Here’s What Would Turn Me Aggressively Bullish

We suggest investors continue to cautiously add exposure as
trade signals are generated, although a good volume strong break above the
resistance levels cited above could turn us more aggressively bullish.
Wait for more confirmation.

Since
March 2000 the world index is down over 45%, the S&P over 48%, the IBD
mutual fund index is down over 62%, and the Nasdaq has crashed over 76%.
Meanwhile since March 2000 the long/short strategy we summarize and
follow-up each week in this column has made more than 39% on a worst drawdown of
under 6%.
While this
performance is certainly underperforming our long-term growth rate, and it is
hardly thrilling to have been so heavily in cash since March of 2000, we have
managed to eke out gains with very low risk in a very dangerous market
environment where nine out of 10 traders have been big losers.

Our official model portfolio overall allocation remains
DEFENSIVE. We’re now 84%
in T-bills (short-sale cash included, three longs and one short at 8% each)
awaiting new opportunities, with four longs and one new short last week.
Our model portfolio followed up weekly in this column was up 41% in
1999, up 82% in 2000, up 16.5% in 2001, and up 7.58% in 2002, an average annual
gain of over 36% — all on a worst drawdown of around 12%.
We’re now
up 1.43% for the year 2003.

To our daily Top
RS/EPS New Highs list the entire rally from the 7/24 and then October lows
never even registered on the radar screen having mustered up just
ONE solid week
of consistent +20 or higher readings since 7/24, which is incredible.
Bottom RS/EPS New Lows have plummeted and we may be getting a strong bear
rally if the economy can prove it is recovering after war jitters are receding.

We had readings of 13, 19, 35, 51, and 46
in our Top RS/EPS New Highs list (could a full week over 20 be
approaching next week?!), accompanied by 8 breakouts of a 4+ week range, with no
valid trades and no real close calls. Bottom
RS/EPS New Lows last week showed low readings of
6, 4, 7, 8, and 2, accompanied by just 3 breakdowns of 4+ week patterns
with no close calls.

For those not
familiar with our long/short strategies, we suggest you review my book The
Hedge Fund Edge, my course “The Science of Trading,” my
video seminar, where I discuss many new techniques, and my latest
educational product, and interactive
training module. Basically, we have rigorous criteria for potential long
stocks that we call “up-fuel,” as well as rigorous criteria for
potential short stocks that we call “down-fuel.” Each day we review
the list of new highs on our “Top RS and EPS New High List”
published on TradingMarkets.com for breakouts of four-week or longer flags, or
of valid cup-and-handles of more than four weeks. Buy trades are taken only on
valid breakouts of stocks that also meet our up-fuel criteria.

Shorts are
similarly taken only in stocks meeting our down-fuel criteria that have valid
breakdowns of four-plus-week flags or cup and handles on the downside.
In the US market, continue to only buy or short stocks in leading or
lagging industries according to our group and sub-group new high and low lists.
We continue to buy new signals and sell short new short signals until our
portfolio is 100% long and 100% short (less aggressive investors stop at 50%
long and 50% short). In early March of 2000, we took half-profits on nearly all
positions and lightened up considerably as a sea change in the
new-economy/old-economy theme appeared to be upon us. We’ve been effectively
defensive ever since.

Upside breakouts meeting up-fuel criteria
(and still open
positions) so far this year are: Port Financial
(
PORT |
Quote |
Chart |
News |
PowerRating)  @40.99 (49.35)- LATE BREAKING NEWS
IS A TAKEOVER IN THIS STOCK VAULTING ITS PRICE TO 53.5 — now take profits
(we’ll record the move from 49.35 to 53.5 in next week’s profits FYI);

Garmin
(
GRMN |
Quote |
Chart |
News |
PowerRating)
@34.79 (38.89) now use 34.5 ops;

WebMD
(
STHLY |
Quote |
Chart |
News |
PowerRating)
@8.64 (8.38) w/ 7.8 ops; and Avid Technology
(
AVID |
Quote |
Chart |
News |
PowerRating)  @25.1 (25.69) w/ 21.25 ops.

Continue to watch our NH list and buy flags or cup-and-handle breakouts
in NH’s meeting our up-fuel criteria — we’ll continue to advise adding only
two stocks per week that are in clearly leading groups until we are more sure
the war news is real and the follow-through is more consistent.

On the short side this year, we’ve had breakdowns from
flags (one can use a down cup-and-handle here as well) in stocks meeting our
down-fuel criteria (and still open positions) in Brooks
Automation
(
BRKS |
Quote |
Chart |
News |
PowerRating)  @8.46 (8.11) w/
10.6 ops.

Continue to watch our NL
list daily and to short any stock meeting our down-fuel criteria (see interactive
training module) breaking down out of a downward flag or down
cup-and-handle that is in a leading group to the downside but only add up to two
in any week (and only in the weakest groups) until we get better breadth numbers
on the downside and better leadership.

Investors and traders should be tentatively shifting from
survival strategy to cautiously long-oriented.
The peace may have a few twists left and the real question is whether the
victory came in time to save the global economy from recession.
Watch and wait but load up on ammo for a potentially catchable bear
market rally that may dwarf any since 2000.
Let’s hope better times are just starting to materialize here.

Mark Boucher

P.S. Please note that this weekend, my interactive
training module is 20% off..