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All,
I was stopped out of CELL, EGGS, and MLT early this week so I'm
back to about over a 70% cash position. That left me with only BAR,
SCH, and SORC stock positions and LEAP calls on CPQ. The good news
was that with the large cash cushion, my portfolio didn't change much
with the market dropping.
Looking at my indices, all are still in steep short term down
channels, but the DJIA and the OEX are close to the bottom of their
Intermediate Term Up Trend Channels (ITUTCs). On the other hand, The
broader indices have a good ways to go before they get to the bottom
of their ITUTCs. As I said last week, I really think the intermediate
term channels will hold. If they do, that means we can expect an
upturn in the nifty fifty, large cap market leaders this week. I'm
going to start to go back into the market, but slowly this time <G>.
I'll just enter one position per week until I'm sure the correction is
over. I'll start with the more defensive large cap market leaders. I
narrowed this week's list to HD, TRV, and WMT. I decided that TRV's
chart looked better for an entry this week so this weeks pick will be
Travelers Group (TRV). Sandy Wiel has built the industry leader in
Financial Services with TRV and it will be a true powerhouse when the
merger with Citigroup is completed. I'd like to hold this one as a
long term core holding and will therefore set my stops on the ITUTC
and will use the short term channel, when formed, as an indicator of
when to sell covered call positions.
TRV at 67 1/4 is in an ITUTC with the top at 86 1/8 and the
bottom at 64 1/4. It got near the bottom of the ITUTC Monday and
Tuesday, but then turned up and broke out of its Short Term Down Trend
Channel Thursday. There isn't enough up days to establish a good
Short Term Up Trend Channel (STUTC) yet and it may well test the
bottom of the ITUTC again this week, but this is close enough for a
good reward/risk ratio and is a good entry point. TRV has been in a
strong up trend and one of the best investments on wall street for the
last four years. It reached an all time high of 73.875 on 4/6/98 on
the announcement of its merger with Citigroup. It fell back from
there, moved sideways, rose, then fell a little again in a classic
CANSLIM type cup and handle formation as the market digested the
merger news. I'm expecting an up move and a breakout of the cup and
handle from here, although it may well test the bottom of the channel
again first. The fundamentals are good with the Price/Sales at 1.68,
ROE at 22%, Debt/Equity at 2.37, and around 10% revenue and 30%
earnings growth the last quarter. The only thing I don't like is the
low 3% insider ownership. Of course the real test will be cost
savings and growth after the merger and we will have to wait and see
on that one. I'll take a long position on Monday's open. I'll set my
initial target just under the top of the ITUTC at 86 and my stop just
under the bottom of the ITUTC at 63 3/4.
Jim
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