PODOMATIC
Before I start the show, you may know, we use podomatic.com for our podcasting service. Podomatic.com has decided to put a bandwidth limitation on our podcast feed (this makes our show unavailable for listening or downloading sometimes) because we're their #1 business show and we're draining their bandwidth, so if you can't listen to this show, you can either: (1) try back in a week when the limit gets reset, or; (2) sign-up for a premium account at Quantinetics.com and get full unblocked access to our content.
Podomatic wants me to pay for bandwidth, but I won't pay unless I get something in return. Why? Heck, I'm a Value Investor - I only pay less than what I can get out of it. Value people, KNOW... not to buy something unless we're paying less and we're getting an above average return on our dollar.
We may switch away from Podomatic, but for now, we're going to stick with them.
IN THE PREVIOUS SHOW
We talked about "Taking Profits". The S&P 500 peaked at 1290.15 on Jan. 9th. On Jan. 11th, we told you to "Take Profits". We sold stocks, waited, and bought some more.
TAKING PROFITS ....AGAIN
Ladies and Gentlemen, it's time to take profits again. The S&P 500 is sitting at 1307.25 now.
Over the past two months, we:
sold GS for +11.85% (28 days)
sold BBY for +15.10% (28 days)
sold QLGC for +18.65% (49 days)
sold BBY for +27.48% (232 days)
sold GTRC for +8.05% (29 days)
sold SYY for +0.05% (31 days)
sold CAJ for +19.41% (161 days)
sold FDC for +10.22% (207 days)
sold SPLS +4.55% (235 days)
sold NYB for -5.50% (281 days)
sold NEW for +12.27% (74 days)
sold YCC for +16.68% (56 days)
sold AEOS for +16.10% (101 days)
sold some ET for +148.25% (331 days)
sold some RCII for +0.35% (278 days)
sold LOW for 16.29% (278 days)
MARKET TIMING
Now, let's talk about why we should sell some stuff now... it's called Market Timing
I don't think Market Timing works as a singular strategy... my tests show that Market Timing provides a 12% profit over 1.5 year period, which is unacceptable to me. However, Market Timing when coupled with value methodology is a great way you can enhance profits. If you want to sell some stocks to move into cash, market timing will provide you with the gunpowder necessary to get a couple extra percent gains out of your trades.
Let's take a look at this chart:
S&P 500 Market Cycle Chart
The black diagonal line is a linear regression line. That line is used for estimating the future direction of what the average price should be. The green and red diagonal lines are the outer boundaries of the price range. When you hit the green line, Mr. Market is in a stage of euphoria, but we've peaked and it's time to sell... If we hit the red line, Mr. Market is pessimistic about the stock market and it's time to buy. The best thing we can do with Mr. Market's wallet is to open it up and remove some money from it.
There's 3 vertical blue lines. They signify Jan. 1, 2006, July 1, 2006, and Dec. 31, 2006. The blue horizontal line is a dividing line. If we go above that horizontal line before July 1st, we're in overbought territory. If we go above the black diagonal line, we're also overbought. Every time the market goes up, it reduces our chances of it continuing to go up in the short-term. At some point, there's a tipping point where something triggers a reaction to send stocks plummeting.
At 1307.25, we're about halfway between the black diagonal line (the linear regression mean line) and the green diagonal line, the max.
However, during the period of about April 20, 2005 an August 3, 2005, the S&P failed to reach the green line and it might have caused a permanent shift downward of about 25 S&P points. This is signified by the blue diagonal line.
I'm not sure what major news events were going on during that period, but there seems to be something significant about that time period in U.S. history. I'd like to challenge my listeners and readers to investigate and come up with the best reason why the S&P 500 could have shifted downward during April 20, 2005 an August 3, 2005. This could be a great learning experience for you.
The October 13, 2005 1176.84 where it went outside the range (this is called an "outlier") also provides some validation that perhaps the S&P did take a permanent 25 point shift downward.
If both of these things are true, the blue diagonal line is the new resistance line... the place where Mr. Market is most optimistic about the stock market and he wants to buy anything "at any price".
The Latin word for "at what price" is "Quanti", and that's the first half of the Quantinetics name. The second half, is "netics", which means "action". We attempt to achieve profits by looking at price action.
OK... so Mr. Market is goo goo and ga ga for stocks right now... Everybody in the market thinks they are geniuses because they are making so much money. But remember: bigger profits is what separates the men from the boys.
This blue diagonal line is signaling a temporary peak. At Friday's 1307.25 price, it's telling me that it has to break past that blue diagonal line to prove the green diagonal line is still legit. If it fails to do this in this current bull run, this blue diagonal line will be the new resistance level and we're at a peak right now.
I usually call short-term peaks within 21 days, but I'm not perfect. Short-term peaks are defined using my +/- 2% shift in S&P 500 performance (just one of many types of market timing strategies).
If we put our mouse cursor (the arrow) on the 1307.25 price and move straight to the right where we hit the red line, we will see that chances are, the market will hit 1307.25 again sometime between now and November 15th or so. Now... is it better to have stocks? Or, is it better to have cash and buy back later when things aren't looking so great?
Mr. Market is a manic depressive individual. Some days he wants to pay a lot of money for your stocks. Other days, he is depressed and he won't offer you much. You've got to sell some stocks while Mr. Market is euphoric, in my opinion.
I think you should take some stocks off the table and save it to buy stocks when Mr. Market is depressed.
PAST PERFORMANCE
As you know, past performance is not indicative of future results, but here's a look at my current performance:
Performance Chart
As you can see, I'm peaking right now and so is the S&P 500. You will also see that I'm crushing the S&P 500.
This is the type of time when we should sell stocks. It's the time when everyone feels bold and brazen.
We've added onto some positions over the past two months: ACAS, COF, CVX, DG, DVN, HD, HDI, PSUN, RCII (and sold), SPF, WHI
The recent tankage of COF means it might be a good time for you to get in if you like the stock. Mr. Market is also depressed about HDI and PSUN.
We also added onto two of our oil stocks recently: CVX and DVN. Gas prices have shot up 30 cents a gallon the past week, but the stocks haven't. Take a look at APA, CVX, DVN, and MVK if you're interested.
We also made new entries into ARLP, BBBY, JNJ, LPNT, MVK, SKM.
Happy Trading!
- Vooch
