I Still Like These 8 Close Calls

While
the world index and many global bourses are making new highs
, many
top themes have corrected a bit while other newer themes are coming to the
fore. Themes we like for the intermediate term that are at or close to new highs
are: Hong Kong and Taiwan, Asia Region, US and Global small cap value, Real
Estate and mortgage funding, Spain (Europe indexes playing catchup), Small-Cap
Japan, Telecoms, and Industrials.

Correcting themes we still like include mining shares, gold and silver, base
metals, broad Emerging Markets, Chile, Foreign currencies (favorites for the
year are Canadian dollar and Singapore dollar), South Africa, Brazil, India,
Thailand, Red Chips, and Natural Gas. We especially like FCX preferred D (silver
convertible) on corrections, as well as the new Gold ishare GBS.LN traded in
London, CAD, Thailand (Aberdeen New Thai fund in London is not yet trading at a
premium), India (JPM Fleming India out of London is also not trading at a
premium), and high yield Natural Gas and oil plays.

 



More conservative higher yield
themes for the steadier parts of a portfolio we like are high-yield timber,
water, virtual banks,
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and
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only purchased not at a premium,
shorting
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between here and 90, CAD and Sing dollar deposits, and
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.

 

^next^

 


Our US long/short model remains heavily on the sidelines and we continue to
suggest investor fortify portfolios with the above global themes until this
model picks up more allocation. Investors should continue to cautiously add
stock exposure as trade signals are generated that meet our strict criteria, as
well as allocate to our favorite segments. Our model portfolio followed in
TradingMarkets.com with specific entry/exit/ops levels from 1999 through May of
2003 was up 41% in 1999, 82% in 2000, 16.5% in 2001, 7.58% in 2002, and we
stopped specific recommendations up around 5% in May 2003 (strict following of
our US only methodologies should have had portfolios up 17% for the year 2003) —
all on worst drawdown of under 7%. This did not include our foreign stock
recommendations that had spectacular performance in 2003.



This week in our Top RS/EPS New Highs list published on TradingMarkets.com, we
had readings of 57, 67, 112, and 61, accompanied by 18 breakouts of 4+ week
ranges, with no valid trades and close calls in
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and
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,
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.
Internal strength has come back SOME, but still remains slightly
suspicious. Position in valid 4 week trading range breakouts on stocks meeting
our criteria or in close calls that are in clearly leading industries, in a
diversified fashion. This week, our bottom RS/EPS New Lows remained
non-existent with readings of 0, 0, 1, and 0, with no breakdowns of 4+ week
ranges, no valid trades and no close calls. Therefore so far we don’t see
internal evidence of a serious correction, nor do we see good internal evidence
that a new broad-based upthrust is in the making.




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, the


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 U.S. 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 long 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 of change in the
new-economy/old-economy theme appeared to be upon us. We’ve been effectively
defensive ever since.


On the long side, we like the close calls from this week,
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,
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and
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, and recent close calls from past weeks,
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,
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,
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, and
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. We would wait for further corrections and some
recovery before buying more mining shares, resource plays, or Emerging Markets,
though these remain some of our favorite themes. On the short side, we like the
close call from several weeks ago,
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.


Mark Boucher