Monday Readings

Posted on August 31, 2010 by oyenscott

Don’t forget to check back in the next couple of days as I update several of the free portfolios tracked on the site. Or better yet subscribe for free on the left hand side of the blog to get email updates!

Close Those Longs in the Bond Market! – Prieur du Plessis

US Stock Market Returns – What is in Store? – Prieur du Plessis

60-Year Cycle in Interest Rates – Tom McClellan

The Dark Side of Deficits – John Mauldin

3 Takeover Targets to Take Aim At – Jim Jubak

Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

More on this topic (What's this?)

Chasing Yield Has A Downside When Interest Rates Rise (Disciplined Approach to Investing, 6/12/13)

Why Holding Bonds is Important in a Well-Diversified Portfolio (Top Foreign Stocks, 6/9/13)

Protecting Yourself from Interest Rate Increases (Michael James on Money, 7/20/10)

Read more on Bond Investing, Interest Rates at Wikinvest

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Buy — Don’t Hold: A Book Review

Posted on August 30, 2010 by oyenscott

In Buy–DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk author Leslie N. Masonson lays out a strategy for individual investors to use relative strength to increase returns and reduce risk. His primary vehicle for doing so is ETFs. The first step in his process is to identify the individual investors personal risk tolerance. Once Masonson shows readers how to determine his or her risk level, he presents his methodology for determining the overall equity market’s primary trend.

Masonson uses what he calls “The Stock Market Dashboard” as a gauge for determining the overall market’s trend, which is his first step in determining whether to be fully/partially invested or in cash. The dashboard is comprised of seven technical indicators which are seemingly a random collection of well known indicators. While he gives historical evidence of the dashboards market timing capabilities in March 2009 and near the top in 2007, I would like to see more comprehensive and academic backtests. Also, I found myself wondering if the use of seven indicators was perhaps too complicated. Mebane Faber showed in The Ivy Portfolio that a simple moving average system can be effective in reducing portfolio volatility. However, to Masonson’s credit his site buydonthold.com tracks the dashboard signals so we will see how they perform out of sample in the months and years ahead.

The next step in Masonson’s process is to invest using ETFs when the dashboard indicates a positive market trend. However, he does not propose simply asset allocation models; rather, he suggests using relative strength to determine in which ETFs to invest. He provides a few free ETF centered websites to determine which ETFs have the highest relative strength. In addition to discussing these free sites, he wastes, in my opinion, a chapter promoting two separate pay services.

Masonson’s book also had a personal twist for this author. In chapter 6 he cites an article I wrote for Seeking Alpha and my site in October 2009. However, while I’m flattered to be a source, his citation was incorrect and somewhat lazy. My article (viewable here and here) was primarily a review of a study done by CXO Advisory. I was a secondary source, the primary source was the study done by CXO; thus, it would have been appropriate to cite CXO directly. However, to Masonson’s defense with new technology (the Internet) comes new obstacles for authors – the original URL from CXO is no longer valid but the updated article can be viewed here. In addition, the title of my article was cited incorrectly in the book, the correct title is “Backtesting a Sector ETF Momentum Strategy” and not “Backtesting a Sector Momentum Strategy” as cited in the book.

Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

More on this topic (What's this?)

Core ETF Report (Capital Essence's Investment Blo..., 6/12/13)

Is There Any Real Difference Among The Five Religion Based ETFs? (Wall Street Sector Selector, 6/13/10)

ETFs Better Than Mutual Funds For Long-Term Investors (GreenLightAdvisor Views, 6/13/10)

Read more on Exchange Traded Fund (ETF), Risk at Wikinvest

SPY: Looking Ahead to This Week

Posted on August 29, 2010 by oyenscott

Once per week I provide a summary on my site of SPY and the S&P 500. This past week saw some interesting action with the market trading down for much of the week before a strong finish on Friday. This leaves bears and bulls wondering if a short-term bottom is in.

Last week, SPY twice bounced off a support level in the $104.30 range so I’m going to watch this price level next week as potential support. Failure to hold this level could mean a quick drop to $101.1-$101.64. The 20, 50, and 200 moving averages are either trending down or flat which indicates the trend is still negative. However, with Friday’s strong finish, it is possible we will see a continuation next week of Friday’s action. If so, the first price level to watch is the 50 day moving average around $108.61 as of Friday’s close.

Chris Vermeulen of TheTechnicalTraders.com stated that “The equities market has been tried to bottom all week and Friday’s price action looks strong. While the chart looks strong the market internals are telling me the opposite. Last week we saw a gap down and Friday that gap window was filled. With heavy volume resistance just above the current price the odds are pointing to lower prices.” His chart is below:

September is historically a difficult month for the S&P 500 (chart courtesy of The Big Picture). This does not guarantee we are heading for a poor September, but it is certainly something to keep in the back of one’s mind as trades are considered, especially given the recent negative action in equities.

Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

More on this topic (What's this?)

What To Watch For This Week On The SPDR S&P 500 ETF (SPY) (Wall Street Sector Selector, 7/12/10)

S&P (SPY) 500 at Key Level (ETFTRADR » ETFTRADR Blog, 6/30/10)

Institutions Laugh: Small Investors Lose Again, Unreal (The Market Financial, 6/5/13)

Read more on SPDR S&P 500 ETF at Wikinvest

Market Readings

Posted on August 26, 2010 by oyenscott

The First MLP ETF is Here – ETF Trends

Hedging Tail Risk With the VIX – Condor Options

James Montier from GMO discusses the importance of dividends in A Man From a Different Time

How We Get Through This Mess – John Mauldin

Momentum Investing (pdf) – Tobias Moskowitz

Mr. Gross Goes to Washington – Bill Gross

Find out what’s inside Trend TV Click Here

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Gold Investing Heats Up (Wealth Daily, 6/10/13)

Physical Gold and Paper Gold Battling for Supremacy: Brien Lundin (Jutia Group, 6/12/13)

Force Majeure in Gold (Wealth Daily, 6/11/13)

Read more on Gold, Volatility Index (VIX), How To Invest at Wikinvest

Top Stocks Based on PEG and Momentum

Posted on August 26, 2010 by oyenscott

I conduct the following screen on a monthly basis. Early out-of-sample results have been mixed, performing well during bullish environments and poorly during bearish/choppy markets. Last month’s list here, June’s list is here, May’s list is here, Aprils’ list is here, March’s list is here, February’s list is here and January’s here. The screen looks for the following:

earnings growers still reasonably priced as judged by the PEG ratio

low debt

a history of high return on equity and investment, and

price momentum as gauged by the percentage the stock is trading to its 250 day high.

January’s list returned 1.39% vs .57% for SPY. February’s list returned a solid 11.78% vs. 6.77% for SPY. March returned 7.91% vs. 4.23% for SPY, April was a down month, nearly matching SPY in returning -11.57% vs -11.52% for SPY, May’s list returned -6.55% vs -.56% for SPY, June’s list returned -1.74% vs. 3.27% for SPY and last month’s list returned a sour -10.36% vs -5.55% for SPY. One note on May’s list is that due to the pullback in the market there were very few stocks that qualified for the list, four in total.

When the screen results in more than 5-10 stocks I have also started tracking returns of the top 5 or 10 stocks at the beginning of each list. The top stocks are selected based on fundamental factors. For the full list of stocks and results, please see the right hand side of Scott’s Investments.

The screen has tested well historically in bullish periods so strategies an investor could use to avoid drawdowns would be to either a) abandon this type of strategy entirely when the S&P 500 or another major index is below a long term moving average, or b) hedge positions with a position in SH or write a short option strategy on an equity index or ETF like SPY.

This month’s list contains only three stocks, which tells us the overall market is showing very few stocks trading near their 52 week highs.

Two possible tools an investor could use to conduct this screen on his/her own are stockscreen123 or Finviz. This screen was conducted using stockscreen123.

No positions in stocks mentioned

Ticker	Name	Trend	Rank	MktCap	Industry
FOSL	Fossil, Inc.	Here	97.03	2978.91	Jewelry & Silverware
FCFS	First Cash Financial Services	Here	91.29	700.6	Retail (Specialty)
PCLN	priceline.com Incorporated	Here	76.98	14119.36	Business Services

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More on this topic (What's this?)

Top Stocks Based on PEG and Momentum Versus The S&P 500 ETF (SPY) (Wall Street Sector Selector, 6/28/10)

Caution Urged To ETF Investors Pressing The Short Side (SPY) (Wall Street Sector Selector, 7/2/10)

Earnings In Q2 Still Strong, Forward PEG Less Than 1.0 (Disciplined Approach to Investing, 8/8/10)

Read more on SPDR S&P 500 ETF, Price to Earnings Growth at Wikinvest

6 Dividend Aristocrats to Consider

Posted on August 25, 2010 by oyenscott

In a continued effort to expand the focus of my site’s screens and hypothetical portfolios, this article is a fourth follow-up to an article written in early April focusing on the S&P 500 Dividend Aristocrats. The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. The current list has 43 constituents and the entire list is available from S&P or on my site.

If an investor wanted to replicate the list the best option is probably SDY, the SPDR Dividend ETF, which is a variation of the Aristocrats – it seeks to replicate the “High Yield” Dividend Aristocrats Index. An alternative is to start with the Aristocrat list and then reduce the list of candidates through screens and/or fundamental analysis. I screened for Aristocrats which had a sustainable payout ratio, a high dividend yield, reasonable debt/equity ratio, and moderately positive return on assets and equity.

Using Finviz, which has some of the better screeners and charts available, I screened the Aristocrat list for:

Payout Ratio < 80%,

Dividend Yield > 3%

Return on Assets > 10%

Return on Equity > 10%

Total Debt/Equity < 1

Below is a list of 6 Aristocrats which are worthy of further consideration, especially if one is seeking yield or seeking to reduce exposure to non-dividend paying companies. All of the companies on the list are familiar names and they were also all on last month’s list and the previous month’s list which tells me this could be a relatively low turnover strategy. Another thought is to hedge the list with a short position in the S&P 500 is below its 200 day moving average. One such vehicle for doing so is SH. Obviously, hedging could reduce returns but also reduce drawdowns and volatility. Or, an investor could only purchase stocks which are above its 200 day moving average. I have added the percent each stock is above/below its 200 day SMA. MCD was also featured in an article I wrote earlier this month about dividend growers.

No positions

	Company	Trend	Dividend Yield	Payout Ratio	Debt / Equity	200-Day SMA	Price
ABT	Abbott Laboratories	Here	3.56%	48.89%	0.93	-2.73%	49.48
JNJ	Johnson & Johnson	Here	3.72%	40.96%	0.22	-6.12%	58.01
KO	The Coca-Cola Company	Here	3.16%	52.85%	0.46	3.09%	55.66
LLY	Eli Lilly & Co.	Here	5.77%	50.65%	0.67	-1.08%	33.97
MCD	McDonald’s Corp.	Here	3.03%	48.30%	0.81	10.14%	72.72
MHP	The McGraw-Hill Companies, Inc.	Here	3.37%	36.17%	0.65	-12.36%	27.93

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More on this topic (What's this?)

33 Dividend Champions to Consider (Dividend Growth Investor, 8/11/10)

Dividend Aristocrats: What Are They (Learn Financial Planning, 9/17/10)

The Trade for Profit Morning Letter for June 6, 2013 | $GOOG $GLD | (Hedge Accordingly, 6/6/13)

Read more on Dividend aristocrats, HK EL Holdings at Wikinvest

Tuesday Reads

Posted on August 24, 2010 by oyenscott

How We Get Through This Mess – John Mauldin

S&P 500: On a Knife’s Edge – Prieur du Plessis

Why Quantitative Easing is Likely to Trigger a Collapse of the U.S. Dollar – John Hussman

Welsh Investment Letter August 2010

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Free eBook

Posted on August 24, 2010 by oyenscott

Get Adam Hewison’s eBook version of “RIGHT ON THE MONEY: The definitive guide to forecasting foreign exchange rates,” for FREE! Learn the same trading principles that major banks and hedge fund managers use every day to make millions.

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Leo Melamed, credited with creating financial futures in the United States, wrote in the foreword to Adam’s book, “… excellent educational reference for every serious trader.”

Along with receiving “RIGHT ON THE MONEY” for free, you will also receive two winning portfolio’s that share many of the same principals as “RIGHT ON THE MONEY.”

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Our conservative “Perfect Portfolio” uses ETF’s in a way that may surprise you. This portfolio has produced annual returns of 29% for each of the past 5 years in some of the most volatile and turbulent markets in recent history. Here’s a little secret, THE PERFECT PORTFOLIO only tracks 4 ETFs. * We will share with you the exact trading strategy and formula for filtering trades that we use to achieve those outstanding results.

THE WORLD CUP PORTFOLIO
The leveraged World Cup Portfolio was created in 2007 and has produced annual returns in excess of 100% for each of the last three years. This portfolio tracks just 6 markets that we believe can all be game changers in the future. This portfolio has produced gains in 10 of the last 12 quarters and has never lost money in any 12 month period. In addition to the six markets, we will share with you the *exact trading strategy and formula for filtering trades that we use to achieve those outstanding results.

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I am not sure how long they are going to offer the exact trading strategy and formulas for filtering trades that they use to achieve those outstanding results as they do not want to disturb the harmony of these two portfolios. If you want this valuable information on two cutting edge portfolios, plus Adam’s eBook “RIGHT ON THE MONEY,” you need to act now.

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An Update on SPY

Posted on August 24, 2010 by oyenscott

Once per week I provide a summary on my site of SPY and the S&P 500. Last week SPY closed down slightly for the week at $107.53. SPY is in much of the same place as it was last week, trading below its 20, 50 and 200 day moving average. It remains wedged between some key support and resistance levels, thus this week I echo much of what I said last week which was:

“On the upside, $113.20 continues to be a strong level of resistance. If we continue to drift lower support could be found at $104.38 and then $101.10-$101.64. Failure to hold $101.10 could spell further declines.”

Failure to hold $101.10 could lead to further declines to $94.61. In the meanwhile, continue to watch key price levels while keeping in mind that the overall trend is negative.

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More on this topic (What's this?)

What To Watch For This Week On The SPDR S&P 500 ETF (SPY) (Wall Street Sector Selector, 7/12/10)

S&P (SPY) 500 at Key Level (ETFTRADR » ETFTRADR Blog, 6/30/10)

SPY Bull Put Spread (, 6/23/10)

Read more on SPDR S&P 500 ETF at Wikinvest

10 Microcap Value Stocks to Consider

Posted on August 23, 2010 by oyenscott

I am a member of AAII (American Association of Individual Investors) and was recently reading one of their more popular screens, the Shadow Stock Screen. I decided to run my own test of the screen with a few small twists. This is a very simple screen that seeks out small/microcap value stocks. The screen criteria I used are below:

No over-the-counter stocks

No financial stocks

Market cap > $20 Million and < $200 million

Previous EBITDA quarter and trailing twelve months are positive

Share price > $4

Price/book < .80

Price/sales < 1.2

Top 10 stocks are selected based on highest 52 week returns

This is the fifth month of performing the screen. The first month’s list performed poorly, returning -15.35% versus -13.2% on VBR, the small cap value ETF. The second month beat the benchmark, returning .50% vs .04% on VBR. Last month’s list returned an average of -4.38% versus -2.26% for VBR over the same period.

I would describe this as a high beta strategy – it performs very well in bullish markets and underperforms in bear markets. I said previously that “this is not a strategy I am investing in. However, if an investor was looking to add some risk to his or her portfolio, this one could certainly add some ‘juice’.” One additional option which I have mentioned on other screens is to abandon this type of strategy when an underlying index such as the Russell 2000 is trading below a long term moving average such as the 200 day moving average. Currently the Russell 2000 is below its 200 day moving average.

The current top 10 stocks are also below. I update the screen once per month on my site and track the results for free on the right hand side of the site. The tool used for the screen is stockscreen123

No disclosures

Ticker	Name	Free Trend Analysis	Last	Rank
ESCA	Escalade, Inc.	Here	5.05	98.46
HAST	Hastings Entertainment, Inc.	Here	7.37	94.35
SGMA	SigmaTron International	Here	5.69	92.63
AHC	A. H. Belo Corporation	Here	6.62	92.11
RCKY	Rocky Brands, Inc.	Here	7.67	89.93
FLXS	Flexsteel Industries, Inc.	Here	13.4	89.43
PTSI	P.A.M. Transportation Service	Here	11.29	84.34
CGL.A	Cagle’s, Inc.	Here	6.55	81.28
GRB	Gerber Scientific, Inc.	Here	5.03	79.82
MPAA	Motorcar Parts of America, In	Here	6.94	78.89

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SCOTT'S INVESTMENTS

SCOTT'S INVESTMENTS IS DEDICATED TO DISCUSSING AND PUBLICLY TRACKING HISTORICALLY SUCCESSFUL INVESTMENT STRATEGIES AND SHARING FREE INVESTMENT RESOURCES. WE EMPHASIZE EMPIRICAL, HISTORICAL AND QUANTITATIVE ANALYSIS, PORTFOLIO STRATEGIES FOR INDIVIDUAL INVESTORS AND TECHNICAL ANALYSIS.

Monthly Archives: August 2010

Monday Readings

Buy — Don’t Hold: A Book Review

SPY: Looking Ahead to This Week

Market Readings

Top Stocks Based on PEG and Momentum

6 Dividend Aristocrats to Consider

Tuesday Reads

Free eBook

An Update on SPY

10 Microcap Value Stocks to Consider