Six For Nine
Dear Fellow Investor:
Since August 3rd, the Standard Portfolio has made nine trades with six winners and three losers.
The tally looks like this:
Winners:                                                           Losers:
+2.0%                                                                    -0.5%
+8.4%                                                                  -2.2%
+4.2%                                                                  -2.1%
The Ultra Portfolio didn't fare as well with 3 losing trades of -10%, -2.6% and -1.2%.
I never like to brag about perforance and am certainly not bragging now because that always seems to be the kiss of death, but I am happy with our recent performance in the Standard Portfolio compared to earlier in the year.  I'm hopeful that we can continue improving upon our performance going into the 4th Quarter.
In the Ultra Portfolio we continue struggling with late exits where we stay too long and convert unrealized gains into realized losses, and in a note last week to Pro Members, I outlined a new initiative to exit earlier and try to take more frequent, smaller profits rather than try to stay longer for double digit gains that are difficult to keep.
This remains a very overbought market short term and very much in the "danger zone" for a pullback, although it continues to defy gravity on a weekly basis. 
This week the only short pause came on less favorable outlooks from Oracle and Federal Express and perhaps that's a precursor to earnings season starting in October. 
Also, October is notorious for market crashes with October 29, 1929, known as Black Tuesday; October 19, 1987, known as Black Monday, and the week of October 6th, 2008, known as Black Week when the Dow declined five days straight and lost -18% in a week.
Not to say that we'll have a crash, but it does worry me.  A correction we are set up to manage and even take advantage of to seek profits on the downside, but the only real protection for a crash is being in cash. 
With the exception of over extended nature of this market, we would be in the "Green Flag Flying Mode" as the major indexes broke to new highs for the year.
All of our indicators still point to "long" positions, but the overbought nature of this market demands extreme caution, in my opinion.  We are trading more than I like but I feel almost like a mouse trying to snatch the cheese before the trap springs and so I feel we have to be nimble for the time being.  For now I think the best plan is to scalp gains where we can.
The most likely scenario is that we're close to a major market top which could be followed by a correction and then another uptrend for however long that might last. 

The View from 35,000 Feet

The news was good this week with declining jobless claims and Ben Bernanke declaring the recession had probably ended.  I hope he's right but tell that to the 12% unemployed in California, a 70 year high.
And the news isn't so good on the mortage front, either, as "payment option arm" mortgages which are loans that had various initial payment options, oftentimes on jumbo mortgages, starting to reset to much higher levels. 
Reuter's reported that Arizona alone has 1280,000 of these resetting in the next year and with many of these loans underwater, more forclosures are ahead in this next wave of problems in the housing market.  It sounds bad enough to me, already, as 1 in more than 370 housing units in America was in some part of the foreclosure process in August.
The Week Ahead: 
Monday: August Leading Economic Indicators
Wednesday: Federal Reserve Open Market Committee meeting on interest rates
Thursday: Weekly Jobless Claims
Friday: September Michigan Consumer Sentiment, August New Home Sales, August Durable Good Orders 
Sector Spotlight:

Leaders: Natural Gas, Solar Energy 

Laggards: Short Financials, Short Russell 2000

Wishing you a great weekend wherever you may be.
Your partner in prosperity,  

John Nyaradi
Wall Street Sector Selector
All information presented herein is for general information only and deemed to be from reliable sources, but we cannot guarantee its accuracy. Readers are strongly advised to check with their investment counselors before making any investment. There is risk of loss in all investment activity.

Posted 09-20-2009 8:32 PM by John Nyaradi