Stop Kidding Yourself! – 09/05/2014

Investors continue to miss the boat on this bull market for what are truly foolish reasons. The one that keeps coming up again and again is:

“I will get on board after the next correction”.

On the surface this sounds like a solid strategy. However, there has not been an official 10% correction in the market since hitting a low of 1266 way back on June 4, 2012. Since that time the S&P has rallied 58% with only modest pullbacks along the way.

Yes, at some point there will be a healthy correction on the way. Yet with economic data sizzling hot, as it is now, then likely we will not decline 10% any time soon. So consider upping your allocation to this bull market before more profits slip through your fingers.


Steve Reitmeister ( aka Reity…pronounced “Righty” )

Executive Vice President


Research & Investment: Europe tests primary support

Europe tests primary support

By Colin Twiggs
August 9th, 2014 10:30 a.m. AEST (8:30 p:m EDT)

Advice herein is provided for the general information of readers and does not have regard to any particular person’s investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.


Research & Investment: Performance update

ASX200 Prime Momentum strategy returned +20.35%* for the 12 months ended 31st July 2014, outperforming the benchmark ASX200 Accumulation Index by +3.81%.

ASX200 Prime Momentum

Returns for July 2014 were 4.67%, so why the decline in rolling 12-month performance? Because performance for July 2013 (11.00%) is now excluded from the last 12 months. Another exceptional month was February 2014 (9.04%). Momentum performance tends to concentrate in a few good months each year which is why we are so averse to timing secondary corrections — if you miss one good month, it will hurt your annual performance.

The S&P 500 Prime Momentum strategy has been running nine months, since November 2013, and returned 8.92%* for the period, compared to 11.63% for the S&P 500 Total Return Index. A sell-off of momentum stocks affected performance since April, but macroeconomic and volatility filters indicate low risk typical of a bull market and we maintain full exposure to equities.

* Results are unaudited and subject to revision.

Europe tests support


  • Europe threatens reversal to a down-trend.
  • S&P 500 finds support.
  • VIX continues to indicate a bull market.
  • China’s Shanghai Composite encounters selling pressure.
  • ASX 200 experiences a secondary correction.

Dow Jones Europe Index is testing the primary trendline and support at 315. 13-Week Twiggs Momentum below zero already warns of a primary down-trend. Breach of primary support at 315 would confirm. Respect of primary support and recovery above 330, however, would suggest that the primary trend is intact.

Dow Jones Europe Index

Germany’s DAX continues to test primary support at 9000. A long tail on Friday suggests short-term support. Failure of support would warn of a decline to 8000*, while respect would suggest another test of 10000.


* Target calculation: 9000 – ( 10000 – 9000 ) = 8000

The S&P 500 found support at 1900 and recovery above 1950 would indicate another advance. The latest decline on 13-week Twiggs Money Flow is relatively small and recovery above its July high would suggest that buyers have taken control. Failure of 1900, however, would warn that the primary trend is slowing.

S&P 500

* Target calculation: 1500 + ( 1500 – 750 ) = 2250

CBOE Volatility Index (VIX) spiked upwards, to between 16 and 17, but remains low by historical standards and continues to suggest a bull market.

S&P 500 VIX

China’s Shanghai Composite Index encountered selling pressure below resistance at 2250, with tall wicks/shadows on the last two weekly candles and a sharp fall in 13-week Twiggs Money Flow. Reversal below 2150 would warn of another test of primary support at 1990/2000. Follow-through above 2250, however, would confirm a primary up-trend.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 is heading for a test of support at 5350/5400 and the primary trendline. Direction will largely be influenced by the US and Chinese markets, but reversal of 13-week Twiggs Money Flow below zero — after long-term bearish divergence — would warn of strong selling pressure. Recovery above 5550 is unlikely at present, but would suggest another advance. Reversal below 5050 is also unlikely, but would signal a trend change.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800


When to sell and when to buy?

Investors are faced with the same emotional tug-of-war at every correction: Do I sell and abandon my positions or do I sit tight and ride out the storm? Here are a couple of useful perspectives:

What is your investment time frame?

Do you plan to invest for the long-term (5 to 10 years) or is your investment horizon a matter of months or weeks? If your investment horizon is long-term, you are investing for the primary trend. Your intention is unlikely to be to time secondary market movements.

Is timing secondary corrections profitable?

Our research shows that the average re-entry point, after brokerage and slippage is higher than the exit point and erodes performance.

Has the earning capacity of stocks you hold been affected by the correction?

A correction is a wave of negative sentiment, normally caused by an external shock — like the prospect of higher interest rates, oil prices, some new conflict or a threat to international trade. Where the market decides that earnings are unaffected and there is no permanent loss of value, it tends to recover fairly quickly. If, however, the market decides that there is a long-lasting effect on earnings then stocks are likely to be re-rated — resulting in a long-lasting drop in value. The probability of the former is far higher than the latter: the ratio of primary to secondary adjustments is low.

When is the best time to hold Momentum stocks?

We have not done a wide-ranging study of this, but the best two months performance for our ASX200 Prime Momentum strategy in the last two years were July 2013 (11.00%) and February 2014 (9.04%) — both in the middle of corrections.

ASX 200 Corrections

Attempt to time the correction and you may miss the best-performing months.

That’s all from me for today. Take care.

Research & Investment: S&P 500 pregnant pause

By Colin Twiggs
July 19th, 2014 8:30 a.m. AEST (6:30 p:m EDT)

Advice herein is provided for the general information of readers and does not have regard to any particular person’s investment objectives, financial situation or needs. Accordingly, no reader should act on the basis of any information contained herein without first having consulted a suitably qualified financial advisor.


Research & Investment: Performance update

ASX200 Prime Momentum strategy returned +27.60%* for the 12 months ended 30th June 2014, outperforming the benchmark ASX200 Accumulation Index by +10.17%.

ASX200 Prime Momentum

The S&P 500 Prime Momentum strategy has been running eight months, since November 2013, and returned 13.41%* for the period, compared to 13.06% for the S&P 500 Total Return Index. A sell-off of momentum stocks affected performance in April, but macroeconomic and volatility filters indicate low risk typical of a bull market and we maintain full exposure to equities.

* Results are unaudited and subject to revision.

Pregnant pause


  • S&P 500 advance to 2000 likely.
  • VIX continues to indicate a bull market.
  • ASX 200 finds support.

A Harami candlestick formation on the S&P 500 suggests continuation of the up-trend. Harami means ‘pregnant’ in Japanese. Expect a test of the psychological barrier at 2000. 21-Day Twiggs Money Flow recovery above the descending trendline would confirm that short-term selling pressure has ended. Further resistance is likely at the 2000 level — and at 4000 on the Nasdaq 100. Short retracement or narrow consolidation would suggest another advance. Reversal below 1950 is unlikely, but would warn of a correction to 1900 and the rising trendline.

S&P 500

* Target calculation: 1900 + ( 1900 – 1800 ) = 2000

CBOE Volatility Index (VIX) spiked to 15 on news of the Israeli incursion into Gaza and the downing of Malaysian airlines flight MH17 over Eastern Ukraine, but soon retreated to 12 and remains indicative of a bull market.

S&P 500 VIX

The ASX 200 retreated below support at 5525/5530 on the hourly chart, but long tails at 5500 indicate buying pressure and another attempt at 5550 is likely. An open above 5530 would confirm. Breakout above 5550 would suggest a long-term advance to 5800*. Reversal below 5450 is unlikely, but would signal another test of 5350.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800


To sell or not to sell?

Recent acquisition Northern Star Resources [NST] in the ASX 200 portfolio is a great example of the conundrum faced by long-term investors when a new stock leaps out of the starting blocks. Profit-taking is evident from the tall shadows/wicks early in the week and the decline of 21-day Twiggs Money Flow. Medium-term selling pressure suggests the stock is likely to retrace and give back some of the gains of the last two weeks. The temptation must be great to sell the stock and lock in profits of close to 30 percent.


It is important, however, to stick to the plan. We are investing for a longer time frame in anticipation of much larger gains. There is no guarantee that any individual stock, including NST, will deliver. But I can guarantee you that they will not deliver long-term gains if you sell within the first few weeks.

Investors in S&P 500 stock Micron Technology [MU] faced a similar conundrum in July 2013. The stock had put in a good run from $9.00 before encountering profit-taking as it approached $15.00. 21-Day Twiggs Money Flow retreated below zero and the stock fell back to $12.50. Many investors would have taken this as a sign to get out.

MU July 2013

With hindsight, the decision to stay the course looks easy: support held at $12.50 and MU is now trading at $33.00. But I am sure that there were many investors who forgot their original plan and took profits at $12.50 ….They just aren’t bragging about it.

MU 2013/2014

That’s all for today. Take care.

Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. In a bull market the game is to buy and hold until you believe the bull market is near its end.

~ Jesse Livermore


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4 Ingredients for Beating THIS Market by Steve Reitmeister – 06/21/2014

I know you don’t want to hear this. But 2014 is playing out just as it should. Meaning that the big money from this 5 year bull market has already been made and valuations are fully engorged. Gladly, there is not much fear of a bear market either as economic data remains positive.

When you add it all up, it says the bull market is still on. Just that the pace of gains is slowing down to the 5-10% per year range.

I can appreciate why that doesn’t get your heart racing. But compared to the unspectacular returns for cash, bonds, precious metals and real estate, it is a pretty fair shake.

So best that you keep throwing your hat in the stock market ring. And best that you look for the right ingredients in your stock portfolio to generate even more attractive returns. Below I share with you the 4 essential ingredients at this time.

Ingredient #1: Value

In March, April and early May investors squeezed the excess premium from overpriced glamour stocks such as:

• Tesla’s engine sputtered by 30%.

• Yelp cried for help falling nearly 50%.

• FireEye got lit up for a 74% scorching.

This was actually a healthy sign as it says investors would not stand for these excesses any longer. Quite simply it was a call for value.

Note that I am from the camp that believes value investing always makes sense. Yet now there is a much more severe punishment awaiting those who miss that memo.

Ingredient #2: Positive Estimate Revisions

You knew that I was going to say this as it is the power behind the Zacks Rank and its 26% average annual return. Let’s speed up the discussion and simply say that positive estimate revisions give you an edge in every market environment. That’s because these are the companies with the healthiest growth prospects, which is a beacon signaling investors towards the shares.

Ingredient #3: Dividend Income

If the market is only going to provide capital gains of 5-10% per year, then getting a 2-4% dividend yield on top makes a BIG difference. I am not saying that every pick in your portfolio needs to supply dividend income. Rather, take a look at your total portfolio and make sure you have enough positions that supply this edge.

WARNING: There is still some risk that bond rates will continue to rise as QE goes away and the economy heats up. This will be bad news for stocks whose ONLY attractive quality is a big dividend check. Make sure you go the growth and income route for your picks as not to be overly harmed by this potential outcome.

Ingredient #4: Dash of Market Timing

Market timing was a route to failure in 2013 as stocks just went up, up and up. 2014 is marked by more range bound trading, which gives market timers a good chance to squeeze out extra gains.

As stocks break to new highs, then take some profits off the table. Even consider a small ETF short position or VIX play to profit from a likely market pullback. Then ratchet back up to 100% long for the next leg higher.

If you don’t have a good track record with market timing, then either just stay long until there is reason to be concerned about a forthcoming bear market.

Wishing you great financial success,


Steve Reitmeister has been with Zacks since 1999 and currently serves as the Executive Vice President in charge of and all of its leading products for individual investors. He is also the Editor of the Reitmeister Trading Alert.

Calendar Says Bull Market is Over? Absolutely NOT – 06/19/2014

The average bull market lasts 63 months. That means June 9th was when we officially hit the possible expiration date.

So that begs the question: Is this bull market over?

Absolutely NOT!

There are 2 main differences about this bull market that says the party will continue a while longer.

1) Economic expansion is slower this time around. You see, we are used to 3%+ GDP growth coming out of most recessions. This one took a while longer to get heated up with most of the time stuck between 1-2% GDP growth. This means we have not created excesses like most expansions from the past which is the harbinger for future recessions. In fact, signs point to growth on the rise later this year which equates to more legs for this bull market.

2) Still too much money on the sidelines or in underperforming bond funds. The reason being that the current generation of investors were horribly burned twice in recent memory (the bear markets of 2000 – 2002 and then again 2008 – 2009). This means they will be late to the party once again. As they climb on board, stocks will make another leap higher.


Steve Reitmeister ( aka Reity…pronounced “Righty” )

Executive Vice President

Zacks Investment Research

My Secret Trading Weapon by Kevin Matras – 05/24/2014

Let’s be clear, nobody knows which way the market will move over the next 1-3 months. Anybody who insists they do is just guessing.

Some say up, with the historic uptrend continuing. Others say down (temporarily or otherwise), believing the 5 year bull market has run its course. And still others say sideways, as the market consolidates while waiting for new information to provide direction one way or the other.

Each side makes compelling and lucid arguments. After hearing one side, you can be totally swayed. Until you hear the other side, of course. And so
you have the current state of the market.

Critical Information?

As an investor, knowing which way the market will go is typically a critical piece of information in order to make money. A critical piece that nobody knows.

But what if it didn’t matter?

What if, you could make money whether the market goes up, down or sideways? Put on the same position and profit regardless of which way it goes? And not even care
which way it goes because your profit potential would be the same either way.

Instead of one way to win, you’ve now got three ways to win, dramatically increasing your odds of success.

You’d probably feel like you had a secret trading weapon. And you would.

But it’s no secret. Granted, most investors don’t know about these strategies, let alone employ them. But these are strategies the pros use all the time to consistently make money in the market whether it goes up, down, or somewhere in between.

Calm Confidence

When so many individual stocks began rolling over last month, I’ll admit, I was just as concerned as anybody.

We all got used to the market going straight up. It was easy money. And who wouldn’t want to see that continue?

But whether it continued up or not, the writing was on the wall. The market was about to change. By that I mean the cake-walk of 2013 where almost everything went up was going to be replaced with a more trying market where fewer stocks will go up, plenty will go down, with most flitting back and forth in a volatile manner.

The media was ablaze with stories of doom and gloom. And for a few weeks, I’d even say there was a tiny degree of panic for some investors. Many felt helpless as the market seemed to go up and down for no apparent reason.

For me however, I felt a calm confidence instead.

What the market does is beyond our control. But it doesn’t matter. I knew how we were going to make money in this kind of market. And it was time to get to work.

Game Plan

Picking a stock that will trade within a broad range is much easier than picking a stock that MUST go up or down in order to make money.

The strategy to do that with is an iron condor. It’s a favorite of professional traders and one of the ways they make money in virtually any kind of market.

It’s classified as a neutral strategy because you don’t have to rely on just one direction. Instead, the price can go up, down or sideways — anywhere within that range — with any one of those three scenarios resulting in the same exact maximum profitability.

This is a low risk, high probability trade that can deliver consistent and impressive returns.


A calendar spread is another strategy that gives the investor tremendous flexibility when it comes to direction and timing.

Not surprisingly, it’s also a favorite of professional investors. It can go up from where you got in, down from where you got in, or just sit there, and you can still make money. You can even be wrong about which way you expect the market go and still be profitable. It’s no wonder this strategy is sometimes referred to as a ‘second chance’ spread.

This too is a low risk, high probability trade that can yield impressive returns, and is yet another way to profit in an uncertain market.

Classic Opportunities Made Better

Of course, there will be plenty of opportunities to make money on the most bullish of stocks by buying calls or bull call spreads. But this way requires only a fraction of the money needed vs. buying the stock, thereby significantly lowering your risk.

There will also be plenty of opportunities to make money on the most bearish of stocks thru puts and bear put spreads, without ever having to short a stock, thus providing a small and limited risk at all times along with big profit potential.

And there will also be opportunities to play both sides of the market on the most volatile of stocks with straddles and strangles, where a big move is expected in either direction. You don’t have to guess which direction it will be in. Either one can be just as profitable as the other.

Combined with the Zacks Rank, it’s easy to align the right stocks with the right strategy.

Peace of Mind

As you can see, options give the investor numerous ways to make money in the market, and in any direction. There’s great satisfaction and peace of mind that comes from knowing you no longer have to rely on a bull market to make money.

If the bull market continues, that’s great news. It’s wonderful when everything is going up. But the success of your investments doesn’t have to depend on the whims of the market.

If you’re new to options, that’s ok. These strategies are easy to put on and easy to understand. All with limited risk. Once you place your first trade, you’ll wonder why you haven’t done this before. Soon, they will become a mainstay in your investment arsenal, and you too will have a secret weapon like the pros.

And your portfolio will thank you for it.

Thanks and good trading,


Kevin Matras is our world-class research expert who has developed more than 30 market-beating strategies using the Zacks Rank. He also directs the portfolio service that combines Zacks Rank timeliness with the best professional options techniques, Zacks Options Trader.

Stock Pickers Rule by Kevin Cook – 03/29/2014

The rising tide of the great bull market has lifted most boats, but some strategies that trounced the index last year are also ready for what might happen next. Here are three possible scenarios…

1) Big Q2 rally that takes the S&P 500 to 1,950
and higher into earnings season

2) Volatile, sideways action in a range between S&P 1900 and 1750 into summer

3) Big correction that takes out the Feb lows and heads to S&P 1600

I’m going to tell you about a strategy that did very
well in the in the past year – more than doubling the 32% return of the S&P 500 in 2013 – and that could very well continue to outperform in 2014.

More Gains Ahead

If scenario #1 is the most likely outcome, it is because of support from both the fundamental and technical backdrops. Fundamentally, the economy is growing sufficiently to keep recession at bay, and the Fed is still “on our side” with a commitment to low interest rates for another year. These are two of the biggest factors that attract money into stocks, in addition to corporate earnings power.

Speaking of earnings, the S&P is on its way to another record year. A 16X P/E multiple on forward EPS estimates of $117.50 gets you S&P 1880 for fair value. But we know that in a strong bull market, that multiple can expand to 17 or 18X.

And with big macro worries about Europe, China and Washington once again on the sidelines, my favorite line from last year is still true: money managers are heads down, picking stocks.

So I am sticking with the strategy that got me here, where I “follow the money” of institutional portfolio managers – those running $100 million or more – as they pile into growth stocks. By matching the earnings momentum of Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) stocks against a database of SEC 13D-G institutional filings, I can screen for stocks that are under accumulation by the investors who move markets.

While I can’t buy every stock I find that meets these two criteria, what I get is a solid list of names to do some homework on. I pour over the analyst reports to find out why they are raising estimates, and I try to see what the institutional buyer saw that made him or her plunk down enough cash to amass a 5% stake in the company. More on this strategy and some of the successful picks in moment.

Home on the Range Scenario

Markets are all about investing under uncertainty. And few markets are more uncertain than the ones gyrating back and forth in a volatile range, as bulls find that “buying the dips” has become more challenging and bears believe that finally they have the BIG correction they’ve been predicting.

But do you know what professional money managers like Steve Mandel of Lone Pine Capital, or the many funds of BlackRock, or even Carl Icahn do? First, they check to make sure the fundamentals are still in place that warrant a bull market vs. a bear market.

Then, they keep focused on picking exceptional stocks that others are irrationally selling, because these investors look out past the volatility to what they see as the true and fair value for their investments that will be realized over time.

Now this is where my screening gets a little trickier because I am using the Zacks Rank, a short-term earnings momentum model, against the longer holding periods of the “whales” of the stock market, my name for the institutional investors. For this, I simply try to make sure I am buying in the lower end of a value range by some combination of technical or timing opportunity.

Often the timing opportunity is simply being very quick as soon as I see the “whale” announce his or her position. Other times it means waiting until the stock comes back a bit. In either case, it has led to many 20%+ winners for the portfolio. One of my best sector/industry plays of the past year has been biopharma and biotech. As you probably know, this area also outperformed the broad market by more than double.

With solid gains in names like Valeant Pharmaceuticals [VRX], Pharmacyclics [PCYC] and Endocyte [ECYT], I have tried to capitalize on the long-term trends in healthcare and medicine that are definitely on the radars of the whales. In a sense, I am using their superior research teams and their capital to make outsized gains for my customers.

Other sectors and industries where this has worked terrifically are Retail, Energy and Technology. Remember, in the era of QE, money rarely leaves the market and goes to cash. It simply rotates to the next hot area.

What If the BIG Correction Comes?

This is the scenario that every investor fears the most, and none of us can predict. All we can do is play the odds. What I do is assign probabilities to potential outcomes. And right now, the correction scenario is gaining some traction, but it is still the least likely.

Among our 3 scenarios, I am currently at a 60% chance of #1 (Bull Charge Continues), a 25% chance of #2 (Big Sideways Range) and a 15% chance of #3 (BIG Correction). Even the largest asset manager on the planet, BlackRock, recently said that the market is “fairly valued.” But does this mean they are selling all of their stocks and advising their clients of the same?

Of course not. They are stock-pickers. They know they can outperform a frothy or fairly-valued market by picking the best growth opportunities.

But if a big correction does become more likely, it doesn’t mean you run for the hills either. The whales certainly aren’t doing that. After they sell some of their big winners, they are buying new stocks on the way down. And if you’ve ever experienced a several month correction or a bear market before, you know that they are full of violent 2-3% rallies where individual stocks can move 5-15%.

Bottom line: you want to be positioned for those rallies by getting into great stocks that the whales love – when they are on sale. All this requires is having a formula and the discipline to follow it.

My edge is not that I am the greatest stock picker in the world. But I know how to follow some of the best and overlay my own “margin of opportunity” parameters.

Good Investing,

Kevin Cook

Kevin, a Senior Stock Strategist at Zacks, is a recognized authority in global markets and noted for predicting and tracking the movement of smart money. He provides commentary and recommendations for the Zacks Follow the Money Trader.