Game On!

Mon Jan 3, 2011 5:28pm EST 2

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MARKET WRAP UP 01/03/11

Stocks came flying out of the gate to start 2011, as the S&P 500 screamed to 1276 within the first few hours of trading, before some late day profit-taking closed the key index up 1.13% to 1271. Clearly, the lethargic action to close out December was nowhere to be found today. While some market players seem eager to call a top and are nervous about “chasing,” there are, indeed, many stocks that are breaking out of healthy technical bases and are far from extended. We have about a week before another earnings season officially kicks off, so perhaps we will see a run up until then. Either way, the trend remains higher, while fighting it has been–and continues to be–a losing strategy.

Internally, the financials continue to impress as they emerge as one of the new leaders of this market. Instead of seeing a deep market correction when it is time for the senior indices to take a rest, another possibility may be a sector rotation, with money coming out of the retail/consumer discretionary space and into financials. Moreover, the transportation and small cap stocks–two excellent leading indicators for the broad market–are sporting bullish charts that have only now started to clear their respective consolidation patterns. No uptrend lasts forever, but this one has illustrated its staying power time and time again. Indeed, it has earned my respect and should have yours as well.

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Comments »

Long-Term Portfolio Ideas

Sun Jan 2, 2011 12:35am EST 14

(Value Investing Legend Walter Schloss Digesting Some Tasty Applesauce)

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I don’t talk much about long-term investing, but I do manage longer-term investments (holding period of at least 12-18 months) for members of my family. I look for great, reliable firms that usually pay a handsome dividend. Regarding stop losses, I have price levels in mind where I am willing to admit my thesis is wrong, but they vary greatly and are much wider than in names I trade (a topic for another post–not within the scope of this post for discussion).

I also believe that you would be remiss not to conduct some form of technical analysis before allocating capital into any position. Shunning price action because you are a fundamentalist and/or you think “the market is stupid,” is akin to going to college to study creative writing and refusing to study and flunking your required Chemistry class because you say, “I’m not a scientist.” In other words, it is pure ignorance. A little bit of due diligence looking for a relatively healthy chart–even for a value investment–will go a long way. As an example, consider that PG went from $75 down to $43 during the 2008-2009 bear market. Thus, blindly buying and holding, even quality firms, is textbook laziness.

As a bull market matures, there will be inevitable rotations. Eventually, the large cap, “safe” stocks see inflows just as the market starts to realize that perhaps CMG won’t be overtaking XOM‘s market capitalization anytime soon. That process could take anywhere from a few months to a few years. Regardless, it will happen; Hence, the phrase “long-term investment.” Below, you will see five investing ideas of firms that are defensive in nature. I believe all five are in good shape technically, and will still be conducting business at least five decades from now. If you are looking for entry points for your long-term portfolios, I hope these ideas help.

(Disclosure: I have bought all five of these issues listed below for members of my family)

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