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MCGP-052307
May 23, 2007 — James Brumley
BigTrends.com
Multi-Cap Growth Portfolio
May 23, 2007
Multi-Cap Growth Portfolio
May 23, 2007
NEW SELLS
None. After last week’s adjustments and a relatively good run since then, we’re content to stick with what we’ve got. As we mentioned then, we know we’re 100% exposed, which we generally don’t want to do. However, if the uptrend persists, a heavy allocation is fine. If instead the market starts to deteriorate, we fully expect to get appropriate sell signals and scale out of so much exposure.
NEW BUYS
None. Like we said above, we’re 100% invested and don’t see any relatively better opportunities than the stocks we’ve got right now.
Current Portfolio
Equity Allocation
Sector Allocation
Recent News/Headlines (If viewing online, click on headline to go to full story)
| Wed | 12:12pm | HPQ | Stocks Rise to Record Levels – at BusinessWeek Online | |
Multi-Cap Growth Portfolio – 051
May 15, 2007 — James BrumleyBigTrends.com
Multi-Cap Growth Portfolio
May 15, 2007
NEW SELLS
We’re not liquidating any whole position, but we do want to do some re-balancing. Why? One, because it’s just good discipline to keep things in balance, particularly when it means taking some profits off the table. And two, we also need to free up some cash for today’s two new purchases. With that in mind, sell 17% of your current Caterpillar (CAT) position, which should roughly be 2% or your portfolio’s total value. Also, sell 17% of Mettler-Toledo (MTD), which should also be worth about 2% of your portfolio. These partial exits will free up a little more cash for our new trades, but will still leave us in a large piece of both stocks….which continue to do well.
NEW BUYS
Note that only about 12% of the portfolio is being held as cash right now. However, after today’s sales, we expect that figure will be closer to 15%. Though that still doesn’t allow for the ideal 10% per-trade allocation, it’s close enough given our situation.
Take all of today’s proceeds and add that to the current cash balance, then evenly divide that amount into two new stock purchases: Boston Beer Co. Inc. (SAM), and Health Net Inc. (HNT).
Health Net Inc. (HNT) has been in a long-term uptrend, essentially resisting the weakness most stocks went through in March. The slight dip in late April and quick rebound suggests now me be a low-risk entry point. Health Net is quite capable of putting up some big numbers in short period of time, as you can see on the weekly chart.
Boston Beer (SAM) appeared to find resistance at its 200 day line for most of the year, but a high-volume surge two weeks ago has broken that ceiling. This may well have re-started the very long-term bullish run.
Note that we will be 100% invested after today’s transactions are complete. WE DO NOT EXPECT TO STAY THAT WAY FOR LONG! Even in the best of bull trends, we try to keep 20% of our portfolio in cash – we just don’t need that kind of exposure.
So what’s the plan? Though still in bullish mode, we don’t expect the spring/summer time to stay this hot. When our trades start to deteriorate on a case-by-case basis, we’ll then start to trickle out of them and get back to a less-exposed allocation.
Current Portfolio
Equity Allocation
Sector Allocation
Recent News/Headlines (If viewing online, click on headline to go to full story)
Too Bullish For Our Own Good?
October 20, 2006 — James BrumleyAs they frequently can, the indices seem to have overshot their actual value, thanks to some help from the folks who think the next three months is always going to be like the last three months. In some ways, it’s not a bad philosophy – it’s just a little short-sighted. Why? Because the underlying dynamic now is very different than the one we saw three months ago. In a nutshell, it’s very easy to go from a low point back to a high point. Conversely, it’s exceedingly difficult to go from a high point to even higher. In fact, I don’t think we can…at least not immediately (although Ill be the first to confess I think Q4 is going to be bullish no matter what happens in the latter half of October).
It may be a little naïve to think there’s never a price to pay for big gains. We might pay it later, eventually, but as I’m sure you’ve figured out, I personally think we’re getting ready to pay the price now. Fortunately, it shouldn’t create too much pain. However, I can also tell you it will feel just awful as we go through it, kind of like going to the dentist. Everybody seems to completely hate getting a cavity filled, but when it’s done, you realize it wasn’t that big of a deal. In fact, some might consider it a necessary evil with a bigger benefit at the end. In the same sense, I consider a quick correction of the recent uptrend a necessary evil…with a bigger upside for investors at the end. But we’ll pontificate that point at a later time. For now, I just want to focus on why I think we’re at a short-term top.
If you were reading in June of this year, you may remember an entry titled ‘So Bearish It’s Actually Bullish?’ On June 21st – well into the third month of this summer’s downtrend – we actually made a bullish call on the market. It was not well accepted, as most readers were fairly certain stocks were going to keep falling, like they had since early May. Although we agree the trend is your friend, we also saw a clue that our friend at the time was getting ready to leave town. Were we right? Not to gloat, but yeah, we were very right….and one of the very few who were right. Between June 22nd and now (October 20th), the S&P 500 gained 9.5%, despite the overwhelming number of predictions for more gloom and doom during that time.
What did we see that others seem to have missed? Basically, a ridiculous skewing in the number of new highs and new lows. As the number of new NYSE new highs shriveled to less than 20 for most of June, and when we saw 291 NYSE new lows on June 13th, we knew the sellers were getting exhausted…those readings are about as bad as they can get. Literally, at those new high/low levels, there aren’t any stocks left to sell or short. And you know what happens when things can’t get any worse – they tend to start getting better. Well, they did; the market defied the downtrend with a ‘darkest before dawn’ quality. If you didn’t read the June article, I encourage you to go back and do so, since it sets the stage for today’s observation.
As of now, it appears we’re facing the exact opposite scenario, which of course would be bearish. New highs are through the roof, and new lows are nowhere to be found. Just for the sake of diversifying the tools we use, let’s use NASDAQ new high and new low data. The application and interpretation is the same, although what qualifies as an ‘extreme’ reading may differ slightly than the parameters we used for the NYSE data.
On the nearby weekly chart, we’ve plotted the NASDAQ Composite, its new highs in green, and its new lows in red. After a brief glance, the current problem becomes clear – the current levels of new highs and new lows are consistent with a short-term top, as we’ve seen since 2004. Anytime new lows sink to 13 or lower, and anytime new highs reach above 200, a market pullback is usually in the works. This week, we saw new lows dip to 9, and new highs peaked at 210. Hence, now may be the time we finally pay the price for the gains I mentioned above.
One nuance I’ve noticed – these signals work best when both the new high and new low readings are both simultaneously at the extreme ends of the spectrum. September’s new low reading of 10 could have signaled a short-term top, but we only saw the new high figure hit 64 then, which wasn’t nearly enough new highs to suggest a last gasp for the buyers. Now the new low reading just hit 9, and the new high reading just hit 210. With both data sets out of their typical ‘normal’ zone (dashed lines), the current situation is more in tune with historical tops, which are marked on the chart with red ‘down’ arrows.
The green ‘up’ arrows represent bottoms signaled by new lows above 200, and new highs below 13. So, the converse bullish signal works as well for the NASDAQ as it does for the S&P 500.
The prudent caveats….
This isn’t a sure thing. It’s a very, very likely thing, with incredibly favorable odds consistently verified by history. But when it’s all said and done, it’s just an educated guess. For the record – and for full disclosure – I intend to play these odds somehow, probably with index put options. While I have faith in the historical results, I’m not getting married to the idea. If somehow the market can keep going higher, I fully intend to cut bait early.
One more thing – keep in mind I used a weekly chart. It may take weeks for any downtrend to materialize. Or, the downtrend may only last week, if it materializes at all. Historically, pullbacks marked by the new highs and new lows lasted a while, but I’d say don’t get a particular timeframe or size of move pre-determined in your head.
A Second Chance on Clearly Canadian
October 20, 2006 — James BrumleyIf you liked Clearly Canadian (OTCBB: CCBEF) when I first started looking at it in March but felt you missed your entry point, well, here’s your second chance. Shares closed at $2.49 on Thursday – where they also closed on April 27th, right before the monster run to a peak of $4.55. The move was good for an 82.7% gain.
Despite the fact that CCBEF has done little but fall backwards since June 22nd, we have to wonder if the demise has also set up a trading opportunity. And when we say trading, in this case, we truly mean it in a casino-like sense. The best shot at an upside move from here is almost entirely fueled by the bounce that can come after a hard fall. Fortunately, the volume behind the weakness was tepid, so it’s not like it’s a completely uphill battle. The lowest of the Fibonacci lines (at $2.20) actually extends back to March. That, plus being as oversold as shares were, suggests that we’ll see a little follow-through on today’s big gain.
A risky guess? No doubt about it. But, one that could have a good (maybe even great) payoff if it works out according to the odds. The potential pitfalls are resistance at the 20 day moving average line ($2.66) and/or the 50 day line ($2.88). If the stock can get past those averages, we could possibly see the same kind of buying effort we saw this summer.
James Brumley - Freelance Writer 
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