two years ago in The Sovereign Individual.

The REIT Crash

Since the onset of the subprime mortgage crisis 14 months ago REITs have plunged in value – with the biggest declines occurring in Europe, Eastern Europe and Asia.

REITs have boomed recently in the Pacific whereby recent legislation was introduced permitting REIT structures over the last seven years in Japan, Singapore and Hong Kong.

But in Singapore, REITs have plummeted more than 15% over the last 12 months and are down in excess of 45% in Australia. In Japan, J-REITs have tanked almost 30% over the last 12 months and remain 25% off their best levels in the United States.

Too Much Supply, Lack of Credit

The turning point for REITs occurred in early 2007 as the “bubble” began to simmer following an enormous number of new offerings worldwide. Fueled by the lowest interest rates in a generation combined with easy credit, REIT sponsors went hog-wild.

Supply and demand always dictate price action for any secular trend; in this case, REIT initial public offerings or IPOs were all the rage across the United States, Europe and especially Asia starting in 2005. Any observant investor could have easily identified that trouble was brewing in early 2007.

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Preventing Investment Mistakes: Ten Risk Minimizers

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Most investment mistakes are caused by basic misunderstandings of the securities markets and by invalid performance expectations. The markets move in totally unpredictable cyclical patterns of varying duration and amplitude. Evaluating the performance of the two major classes of investment securities needs to be done separately because they are owned for differing purposes. Stock market equity investments are
expected to produce realized capital gains; income-producing investments are expected to generate cash flow.

Losing money on an investment may not be the result of an investment mistake, and not all mistakes result in monetary losses. But errors occur most frequently when judgment is unduly influenced by emotions such as fear and greed, hindsightful observations, and short-term market value comparisons with unrelated numbers. Your own misconceptions about how securities react to varying economic, political, and hysterical circumstances are your most vicious enemy.

Master these ten risk-minimizers to improve your long-term investment performance:


1. Develop an investment plan. Identify realistic goals that include considerations of time, risk-tolerance, and future income requirements— think about where you are going before you start moving in the wrong direction. A well thought out plan will not need frequent adjustments. A well-managed plan will not be susceptible to the addition of trendy speculations.

2. Learn to distinguish between asset allocation and diversification decisions. Asset allocation divides the portfolio between equity and income securities. Diversification is a strategy that limits the size of individual portfolio holdings in at least three different ways. Neither activity is a hedge, or a market timing devices. Neither can be done precisely with mutual funds, and both are handled most efficiently by using a cost basis approach like the Working Capital Model.

3. Be patient with your plan. Although investing is always referred to as long- term, it is rarely dealt with as such by investors, the media, or financial advisors. Never change direction frequently, and always make gradual rather than drastic adjustments. Short-term market value movements must not be compared with un-portfolio related indices and averages. There is no index that compares with your portfolio, and calendar sub-divisions have no relationship whatever to market, interest rate, or economic cycles.

4. Never fall in love with a security, particularly when the company was once your employer. It’s alarming how often accounting and other professionals refuse to fix the resultant single-issue portfolios. Aside from the love issue, this becomes an unwilling-to-pay-the-taxes problem that often brings the unrealized gain to the Schedule D as a realized loss. No profit, in either class of securities, should ever go unrealized. A target profit must be established as part of your plan.

5. Prevent “analysis paralysis” from short-circuiting your decision-making powers. An overdose of information will cause confusion, hindsight, and an inability to distinguish between research and sales materials— quite often the same document. A somewhat narrow focus on information that supports a logical and well-documented investment strategy will be more productive in the long run. Avoid future predictors.

6. Burn, delete, toss out the window any short cuts or gimmicks that are supposed to provide instant stock picking success with minimum effort. Don’t allow your portfolio to become a hodgepodge of mutual funds, index ETFs, partnerships, pennies, hedges, shorts, strips, metals, grains, options, currencies, etc. Consumers’ obsession with products underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: consumers buy products; investors select securities.

7. Attend a workshop on interest rate expectation (IRE) sensitive securities and learn how to deal appropriately with changes in their market value— in either direction. The income portion of your portfolio must be looked at separately from the growth portion. Bottom line market value changes must be expected and understood, not reacted to with either fear or greed. Fixed income does not mean fixed price. Few investors ever realize (in either sense) the full power of this portion of their portfolio.

8. Ignore Mother Nature’s evil twin daughters, speculation and pessimism. They’ll con you into buying at market peaks and panicking when prices fall, ignoring the cyclical opportunities provided by Momma. Never buy at all time high prices or overload the portfolio with current story stocks. Buy good companies, little by little, at lower prices and avoid the typical investor’s buy high, sell low frustration.

9. Step away from calendar year, market value thinking. Most investment errors involve unrealistic time horizon, and/or “apples to oranges” performance comparisons. The get rich slowly path is a more reliable investment road that Wall Street has allowed to become overgrown, if not abandoned. Portfolio growth is rarely a straight-up arrow and short-term comparisons with unrelated indices, averages or strategies simply produce detours that speed progress away from original portfolio goals.

10. Avoid the cheap, the easy, the confusing, the most popular, the future knowing, and the one-size-fits-all. There are no freebies or sure things on Wall Street, and the further you stray from conventional stocks and bonds, the more risk you are adding to your portfolio. When cheap is an investor’s primary concern, what he gets will generally be worth the price.

Compounding the problems that investors face managing their investment portfolios is the sensationalism that the media brings to the process. Step away from calendar year, market value thinking. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques.

Do most individual investors have difficulty in an environment that encourages instant gratification, supports all forms of speculation, and gets off on shortsighted reports, reactions, and achievements? Yup.