So go ahead; grab your bell bottoms and your tie-dye t-shirts, and then dig up those vinyl recordings of The Band, Crosby, Stills, and Nash (Young came later), The Grateful Dead, Janis Joplin, Santana, The Rolling Stones, Jimi Hendrix, and The Who, because we're betting that what was old is about to be new again.
I started in this business in the spring of 1980, just about 8 months after Business Week's now legendary cover story had been run entitled "The Death of Equities." The point to the article was that inflation was destroying the stock market. And after nearly a decade of stocks having gone nowhere, investors had given up.
The now famous article was actually prompted by a ruling on July 23, 1979 that allowed for a more liberal interpretation of the Labor Department's "prudent investment rule" that, up until that point, had restricted pension managers from investing in anything outside of listed stocks and high grade bonds. However, the new rule afforded pension funds the opportunity to expand their investment horizons into small company top stocks to buy, real estate, commodities, and even gold and diamonds.
According to the article, "The Labor Dept. ruling is just one more in a nearly endless string of unhealthy things that have happened to the stock market over the past decade." Hence, this was the intended reference for the issue's title, "The Death of Equities."
While no one is talking about equities going away as an investment alternative at the present time (on the contrary, equities are being issued at a record pace in the banking sector), it is worth noting the similarities to the present market to what we saw during the 1968 - 1982 period.
Our guess is that most stock market investors and mutual fund owners still have a pretty good overall feeling about the concept of investing in stocks. After all, the 90's were a pretty darn good time to have money in the market. However, since the turn of the century, it's been a different story.
As we've noted a time or three, for the ten years ending 12/31/2008, the Lipper Large Cap Growth Fund Index sported a total return for the period of -34.27%. And in case this number doesn't make things perfectly clear, anyone deciding to invest money into a growth fund at the beginning of 1999 (which wasn't a bad first year) is looking at an account that, as of Friday's close, still needs to gain about 33% or so in order to return to where it began.
And if you were unlucky enough to jump into the then roaring market in the summer or fall of 1999, well, all we can say is, "ouch."
Which brings us to the reference to the 1970's. The period of 1968 through August of 1982 was the last time we experienced a secular bear market. While my trusty chart from eSignal only goes back to early 1970, one glance at the graph below illustrates the fact that the DJIA effectively went nowhere for a very long period of time.
The Dow - 1970 - 1980 
As a card carrying member of the glass-is-half-full club, it would be all too easy to suggest that in light of the fact that the market has gone nowhere now for the past 11 years, top stocks of 2010 ought to be ready to begin a new secular bull market; where we could expect to see many years of double digit gains or better ahead.
Unfortunately though, this is not the case. While I fully recognize that I'm repeating myself here, it is important to understand that what currently ails the market as well as the economy, is not likely to be rectified in short order. This isn't an emerging market meltdown or a stock market crash driven by computers gone wild. No, there are factors at work here that are likely to stick around a while and/or take time to remedy.
For example, the debt in the system has reached outrageous proportions and unfortunately continues to grow daily as the government has decided that the best way to get out of a debt debacle is with more debt.
Politics aside though, the key point is that a great many Americans have a debt load from their mortgages, overspending, etc., that is likely to crimp their spending habits for some time to come. Couple this with corporate America being put on a debt diet and a more cautious stance in general by both consumers and CEO's alike and well, the good times aren't likely to roll any time soon.
While we recognize that this isn't exactly cheery stuff, let's get back to the task at hand - managing the market. The trick to making money over the long-term in any market is to deal with the market you have instead of the one you want or worse yet, the one you hope for.
The point is that there are always ways to make money in the markets - as long as you can understand and identify the type of market you are dealing with. So, given that we've got a "mini bull" market happening within the context of secular bear market, let's get to it.
If we look back to the 1974 - 1975 period, which is eerily similar to what we've got on our hands now on many fronts, we can see that stocks bottomed and then embarked on a monster rally, which took the Dow up something like 74% over a period of about a year and a half. So, if history is to repeat, we've got some upside left in this "mini bull" yet.
However, there are a couple things to remember. First, Wall Street tends to overshoot in both directions. And after overshooting to the downside in March 2009, it is a fairly safe bet that we will overshoot to the upside if the economy starts to show actual signs of recovery.
Which brings us to our second point - the rally into 1975 ushered in the next bear market, which shaved a quick 25% off the DJIA. Thus, if you are not prepared to play some defense, you will wind up negating the fun in the sun from the current "mini bull."
So, while we do NOT expect history to repeat, we DO expect to see a similar trend from a big picture standpoint. Thus, it makes sense to take a more active role in your investing than most have done in the past. But if you disagree and decide to continue to simply "buy and hold" those plain vanilla stock funds that everyone loved in the 1990's, well, at least you've been warned.
(CHU)
Date Purchased: June 25
Price: $13.46
Active Trader Stop: $12.79
Trade Strategy:
While most everyone in this country is focused on the economic indicators of the U.S., we continue to believe that China will lead the world out of the global recession. And with the Chinese wireless telecom sector growing like a weed this is one of our favorite areas in which to trade. So, with China Unicom having pulled back 15% during recent market correction, we felt the stock was due for a bounce. Thus, we waited for the pullback to run its course and then bought into the rebound.
PG (Procter & Gamble Company)
Company Profile
Our Success Trading Group members scored another winning trade this week when we closed out a position in Procter & Gamble Company (Ticker:PG) in a quick two-day trade. We have several stocks on our radar and are looking forward to trading next week.
NFLX (Netflix--$40.37; -0.74; optionable): Mail order DVD's
Company Profile
After Hours: $40.38
EARNINGS: 04/23/2009
STATUS: Double bottom w/handle. Good move Thursday, high volume Friday on the rebalancing, but NFLX faded to the 50 day EMA (40.30) on the close. Nice setup for a bounce starting next week. To recap: Okay so there are some positive patterns out there. NFLX sold off in early May after its April all-time high. It bounced at the February and March consolidation range, faded into last week, then bounced off that same support again. Rallied through Friday on some solid upside volume, reversed intraday, and continued coming back Monday. Unlike many top stocks to buy, however, volume was lower and NFLX bounced up off the 10 and 18 day EMA hit on the low (39.55) to close above the 50 day EMA. After a strong November to April run it needed to base out again, and it has done so. This test is giving us a solid upside opportunity. This is a very solid recession play: people entertain themselves more at home in these tough times. NFLX fills that niche nicely.
Volume: 6.923M Avg Volume: 1.903M
BUY POINT: $41.38 Volume=2.9M Target=$49.95 Stop=$38.48
POSITION: QNQ IH - Sept. $40c (57 delta) &/or Stock
NCS (NCI Building Systems, Inc.)
Company Profile
This one is coming off a level of support and experienced a big percentage move on well above average volume on Friday. That kind of action suggests the stock is worth watching for a possible bullish entry.
MR (Mindray Medical International)
Company Profile
No doubt the market is in a transition phase, consolidating as it tries to hold its gains and avoid a deeper test by SP500. As a market shifts gears the old leaders sometimes get tossed (this time energy and most commodities) while money finds other areas (this time Chinese stocks and healthcare). So, we look for upside plays in sectors that are getting money pushed their way and are in good patterns; they often go together.
MR has several things going its way. It is a China stock. It is a healthcare stock (medical instruments), and it is in a great technical pattern. We saw it setting up and make a nice break higher on 6-12-09. When the market is in transition we tend to avoid buying on the breakout, instead waiting for a successful test. The reason: a test shows us that the buyers are still interested in the stock even after an initial break higher. So we put the stock on the report on 6-17 as it came back to test the break higher, holding over near support at the 10 day EMA.
It tapped the 10 day EMA on 6-18 and closed positive. We could have entered that day into the close as it was holding its gains. We entered the next morning as it continued higher, buying some stock at $26.53 and some October $25 strike call options at $4.20, looking to play a nice break higher through resistance at 25ish for a run up to some resistance at 31 as an initial target, but really looking at 34 to 35 where the more serious resistance is.
That was a Friday and we usually do not buy on Friday. Given MR straddled two hotter sectors, its strong volume breakout, and its very nice orderly test, we went ahead and bought. Then on Monday it flopped back to the 10 day EMA, reminding us why we don't usually buy on Friday! It held at the 10 day EMA near support, however, and volume remained low, so there was no panic. Good breakout, nice test, good stock, good sectors; so we let it work for us as no swing lows or other support was violated. It rebounded some on Tuesday and Wednesday, then got back to the breakout business on Thursday, posting a $1.14 gain or 4.38%. That put it at a new high on the breakout move. Friday it surged $2.09 or 7.7% and on some strong volume. Of course the Friday volume is all a throwaway given the Russell rebalance, but MR is moving well, and another good push gets us up to our initial target where we will take some partial profits and then let MR continue to work for us on up toward that next target. That is where you make the real money on your swing trades. The partial profit pays for the trade & takes the mental pressure off and allows you to let a good play run to its full extent. That way you don't have to win on every trade you make but still make very good money in the market.
YGE (Yingli Green Energy Holding Co. Ltd.)
Company Profile
YGE has been moving relatively steadily in an uptrend. As of Friday, the Jul 12.50 puts were trading in the 70 to 80 cent range. Consideration might be given to a naked put sale as the extended trend line might suggest that the stock price could stay above the 12.50 mark through July expiration.
CPA - Copa Holdings SA is currently trading at $40.18. The July $40.00 Calls (CPAGH) are trading at $1.95. That provides a return of about 5% if CPA is above $40.00 on expiration Friday in July.
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