MarketShadows

Not Done Rising, But Night Will Come

Read: MarketShadows February 24 2013 Newsletter: Not Done Rising, But Night Will Come 

This week:

Event Horizons: Not Done Rising. 

Market Forces: Lee Adler's composite liquidity indicator keeps going higher: Cis Bam! Fed Drives Massive Liquidity Surge, Treasury Says Thank You Ma’am.

 

 

Value Exploration: Paul Price's Virtual Value Portfolio (stocks) is almost filled up, so we sold some PUTS in our Virtual Put Selling Portfolio.

• Become a Cat Lover: Selling one CAT put;
• Adding Life-Time Fitness to our Virtual Value Portfolio: Buying LTM for the Virtual Portfolio and Selling one LTM put;
• Quick Rise, Sharp Pullback- That’s LIFE: Selling one LIFE put. 
• Virtual Portfolio Update    

Glimpse into the Future: Bloomberg Reports Biggest Story of All Backwards As Fed Blows Dangerous Deposit Bubble.

 

 

 

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Get regular updates the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

 

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Special Offer from PSW: Click on this link to try Phil's Stock World FREE! 

 

Frustrations and Rewards of Value Investing

Frustrations and Rewards of Value Investing

Buy when cheap, when everyone hates a stock. Not when a stock is expensive and everyone loves it.

If you've been following Market Shadows since our Virtual Value Portfolio began in late October, 2012, you may have noticed that Paul Price is building this portfolio according to value investing principles. Not only is this portfolio structured to spread risk between numerous companies, stock selections have been in solid companies trading at the lower levels of their historic P/E ranges. (Currently we have 29 stocks in the portfolio with initial allocations of 3%; four have been increased to 5%.)

While chasing stocks primed to move up quickly is exciting, catching rapid moves higher is a trader's game. It's difficult to do consistently, and when the tables turn, the fall can be dramatic. When underlying value is not beneath the share price, there is a much higher degree of risk.

In Market Shadow's Virtual Value Portfolio, we try to identify stocks that are trading in their lower ranges and we don't mind waiting for the price to catch up to the value. Even if it seems like a long, boring wait. (To offset a chronic price depression, we might sell a call against a position, but lately we've been rather bullish and haven't been hedging.)

Paul notes, "Watching the overall market go up while your portfolio sits in neutral, or declines, can make you crazy. That’s why momentum investing is so seductive. Something that is already moving appears less likely to sit idly than a currently out-of-favor name.

"Why then, am I addicted to buying value-oriented issues? In the end you’ll generally end up trading less often but capturing bigger moves. The periods of stagnation seem longer than they really are. Simple math works in your favor, too. 

"A stock that has already dropped by 50% only needs to make a partial recovery in order to register a substantial gain."

In 2012, the DJIA never closed once below the previous year’s December 31 level. Despite that, there were plenty of solid companies offering significant percentage sell-offs. Many companies that had sold off in the beginning of the year rebounded by the year's end. For example, all the stocks listed in Paul's table below rebounded from their 2012 lows within seven months. 

Paul's list of depressed stocks which he thinks are poised to recover:

Apple (AAPL), Quest Diagnostics (DGX), Kohl’s (KSS), Express Scripts (ESRX) and Coach (COH).

KSS, ESRX and COH are in our Virtual Value Portfolio.

DGX, KSS and ESRX are in our Put Selling Virtual Portfolio. 

Ironically, or not so ironically, when the stocks in the list above were at their lows, they were despised by most analysts. Paul's advice, "Don’t let bargain prices scare you away from going against the crowd."

Paul's disclosure: Long CAT, DE, HP, IGT, KELYA, ORCL, SLB, WDR, WAG, ESRX, DGX, COH, KSS.

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Special Offer from Phil's Stock World: Click on this link to try PSW FREE!  PSW specializes in stock commentary and options trading. 

For in depth analysis of the macro-financial environment by Lee Adler, click this link to try WSE’s Professional Edition risk free for 30 days!

Boarding Coach, Again

Paul is adding 44 shares of Coach (COH) @ 49.66 today, 2/1/13. That will give us a full position of 100 shares in the Market Shadows Virtual Value Portfolio,

Coach is one of three of our initial stock positions, in the Virtual Value Portfolio that is below our first price entry. (The other two are Express Scripts, ESRX, and Calamos Asset Management, Inc., CLMS.) 

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Virtual Value Portfolio Updates:  Feb 2, 2013

Our stocks (in our Virtual Value Portfolio) continued their rise since our portfolio’s inception date last October 26^th.  We got positive mentions on Express Scripts (ESRX), Mosaic (MOS) and Kohl’s (KSS) during Barron’s Roundtable. All three remain quite undervalued although the latter pair having been rising.

Our worst performer has been Coach (COH) lately, which had reported less than expected earnings last week. Paul increased our virtual position from 3% to 5% on the price weakness. 

Keep track of Paul’s Virtual Value Portfolio for Market Shadows here >

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We started the Virtual Value Portfolio in the Market Shadows Newsletter at the end of October, using closing prices on Friday, 10/26. We opened 23 positions, putting 3% of our virtual starting capital ($100,000) into each position.  Thus, initially, we invested 69% of our virtual money in the 23 stocks listed below.

Since Oct. 26, we've sold ANF and DLB. We've also added to several positions. When we add to a position, we increase the allotment from 3% to 5%. (Except through appreciation, we do not allocate more than 5% to any position.) Including COH, other positions added to were ESRX, CLMS and POT. 

Positions that we entered after the initial opening of the virtual portfolio are: BBBY, BIG, KO, KSS, MKL, ORCL and TAP. 

Currently we have 25 positions that began as 3% allotments, and four that were increased to 5% allotments.  (Thus, 95% of our initial $100,000 in virtual money is in stocks.)

Click here for the current virtual portfolio spreadsheet.

It does not include dividends collected at the end of last year (below)

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Special Offer from Phil's Stock World:
Click on this link to try Phil's Stock World FREE!  PSW focuses on stock market commentary and options trading. 

For in depth analysis of the macro-financial environment by Lee Adler, click this link to try WSE’s Professional Edition risk free for 30 days!

Individual Investors Remain Perfect Contrary Indicators

Individual Investors Remain Perfect Contrary Indicators

Originally published on TheStreet’s Real Money Pro…

Courtesy of Dr. Paul Price

The actions of Private Clients at brokerage giant Merrill Lynch can serve as a good proxy for America’s high net worth, individual account holders. This year the net buying and selling of equities by Merrill’s ‘Mom and Pop’ accounts showed just how terrible their decisions have been in terms of market timing.

After a big January rally individuals became big net buyers of stocks. Their buying persisted from February through May. That occurred as shares were getting significantly more expensive.

Stocks were headed for a nasty two-month plunge.

As the public was piling in, professional traders were exiting.

Individuals then sold into weakness. The sales continued until the broad market turned upwards again in August. Private traders once again began adding to holdings as prices headed towards yet another seven-week, sharp decline. (Chart via The Reformed Broker)

Superimposing the two periods when private clients were enthusiastic stock buyers over the SPY chart illustrates my point.

Their timing could not have been much worse. Typical traders buy into strength and sell into weakness. They are usually late to the party. Often they leave just before the real fun starts.

Over the last four weeks professionals bought a net $315 million through Merrill Lynch while private money (ML client accounts) dumped a net $920 million of their holdings.

The media-induced fear of another debt-ceiling-crisis type sell-off precipitated a one week net sale of $1.4 billion in stocks by individuals. The equity holdings of private clients literally, “fell off a cliff” (pun intended) just in time to miss the recent, very profitable, rally.

Hedge funds were more than happy to buy what individual investors were unloading last week.

You can avoid being a bad example by making your buy/sell decisions based on valuation, rather than momentum. P/Es are favorable (low) and yields are better (higher) when the markets are down.

Train yourself to ignore the news. Buy only when getting good value for your money. Your bottom line will thank you.