May 2010 Newsletter

The Market:

The market, as measured by the S&P, has continued to creep upward through the month of April on limited volume. It hasn't reacted dramatically to either good news or bad news, which may in part be due to there being a great deal of money on the side lines with large investors waiting for some clarity from Washington and for the tide to turn; and, it may be that fear is beginning to rise again.

The chart below is for the VIX - CBOE Volatility Index and is often used to measure investor fear.

The VIX is calculated using put and call numbers for the S&P 500 companies. A reading of over 30 represents a high level of fear. A reading of less than 20 DOESN'T mean there's no fear, just enough less of it to be important. As we see the level of fear has been rising since mid April, and that probably means a pull back now with a rising market in the not too distant future.

PWA

The PWA 500 Timer spent the entire month of April in sell bands presenting an extended selling opportunity. The S&P price line first entered a sell zone on March 10 at 1140 and has since moved between the orange and dark red sell bands. The first MACD convergence was on April 23 with the price at 1217; which, as it turns out, was the rally peak.

Because the Online Analyzer default moving average setting differs from the Timer, the S&P chart picture was a little different. On March 24 the MACD first began to converge and presented us with a selling opportunity at 1168. However, the trend was steep at that point and we would elect to ignore that indicator and wait until the trend eased a little. On April 21 the MACD began converging again with the price at 1205 giving us a better selling opportunity that was a little early given that the rally peak occurred a couple of days later at 1217. We were close, with the difference being less than one percent.

In the last ten days we have seen our buy/sell band ratios change from a selling band majority to a 28 to 8 buying majority. So it may well be that the pull back we have been expecting has begun.

Stars and Dogs of April:

From among the 70 plus stocks we follow April saw some sterling performance stars and some dismal performing dogs: The stars soared (and we like that) but gravity must eventually bring them to earth in the future. The dogs, be they ever so humble now, may well become future stars.

Stars:

• MGM (beta #4.37) wins the "Oscar" rising from 12.04 to 16.64, a 38% improvement.
• TRN (beta #2.59) became the runner up with a 30% gain.
• AKAM (beta #0.97) moved from 31.41 to 39.76 for a 26% jump.

Dogs:

• The Big Dog was RIG (beta #0.68), earning that title with a 27% drop in value in one month.
• The Puppies were Goldman Sachs, down 21%, and Google, down 15%.

Keep an eye on the puppies, because puppies have been known to grow.

Recession Watch:

Unemployment, job creation, and consumer spending numbers continue to be dismal. Banks are not lending which puts small businesses in a position where they can't expand or hire new employees, and it is in small businesses where most new jobs are created.

The U. S. economy is in large measure a consumer based one and if people can't find work, consumer spending isn't going to happen at a healthy level any time soon.

Home sales have shown mild improvement overall with some differences by region, but then foreclosures haven't decreased significantly; so that's pretty much a wash.

The trucking industry (a leading indicator) continues to recover though not yet to pre -crash levels.

As most people have said all along, this recovery will be a "U" shaped rather than a "V" shaped one. We'll get there but it will take a while for economic activity to gather momentum.

Here's a bit of interesting information that people might be happy about or less pleased to see, depending on which side of the Labor/Management fence he or she favors.

Earnings, Unions and Non-Unions	Union	Non-Union	Union Average
Service Occupations	$691	$440	57.0%
Sales and Office Occupations	741	603	22.9%
Natural Resources, Construction, and Matinance	990	647	53.0%
Production and Transportation	777	560	38.8%
Professional	1,018	973	4.6%

From one perspective Union pay being 40% or so higher than non-union pay for the same work is a fine thing for the workers, but makes it harder for medium to large companies to compete on the world stage. From another view, the ability of smaller non-union shops to compete is improved.

Currently Unions have a powerful seat at the Administration dinning table, and my hope would be that their demands do not make it harder for U. S. business to be competitive.

Opinion:

I'm bothered by Congress and the Administration putting in place legislation that will have a strong negative impact on the discretionary money available to families and business. They may not be "killing the goose that laid the golden egg" but they're making it harder for the goose to do her job.

The role of the Federal government needs to be to set the environment for business to prosper and where fair business practices prevail because everything government does must be paid for, and the only money generating engine we have is business.

Other PWA News:

A few of the improvements we've added to the ITS service are the ability to compare companies using the "compare" button in the chart control to bar. As more company stocks enter the buy bands, you may want to use this feature to decide which stocks you want to use for the next rally.

There is also a "stop-loss" line available for any of the charts that you can use to limit loses should the market turn against you after you make a buy. The same feature can be used as a "trailing stop" as your stock rises to serve as a sort of "last ditch" alert to lock in profits.

We now have one half hour price change feeds for all the charts, and we are working on getting the news feed for each stock to work properly, so bear with us a bit on the last one.

Lastly, I want to remind you that your charts are accessible from hand held devices such as the newer Blackberry and the iPhone.

Final Word:

Warren Buffet once said your only defense against recession is your ability to generate income. I think that it is also true that your only defense against inflation (coming soon) is your ability to generate income.

Arley Loeffler, CEO
Investment Timing Software, LLC
arley@itspage.com