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II Insight 


Sept 2010

Global leaders in Technical Analysis since 1947

      
    
Welcome to the September edition of II Insight.
 
The last two months we suggested a “do nothing” strategy as markets drifted sideways. However, in the final dog days of August we noticed some technical potential. Those clues, some of which are reproduced later in the report, caused us to switch from a short/cash stance to substantially long equities.
 
Our “Investment Portfolio” for instance moved from 100% cash to 80% long equities in the space of just six sessions. It's a fast market; blink and the opportunity will be missed. Current portfolio trades are listed below but before that, we thought we'd mention some stats on our portfolio performance (as it's the most common question from new clients).
 
To state our own performance figures is often, understandably, met with skepticism. Fortunately for you, an independent third party tracks and monitors all major investment newsletter portfolios within the US. That service, Hulbert's Financial Digest, owned by Dow Jones Newswires, reported in their semi-annual report that all of our active US portfolios beat the Wilshire 5000 Total Return Index over the first two quarters of 2010.
 
Hulbert's reports that our “US Trading Portfolio” returned +15.7% over the first half of 2010. That outperformed all other asset classes by a sizeable margin (DJIA -5%, S&P -6.7%, Gold +12.7%, Treasury +5.7%, T-Bills +0.1% and so on). Furthermore, Hulbert's consider the “Risk-adjusted ratio” as the most valuable measure of performance; it is based on the Sharpe formula, and rates a portfolio's consistency or performance per unit of risk. For the first six months of the year the US Trading Portfolio scored 1.47. That reading over the first half of 2010, rates our “US Trading Portfolio” the joint 3rd best out of the 500 they track!
 
Subscriptions to our services are available for as little $1 a day! A year's subscription can pay itself off after just a few trades and rest assured that we are not risk takers.  Hulbert's grade all of our portfolios as low risk - at least 40% less risky than owning the Wilshire 5000! Additionally this much respected newsletter rating service classes our trading strategy with an “A” for clarity, our ideas are not complicated!
 
To sum up, our track record for 2010, one of the most difficult periods for some time, is excellent. Our view is now bullish and our portfolios reflect that.  Charts are forever evolving, so this view could so easily turn come next month's edition but as our past performance shows, our subscribers will likely be positioned accordingly.
 
Our services are also excellent value for money, amongst the cheapest in the industry, so feel to explore what we have to offer. Below we have taken some extracts from last week's Coe Report, as it provides a taster of our style plus the analysis is still applicable.
 
Tarquin Coe, Market Technician
Equity trading portfolios (as of the close on September 3rd)
 
The Coe Report Portfolio – Short-term trading, $349 per year, $35 per month, details here.

 

Date

Stock

Code

Type

Open Price

Current Price

% P&L

Target

Stop

Alloc %

Comment

4 Aug 2010

RESEARCH IN MOTION LTD

RIMM

Short

53.40

44.78

+16.14%

40

45.75

2.5

Stop type - ITD

27 Aug 2010

ProShares Ultra DJ-AIG Crude Oil

UCO

Long

9.16

9.13

-0.33%

10.70

8.25

5

Stop type - EOD

27 Aug 2010

Apple Computer Inc

AAPL

Long

241.40

258.77

+7.20%

270

247.65

7.5

Stop type - ITD

27 Aug 2010

ProShares Ultra Russell2000

UWM

Long

26.25

28.825

+9.81%

29

26.75

7.5

Stop type - ITD

28 Aug 2010

ProShares Ultra S&P500

SSO

Long

33.8199

36.95

+9.26%

46

35.10

10

Stop type - ITD

30 Aug 2010

iShares DJ Transportation Average

IYT

Long

74.90

79.42

+6.03%

85

76.30

10

Stop type - ITD

30 Aug 2010

GATX Corp

GMT

Long

26.89

29.14

+8.37%

34

27.72

5

Stop type - ITD

30 Aug 2010

H&R Block Inc

HRB

Long

13.44

13.3

-1.04%

16

12.85

2.5

Stop type - EOD3

1 Sep 2010

Direxion Financial Bull 3x Shares

FAS

Long

19.64

21.62

+10.08%

24.50

19.94

5

Stop type - ITD

1 Sep 2010

Northrop Grumman Corp

NOC

Long

56.44

57.82

+2.45%

60

54

5

Stop type - EOD3

3 Sep 2010

Starbucks Corp

SBUX

Long

24.90

25.07

+0.68%

30

23.35

7.5

Stop type - EOD

3 Sep 2010

IMAX CORP

IMAX

Long

15.10

15.09

-0.07%

20

13.90

2.5

Stop type - EOD3

    

US Trading Portfolio Short/Medium-term trading, part of the US Stocks Service at $349 per year, $35 per month, details here.

 

Date

Stock

Code

Type

Open Price

Current Price

% P&L

Target

Stop

Alloc %

Comment

27 Aug 2010

Intel Corp

INTC

Long

18.165

18.43

+1.46%

21

18

10

Stop type - EOD3

30 Aug 2010

Toll Brothers Inc

TOL

Long

17.245

18.2

+5.54%

20

16

5

Stop type - EOD3

30 Aug 2010

Intuit Inc

INTU

Long

42.68

44.01

+3.12%

50

40

5

Stop type - EOD3

30 Aug 2010

Air Products & Chemicals Inc

APD

Long

74.12

78.04

+5.29%

90

75.40

5

Stop type - ITD

30 Aug 2010

Chesapeake Energy Corp

CHK

Long

21.035

21.72

+3.26%

25

20

5

Stop type - EOD3

1 Sep 2010

Johnson Controls Inc

JCI

Long

27.425

29.17

+6.36%

34

26

5

Stop type - EOD3

1 Sep 2010

Citigroup Inc

C

Long

3.795

3.91

+3.03%

4.30

3.60

10

Stop type - EOD

2 Sep 2010

Desarrolladora Homex

HXM

Long

29.345

29.92

+1.96%

44.38

26

5

Stop type - EOD

2 Sep 2010

Cummins Inc

CMI

Long

80.465

83.16

+3.35%

90

75

5

Stop type - EOD

2 Sep 2010

Deere & Co

DE

Long

67.12

68.63

+2.25%

80

64

7.5

Stop type - EOD

2 Sep 2010

Amazon.com Inc

AMZN

Long

133.63

138.79

+3.86%

151.09

126

7.5

Stop type - EOD

2 Sep 2010

Yum! Brands Inc

YUM

Long

43.375

44.35

+2.25%

50

40

7.5

Stop type - EOD

3 Sep 2010

CSX Corp

CSX

Long

53.765

53.67

-0.18%

60

47

5

Stop type - EOD

3 Sep 2010

Hertz Global Holdings Inc

HTZ

Long

9.69

9.72

+0.31%

12

8.50

2.5

Stop type - EOD

    
    

US Investment Portfolio Medium/Long-term investments with dividends, part of the US Stocks Service at $349 per year, $35 per month, details here.

 

Date

Stock

Code

Type

Open Price

Current Price

% P&L

Target

Stop

Alloc %

Comment

26 Aug 2010

International Paper Co

IP

Long

20.315

22.39

+10.21%

24

20.52

5

Stop type - ITD

26 Aug 2010

DuPont de Nemours & Co

DD

Long

39.765

42.51

+6.90%

48

40.75

5

Stop type - ITD

26 Aug 2010

Automatic Data Processing Inc

ADP

Long

38.91

40.08

+3.01%

41

38.25

5

Stop type - EOD

26 Aug 2010

Allstate Corp

ALL

Long

27.695

29.42

+6.23%

31

27

5

Stop type - EOD

27 Aug 2010

ConocoPhillips

COP

Long

52.995

55.05

+3.88%

60.53

48.50

10

Stop type - EOD

30 Aug 2010

General Electric Co

GE

Long

14.615

15.3925

+5.32%

18

14.75

10

Stop type - ITD

30 Aug 2010

Johnson & Johnson

JNJ

Long

57.53

58.93

+2.43%

63

55

5

Stop type - EOD3

30 Aug 2010

Eastman Chemical Co

EMN

Long

60.735

65.92

+8.54%

71

61.51

5

Stop type - ITD

31 Aug 2010

Hasbro Inc

HAS

Long

40.13

43.49

+8.37%

50

41.45

5

Stop type - ITD

31 Aug 2010

Norfolk Southern Corp

NSC

Long

53.77

57.91

+7.70%

62

54.60

5

Stop type - ITD

1 Sep 2010

First Financial Northwest Inc

FFNW

Long

4.14

4.11

-0.72%

6

3.80

2.5

Stop type - EOD

1 Sep 2010

Hudson City Bancorp Inc

HCBK

Long

11.485

11.94

+3.96%

12.50

11.35

7.5

Stop type - EOD3

3 Sep 2010

Boeing Co

BA

Long

64.755

64.64

-0.18%

76

60

5

Stop type - EOD

3 Sep 2010

3M Co

MMM

Long

83.135

83.48

+0.41%

97

77

5

Stop type - EOD

    
So what caused us to turn bullish at the end of August as others were rushing to sell?

 

Below we have extracted the near-term market view from two of last week's Coe Report's. They give a small insight as to how that intraday service uses technical analysis to read the market and the analysis is still valid.

 

 

Coe Report on 30th August

 

“Last week's reversal by the S&P 500 from 1040 has turned the bearish case upside-down. A

 

 

potential new, more powerful pattern, in the opposite direction, started to evolve. An inverse head-and-shoulders may be developing with last week's low marking the tip of the right shoulder. This bullish pattern is a lot larger than the smaller bearish pattern we have been monitoring and will likely overpower and negate the latter. Many technical indicators improved last week. Momentum, 14-day RSI, for instance turned up from oversold. Volume behavior turned around, with the NYSE 10-day up down volume indicator, breaking its August downtrend.

We are now reversing our view and are initially looking for a visit to the top of the three month range at 1131. That level is also the neckline of the new large inverse head-and-shoulders and a break of that would activate the pattern and its target, which at 1250, is 18% above current levels! That's a big move and with the risk limited to just under last week's low, we are today increasing our long exposure significantly. It is frustrating to switch direction once again but we have no choice but to follow the swings in this choppy market.”

 

 

The Coe Report analyses action during the session, with no less than three reports a week and at least two actionable ideas per report. Reports go out mid session and we advise our trades ahead of time (no front running!). The report uses a range of technical analysis methods that are dependant upon the situation. Methodology and reasoning is explained, so the product has educational benefits too. Further details here. 

 

 

Coe Report 1st September
 
“We received some subscriber questions regarding the reasoning behind the recent call for a turnaround. We do not have the space and time to run through all the analytics behind a chart reading but yes, a lot more analysis goes into a report than what appears on these two pages. For instance, another reason for the adoption of the newly bullish view was the Elliott Wave picture. This subject is often met with skepticism but if used correctly, it can prove to be a very powerful tool.
Without getting too bogged down with the finer methodological details, the rally off the late June low by the S&P 500 drew a clear leading-diagonal pattern (minor waves 1 through to 5), with overlap as permitted for a first wave. The subsequent decline off the August 9th high (wave 1) was a three wave corrective zigzag. That correction, labeled A, B and C, has classic harmony, in that waves A and C were equal (60 points a piece). A and C were impulsive (five smaller waves each), as was necessary under the rules and likewise B was corrective (three waves). The zigzag also terminated across the Fibonacci 61.8% retracement of the leading-diagonal (1), classic behavior. The termination of the zigzag marked the end of 2 and the deeply bearish sentiment (very important) fulfilled the characteristics of such. The next wave will be a 3 up and under the system's rules, that wave is never the shortest and is often the longest. Third waves are very powerful and traders will get burned if trading in the opposite direction. Coupled to the potential inverse head-and-shoulders pattern, oversold conditions and so on, an aggressive turnaround appeared imminent. The next likely time to use Elliott Wave would be weeks away, when wave 3 nears maturity, as wave proportionality in conjunction with Fibonacci extensions could be used to deduce a termination point ahead of the wave 4 correction. With Elliott it is necessary to have a negation level and in this case, the count would be voided on a break of the recent low (1039.7).”
 
 
The Coe Report analyses action during the session, with no less than three reports a week and at least two actionable ideas per report. Reports go out mid session and we advise our trades ahead of time (no front running!). The report uses a range of technical analysis methods that are dependant upon the situation. Methodology and reasoning is explained, so the product has educational benefits too. Further details here.

          

    
    
Weekly buying and selling climaxes
 
The “US Trading Portfolio” and “Investment Portfolio” listed above are part of the US Hotlines service. That subscription also includes full use and access to our website. On the website we have a range of useful technical tools, many of which are unique to us.
One such tool is the counting of weekly buying and selling climaxes. When the markets were putting in a bottom over the final week of August, this tool provided an excellent and quick source for tradable ideas. We actually used it ourselves to pick some of the stocks bought in the portfolios above by scrolling through the selling climax list (weekly Selling Climax occurs when a share makes a new 52-week low but then closes higher for the week). Yeap, its that simple!
 
A selling climax indicates that a stock has capitulated, and this, like shaking the dead wood from a tree, will strengthen the chart. Essentially, the weaker positions are forced out, alleviating the selling pressure.
 
 
The screen shot is how the page looks to our subscribers. Following Friday's close, the list is generated and available from 4:50pm ET. As you can see from the screen short, last week there were selling climaxes by some big name stocks like Intel, Yahoo!, Cisco and Bank of America. Clicking on a stock in the list will display the chart and the settings of that chart can be defaulted to a subscribers own preferred indicators. Again, this chart feature is one of many available to subscribers of the US Hotlines.
    
    
    
    
Investors Intelligence Fixed Income service

 

Free trial to II's FixedIncome service - click here to take up offer.

Whilst western equity markets have remained within wide volatile ranges for a decade or more, it is fair to say that the government bond markets have broadly maintained their bull run.

Yields, which move inversely to price, peaked in the teens for the US Long Bond in the early 80's and as the chart, right shows, investors have enjoyed a surprising smooth bull run thereafter.

Many market commentators are now putting forward the theory that it is all over for the bond markets - "Helicopter Ben Bernake's" expansionist money supply policies will surely bring inflation in due course. At Investors Intelligence, we're not so sure. We highlight the situation in Japan. Over in the land of the not-so-rising sun asset price deflation has been underway for years. Government bond markets hits yields of circa 1% back in the late 90's, and have barely moved from there since.

So, at least on that basis, US bonds may have further to go. Either way, there will be plenty of opportunities for trading.

Readers of the II Insight may not be aware of our bond market analysis. In addition to our well-known US equity and intermational equity hotlines. we publish a daily Fixed Income Hotline. This service covers the main international bond contracts and benchmarks including US Treasuries, German Bunds, UK Gilts and JGBs. In addition to this we have recently updated the chart library to include the following categories of instrument:

  • Benchmark International Bonds - prices, yields, futures etc
  • Bond ETFs
  • Policy rates
  • Selected of sovereign and corporate CDS rates
  • Selected US Corporate and high yield bonds

This month, we are offering a free trial of our Fixed Income Service. Existing subscribers can simply add this to their current package. New subscribers can sign up with no obligation. As usual with our free trials, no credit card details will be taken. Just click here to take advantage of this offer.

    

    
    
Disclaimer
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US Sentiment holds the key
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Read what CNBC said about the biggest switch in sentiment for 7 years.
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Historic Advisors’ Sentiment data since 1963 is also available; please contact us for further details.

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