Global Sector ETF Lineup for March

Global sector ETF performance update for the close of February is below and has also been updated as a free portfolio to track on my blog. Note that two of the ETFs are below the 200 day moving average which in my preferred strategy would exclude them for consideration of any long position. The top three at the end of February are MXI (Materials), EXI (industrials) and IXG (financials). I have previously discussed some possible strategies using this data here as well as some more active trading strategies.
The momentum strategy that an investor could implement would be to purchase the best returning Global sector ETF(s) over the trailing 3, 6, and 12 months (sum). This strategy has been written about extensively by Mebane Faber, author of The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Another strategy would involve purchasing the top performing ETFs based on 6 month (half year) returns and only purchase ETFs when they are also above their 200 day simple moving average.
 The data source for the information below is Finviz.
 No positions 

Ticker Company Free Trend Analysis Perfor-mance (Quarter) Half Year Year Sum 200-Day SMA
EXI iShares S&P Global Industrials Here 2.09% 9.68% 67.64% 79.41% 8.91%
IXC iShares S&P Global Energy Here -6.65% 4.25% 34.81% 32.41% 1.12%
IXG iShares S&P Global Financials Here -6.68% -3.22% 87.29% 77.39% 1.69%
IXJ iShares S&P Global Healthcare Here 0.49% 9.02% 36.06% 45.57% 8.30%
IXN iShares S&P Global Technology Here 0.60% 7.97% 63.48% 72.05% 6.83%
IXP iShares S&P Global Telecommunications Here -7.12% -0.74% 25.37% 17.51% -0.02%
JXI iShares S&P Global Utilities Here -4.41% -0.62% 23.38% 18.35% -0.11%
KXI iShares S&P Global Consumer Staples Here -0.32% 11.43% 45.18% 56.29% 8.45%
MXI iShares S&P Global Materials Here -4.98% 9.95% 79.06% 84.03% 5.75%
RXI iShares S&P Global Cons Discretionary Here 2.77% 8.11% 64.82% 75.70% 7.94%

Making Sense of Today’s Gold Market

It’s been about eight days since Adam Hewison did a video on gold, and given the recent market action he looks at what is causing the downward pressure in this market.
If you did not watch his last video on gold, I strongly recommend you click here to watch the video titled “Five Reasons Why Gold Will Not Make a New High This Time” as it will give you a bigger picture of how he sees this market playing out in the next 12 months.
In today’s short video he looks at an indicator that I have never discussed on this blog. The indicator, which is an overlay on top of the chart, is called the Donchian Channel Indicator.
Richard Donchian, who has since passed away, came up with this indicator in the late ’40s.  I think you’ll really enjoy seeing how it can help you make money in the gold market.
Also in this video, he points out one very important cycle that is in play now and where he thinks the next tradable low is coming into this market.
As always INO’s videos are free to watch and there are no registration requirements.
More on this topic (What's this?)
Has Gold & Silver Finally Bottomed?
Gold Price Gravitating Lower Towards $1000
Read more on Gold at Wikinvest

12 High Yield, Rising Dividend, Low Payout Stocks

Below is a list of 12 stocks yielding more then 3% with a dividend payout ratio less than 70% as of the close on February 24th.  In addition, I required the stocks have a recent history of rising dividends. I looked for Dividend Percent Change, Year Over Year (%) > 10, Dividend Growth Rate, 3 Years (%) > 15, Dividend, 5 Year Growth Rate (%) > 20.  The screen was done using stockscreen123.   The list includes some familiar names such as Lockheed Martin, China Mobile, and McDonalds.  

There are also some small cap names which may fly under the radar such as Life Partners (LPHI), with a market cap of around $300 million.  Taking a closer look at LPHI on Finviz, it has 0 long term debt and a PEG of .80 with a history of high returns on equity and investment.  It is engaged in the secondary market of ‘life settlements’ which involves purchasing life insurance policies at a discount to their face value for investment purposes.  LPHI receives a fee for facilitating these transactions.  A copy of this size could carry additional risks, so I always try to have a stop loss or trading strategy in place prior to purchasing any security.

No disclosures

Ticker Name Last Trend Yield Div5Y Cgr% Pay Ratio
CHL China Mobile Ltd. (ADR) 49.45 Here 3.57 44.75 42.88
CTL CenturyTel, Inc. 35.28 Here 7.98 58.02 60.2
GEF Greif, Inc. 49.45 Here 3.08 38.34 66.42
HCBK Hudson City Bancorp, Inc. 13.31 Here 4.53 22.03 58.92
LLTC Linear Technology Corporation 27.61 Here 3.4 25.16 62.1
LMT Lockheed Martin Corporation 77.56 Here 3.28 20.79 30.03
LPHI Life Partners Holdings, Inc. 20.15 Here 4.99 26.48 13.54
MCD McDonald’s Corporation 65.26 Here 3.39 30.1 49.12
MSA Mine Safety Appliances 24.74 Here 3.9 29.31 47.76
SAFT Safety Insurance Group, Inc. 37.1 Here 4.35 36.31 37.03
TEF Telefonica S.A. (ADR) 69.21 Here 6.48 31.95 61.22
TNP Tsakos Energy Navigation Ltd. 14.83 Here 4.05 38.75 33.13
More on this topic (What's this?) Read more on Henders Land Dev at Wikinvest

More Credit Default Swaps Means Trouble for European Debt

Government debt is no longer just a problem for emerging countries. Portugal, Spain, France and Greece (as we have seen in recent weeks) are living in fear of credit default. Consequently, the value of their credit default swaps is skyrocketing.
The following is an excerpt from the February issue of Global Market Perspective. For a limited time, you can visit Elliott Wave International to download the rest of the 100+ page issue free.

High levels of global debt are both financially debilitating and deflationary because they commit scarce cash to servicing interest payments. Up until now, most sovereign credit defaults occurred in emerging-market countries, such as Argentina and Russia. The deflationary tide, however, is starting to lap up against more developed Eurozone economies.
The chart shows the value of credit default swaps — an instrument similar to an insurance contract that pays holders (if they are lucky) in the event of default — for Greece, Portugal, Spain and France. In recent weeks these contracts have soared, with credit-default swaps on Greece’s and Portugal’s debt already surpassing the January-March 2009 extremes established in the latter part of Primary degree 1 down.
Government Debt Troubles
Obviously, the market is growing more skeptical that Greece can pay its debts, so the cost of protecting against default is rising fast. Greece’s budget deficit is 12.7% of gross domestic product, and Portugal faces a budget shortfall that’s more than twice the European Union’s limit. Traders are now buying default protection on sovereign debt at a rate of more than five times that of specific company bonds. “Greece’s neighbors would ‘step in’ to prevent a debt default to avoid ‘a problem for the whole of Europe,’” a Tokyo-based bondsalesman says. Maybe so, but who will step in to bail out Portugal, Spain, the next sovereign default or the one thereafter?
The world is running out of money to service its mounting debts, and this chart simply depicts the front edge of the next great wave of credit contraction, which will sweep into more established countries throughout Europe and eventually to the United States.

Read the rest of this issue now free! You’ll get 100+ pages of insights about:

  • World Stock Markets
  • Global Interest Rates
  • International Currency Relationships
  • Metals and Energy
  • Social Trends and Observations
  • More

Visit Elliott Wave International to download your free 100+ page issue.

List of Top Momentum & Low PEG Stocks

I conducted a screen in January which looked for “a) earnings growers still reasonably priced as judged by the PEG ratio, b) low debt, c) a history of high return on equity and investment, and d) price momentum as gauged by the percentage the stock is trading to its 250 day high.”

As I promised in the original article, here is how the original 8 performed since the open on January 28th. until the close February 24th.  I have also added a link on my blog with the spreadsheet results. The list is not a blind buy and hold suggestion but I think an investor could find profits by further investigating the list or employing a disciplined trading strategy which includes stop losses, such as the one I detailed here.  The original 8 outperformed the S&P 500 by a wide margin, but underperformed a common small cap value ETF.

No positions in stocks mentioned

Symbol Company Trend Analysis 1/28/10 Open 2/24/10 Close Return
CNU Continucare Corporation Here 5.14 4.57 -11.09%
EZPW EZCORP, Inc. Here 18.27 19.86 8.70%
LHCG LHC Group, Inc. Here 32.43 30.7 -5.33%
DECK Deckers Outdoor Corporation Here 103.23 102.03 -1.16%
AZO AutoZone, Inc Here 156.69 164.96 5.28%
INTC Intel Corporation Here 20.3 20.7 1.97%
PTI Patni Computer Systems Limite Here 19.7 21.12 7.21%
PMTC Parametric Technology Here 16.65 17.57 5.53%
SPY S&P 500 ETF Here 110.19 110.82 0.57%
VBR Small Cap Value ETF Here 54.33 55.73 2.58%

Running the same screen on February 24th using stockscreen123, I come up with the following list which I will update again in about a month.  You can track the portfolio on the right hand side of my blog under the name ‘Low PEG High Momentum’:

Ticker Name Trend Analysis
PTI Patni Computer Systems Limite Here
TSCO Tractor Supply Company Here
JOSB Jos. A. Bank Clothiers, Inc. Here
CNU Continucare Corporation Here
FOSL Fossil, Inc. Here
FCFS First Cash Financial Services Here
LHCG LHC Group, Inc. Here
DECK Deckers Outdoor Corporation Here
NSR Neustar, Inc Here
AZO AutoZone, Inc. Here
CMG Chipotle Mexican Grill, Inc. Here
AAPL Apple Inc. Here
GILD Gilead Sciences, Inc. Here
AAON AAON, Inc. Here
CPLA Capella Education Company Here
STRA Strayer Education, Inc. Here
BIDU Baidu, Inc.(ADR) Here
TWLL Techwell, Inc. Here
WWW Wolverine World Wide, Inc. Here
NVO Novo Nordisk A/S (ADR) Here
CAGC China Agritech Inc. Here
DWA DreamWorks Animation SKG, Inc Here
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PEG Buys a Fiber Network From Gore
“When You See Cash Flow, You’ve Got To Buy It”
(PEG) PSEG Nuclear Files License Renewal
Read more on Price to Earnings Growth at Wikinvest

Mid-Week Readings

The Pain in Spain John Mauldin

Notes on a Difficult Employment Outlook John Hussman

Basically, It’s Over Charles Munger

When Were Stocks Last Under Valued? Barry Ritholtz

Ride This Bull, But Be Ready to Jump Jim Jubak

A Five-Step Guide to Contagion – Todd Harrison

Update on the Dollar/S&P 500

I featured an interesting piece yesterday by Tom McClellan regarding real yields and the dollar.  His analysis indicated a dollar bottom later this year followed by a significant rally in 2011 followed by a further low. 

Recently, the dollar and equity markets have shown a strong tendency to remain inversely correlated.  As the dollar falls, equity markets rally and vice versa.  If we assume McClellan’s long term projections hold true and the relationship between the dollar and equities holds, then we could project further equity strength this year, followed by a significant decline in 2011.

However, I personally wouldn’t bet my portfolio on the ‘carry trade’ continuing to predict future equity returns over the long term. When the Fed raise rates to more significant levels, the cost of borrowing dollars to bet on riskier assets such as equities will increase.  This will discourage the carry trade as it becomes more expensive and could weaken the inverse relationship that has existed between the dollar and equities. 

Perhaps the simplest option is to keep an eye on both the dollar and equities, watch the ‘tape’ and protect yourself with some basic trend analysis and stop losses such as those I featured in-depth here.

Below is a 1 year daily chart of the US Dollar Index and the S&P 500 Index with a 200 day moving average:

In the short run, it could still pay to watch the dollar and its relation to equities.  Currently UUP (US Dollar Bullish Index ETF) has a perfect trend score of 100, meaning a strong uptrend is intact. Meanwhile, SPY also has a strong bullish trend score of 90.  However, until SPY clears 115 in the short-term my money would be on the US Dollar.

No positions in equities mentioned

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Read more on Lingui Development, Carry Trade, Equity at Wikinvest

Real Yields and the Dollar

Interesting chart of the week from Tom McClellan which predicts a further dollar decline followed by a rally in 2011:

“What this chart reveals is that the movements of the real T-Bill yield are repeated just over 2 years later in the Dollar Index.  This is a profound revelation.  Rising interest rates are thought to be helpful to the dollar, and they seem to be at least for short periods in real time when rate changes are announced by the Federal Reserve, but this chart reveals that the truly significant changes in the value of the dollar over time follow interest rates with a 2 year lag…

We probably won’t see perfection in the way that the Dollar Index follows this leading indication, but we should still expect a lower low.  After a dollar bottom sometime later this year, we should get to see a more meaningful dollar rally into 2011, followed by another dip to match the current negative real T-Bill yields. “

More on this topic (What's this?)
Anticipating The Rate Hike
Equity Risk Premium In A Rising Interest Rate Environment
Read more on CLP HLDGS, AMEX Dollar Index (DXY), Interest Rates at Wikinvest

New Trend TV Video – Applications of Candlestick Charting

Many investors attempt to incorporate candlestick charting into their trading plans, however few know why this tool has become so popular.
In this complimentary video, “Advanced Applications of Candlestick Charting,” authors, software programmers, and co-founders of the International Pacific Trading Company, Gary Wagner & Brad Matheny will walk you through:
-History of candlestick charting
-How to interpret candlesticks
-How to merge techniques of Eastern & Western technical analysis together
-How to merge candlestick techniques with your current trading plan
-And more…
You’ll watch and listen as Wagner explains the importance of using this strategy. He says, in part, “Candlestick patterns are a mathematical formula which illustrate the psychological market sentiment. In other words, as a market reverses, or a market is moving in an up-trend, there are certain traits that can be distilled in terms of mathematical formulas that will reveal some very important information.”
This 100 minute complimentary video can be found on Trend TV. You don’t have to worry about watching the whole video at once. After you have a password, you can revisit anytime to watch the rest of a video, review a video, or watch other videos on Trend TV.

Tiny Titans Portfolio with a 200 Day Benchmark

On Friday I detailed AAII’s Tiny Titans stock screen.  Using the beta stockscreen123 I backtested the Tiny Titans portfolio only when the Russell 2000 was above its 200 day moving average.  The goal is to reduce potential drawdowns by only investing in the strategy when the overall market is in a long term uptrend. By adding this simple rule, the Tiny Titans screen avoided some of the significant drawdowns in 2007 and 2008.  Other potential trading strategies may work better on the individual companies in the Tiny Titans list, such as the one I detailed in-depth here which involves placing stop losses on individual positions.

The 8 year performance of the strategy results in a $100 investment turning into $349.70 versus $137.30 in the Russell 2000 (dividends excluded) when rebalanced every 4 weeks and excluding slippage/commissions:

A 5 year investment turned to $138.30 versus $100.20 in RUT.

A 3 year investment turned into $84.10 versus $77.30 in RUT.  It suffered a large drawdown in August/September 2008 and October 2007 when the Russell 2000 was briefly above the 200 day moving average but suffered large negative months.

The current list of stocks matching the criteria are:

Ticker Name Last Free Trend Analysis MktCap
VVTV ValueVision Media, Inc. 3.93 Here 127.08
ROIAK Radio One, Inc. 3.3 Here 180.6
LEE Lee Enterprises, Incorporated 3.8 Here 170.51
ATSG Air Transport Services Group 2.42 Here 153.57
LNET LodgeNet Interactive Corp. 5.99 Here 135
NAVI NaviSite, Inc. 2.89 Here 107.81
CMRG Casual Male Retail Group, Inc 3.17 Here 149.51
LBY Libbey Inc. 10.32 Here 156.41
MGPI MGP Ingredients, Inc. 7.6 Here 126.73
BIOF BioFuel Energy Corp. 2.8 Here 95.29
SPCHA Sport Chalet, Inc. 2.02 Here 28.53
SALM Salem Communications Corp 4.92 Here 116.48
IHR Interstate Hotels & Resorts, 2.25 Here 72.35
PXLW Pixelworks, Inc. 3.4 Here 45.56
BONT The Bon-Ton Stores, Inc. 8.44 Here 156.63
CVGI Commercial Vehicle Group, Inc 4.99 Here 113.51
BELM Bell Microproducts Inc. 4.57 Here 145.76
KV.A K-V Pharmaceutical Company 3.08 Here 153.84
IEC IEC Electronics Corp. 6.13 Here 54.8
TXIC Tongxin International Ltd 8.15 Here 100.32
SBSA Spanish Broadcasting System I 0.74 Here 48.06
KTCC Key Tronic Corporation 5.62 Here 56.71
NXST Nexstar Broadcasting Group, I 4.39 Here 124.81
WILC G. Willi-Food International L 6.96 Here 71.46
ARTX Arotech Corporation 1.89 Here 27.2