The Sabrient Blog

DARK HORSE HEDGE – Shorting Suntrust & BooKS

By Scott Brown at Sabrient & Ilene at Phil’s Stock World

The markets appeared to like the calendar change from August to September today as all three major indexes close with +2.5% gains.  The S&P 500 closed the day at 1080, almost exactly on the 50 day MA.  This provides a good opportunity for DHH to replace a couple of SHORT positions that were closed to take profits while the market battled the support line at 1040.

We are going to go another round with Suntrust Bank (STI) which already provided us with a +11.2% profit the first time around.  STI closed up 5% today at $23.65, earning it a spot on the SHORT list again.  Joining STI is bricks and mortar book seller, Barnes & Noble, Inc. (BKS), which closed today at $15.63, up +3.24%, after reporting a wider loss in the second quarter.  We are not sure what there is to like about widening losses. Ranking at #9 on the bottom of the Sabrient Outlook rankings provides plenty of reason to recommend adding BKS as a SHORT.

SELL SHORT STI – Again – Thursday, September 2, 2010 at the open.

SELL SHORT BKS – Thursday, September 2, 2010 at the open.

These additions to the DHH virtual portfolio establish the tilt SHORT called for when the S&P 500 trades below both the 50 and 200 day moving averages.

Chart by FreeStockCharts.com

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Bulls put up a valiant offensive in the last 20 minutes of trading on Tuesday to push the Dow Jones Industrial Average (DJX) back above the 10,000 level as the month of August came to a close. For the last six days of August, bears either succeeded or gamely tried to penetrate this psychologically important level intraday only to be repelled by the bulls. And then of course today (Wednesday) the market gapped up strongly and stayed strong all day.

In this low-volume trading environment, the bulls have been able to hold support, and today saw a combination of speculating, bottom-fishing, and short-covering such that almost every component of the S&P 500 finished positive on the day. When volume returns over the next week or so, it will be harder to defend. Plus, the technical picture is still not pretty in my eyes.

The bear flag that I described in my blog post on Sunday night (“Where to Next? Technical Analysis of the SPY Chart” http://www.sabrient.com/blog/?p=2048) was confirmed on Monday when the support line gave way. Yesterday, about the only positive aspect in the charts was the possibility of double-bottom support for the major indices, e.g., SPY (105), DIA (100), QQQQ (43), and IWM (59), and that was what happened, with each index now attempting to overtake its 50-day moving average once again. The SPY is now back up to the resistance line of that bear flag pattern. Read more…

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Housing-keeping note: Thanks to Wordpress’s destruction of Phil’s Favorites site (and replacement with an invite to sign up for its service!), I’ve been relocating my blog to TypePad.  Benefits: it looks better, is very user friendly and offers an easy way to search archives for any topic. One unique feature is that while exploring the internet, I can simply click on a button to post an excerpt of an interesting article with a link to the full article. That ability allows me to post links to articles that are worth reading when I do not have reprinting permission, such as articles from major news sources.

The new Favorites site is here. I’ve also created a website for Dark Horse Hedge, here. - Ilene

DARK HORSE HEDGE – Any Way the Wind Blows, Doesn’t Really Matter

By Scott Brown at Sabrient & Ilene at Phil’s Stock World

Is this the real life?
Is this just fantasy?
Caught in a landslide
No escape from reality
Open your eyes
Look up to the skies and see
I’m just a poor boy (Poor boy)
I need no sympathy
Because I’m easy come, easy go
Little high, little low
Any way the wind blows
Doesn’t really matter to me, to me

- Queen, Bohemian Rhapsody

*****

Ilene and I started the Dark Horse Hedge on July 1, 2010 with the goal of helping self-directed investors weather any storm, no matter which way the wind was blowing.  Today completes the second month of publishing the Dark Horse Hedge and we thought it would be a good time to review.

The principle theme we follow is simple: Make money in ANY market.

Read more…

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One of our readers sent in the following link to discuss: 3 Stocks Poised for Dividend Growth. The article starts with a few pertinent facts that relate to Sabrient’s principle guidelines in establishing the RSY virtual portfolio.

Large-cap stocks yield as much current income today as Treasury bonds.   The Dow Jones Industrial Average (DJIA), which tracks shares of 30 household names like McDonald’s (MCD~) and Caterpillar (CAT~), has a dividend yield of 2.8%.   The 10-year U.S. Treasury bond yields just under 2.7%.   A typical five-year bond issued by a company of good-not-great creditworthiness yields about 2.8%.

Many investors have taken this unusual condition to mean that bonds are overpriced, or that stocks are a good deal, or both. In recent weeks, I’ve highlighted plenty of stocks with secure yields of 3%+. However, investors shouldn’t necessarily avoid companies with modest yields.

To achieve the RSY portfolio goal of 5-6% yields, we will likely include 2-3% dividend yield stocks and  balance that with higher yielding stocks. It certainly is true that many investment choices now currently yield very low rates of return like US Treasuries but the decision on what is overpriced is of little concern to us here.   We consider equities as the surest way to long term wealth growth.   The RSY portfolio is designed to out perform fixed income portfolios,  especially in the low interest rate envioronment  we have now.
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The low-volume “dog days of summer” have been anything but uneventful. Rather than a sleeping dog, this summer has been more like a rabid dog—gyrating wildly and scaring the heck out of everyone in its path.

Last week was no different. About the only thing good we can say about it is that the rally on Friday recaptured most, but not all, of the week’s losses. The week ended with three of the four major indexes down: the S&P 500 (-0.7%), the Dow, (-0.6%), and the Nasdaq (-1.2%). Only the Russell 2000 was up, +1.0%.

Despite Friday’s rally, the week was replete with bad news, especially on the housing front. Existing home sales fell dramatically, more than 27%, and new home sales declined to 276,000 versus a predicted 334,000. (The consensus writers might want to sharpen their pencils.) The rally was even more bizarre when you consider that the second quarter GDP was revised downward a full 33%—from 2.4% to 1.6%. Apparently, the market was peering under every rock for signs of encouragement and chose to compare the 1.6% number with the 1.4% that some had expected.  But it’s hard to find joy in a stock rally based on a negative reality.
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It certainly was a good day for the bears and not so good for long portfolios. We are currently looking to add more to our portfolio but given this climate then caution might be the best move for the moment. Portfolio as it looks now:

For larger, clearer image click on picture.
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10,000 Reasons to Hedge Your Bets

by Daniel Sckolnik of ETF Periscope

“Do not go where the path may lead, go instead where there is no path and leave a trail.”  ~ Ralph Waldo Emerson

Though it’s not quite officially over, for all practical purposes it’s time to say goodbye to the dog days of summer.

The markets spent the last few months surfing its own volatility wave, yet ending up pretty much where it started. The numbers speak for themselves. The Dow Jones Industrial Average (DJIA) started June 1 at 10,133. It ended Friday at 10,150. At the same time, the benchmark S&P 500 Index opened the start of June at 1087, closed Friday at 1064.  Oil? Using the ETF USO as a proxy, its June 1 opening was 33.65. Now? 33.57. What about gold? Using the ETF GLD for a proxy, we see it opened June 1 at 120. It closed Friday at 121, indicating a total $10 swing in the precious metal over the same time period.

So, the markets have effectively been in Sideways City all summer long. But now, with the return of all the big-money players from vacation frolics and the accompanying increase in trading volume, it’s time to get serious.

September is close enough on the horizon to taste, and both the Bulls and the Bears are positioning themselves in preparation for their respective expectations. It’s time for what might just turn out to be the main event of the year: The Battle for Dow 10,000. Read more…

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Last week provided the start of another leg down in what has been an unpredictable stock market, and the market now appears to be in the midst of forming another bear flag. Since rolling over and selling off strongly in late April, the market has demonstrated all sorts of conflicting formations that have confounded trend traders and investors.

That’s why at Sabrient we prefer an absolute return long/short approach that is indifferent to market direction, relying upon our fundamentals-based quant models to create relative rankings among stocks for identifying the best longs and shorts for a given portfolio, no matter what direction the market takes. Nevertheless, for long-only traders or those who use our quant rankings to create watch lists for swing trades based on technical entries and exits, an indication of where the charts are indicating the overall stock market might be headed can be helpful.

So, as we enter the final week of summer, I’d like to review the various chart patterns that we’ve seen since the market peaked in mid-April, and take a stab at where the charts are telling us the market might go from here. I’ll focus on the widely traded SPDR Trust exchange-traded fund (SPY), which tracks the broad S&P 500 Index. Read more…

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Throttle It Thursday – CNBC and the Rally Killers

By Phil of Phil’s Stock World

Once again, CNBC pulls out the big guns!

No sooner does the market begin to show signs of life than our favorite financial networks goes to the bench and pulls out interviews with both Dr. Doom, Nouriel Roubini (7:30) and Mr. Gloom, Mohammed El-Erian(8:30) to tell us how awful everything really is – no matter what we may dare to think.

I’m not generally for censorship but, in CNBC’s case, I think it’s tme we make an exception.  At least make them stop pretending to be a news station and make them come out of every break disclosing the fact that their parent company, GE, not only benefits from a poor economy that forces the Government to maintain low-interest rates and offer them bailouts, but that they (GE) are also the nation’s largest abuser user of “uncertain tax positions,” with $8.7Bn of questionable deductions.

Raise taxes?!?  Are you joking?

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DARK HORSE HEDGE – Don’t let the sun (profits) go down

By Scott at Sabrient and Ilene at Phil’s Stock World

Recovery in danger as firms, homebuyers cut back – AP

Not exactly the kind of headline that anyone wants to wake up to, but if you simply change a few words, it is as if we have slipped into the movie Groundhog Day. Each day’s gloomy headline is much like the day before’s, with a few words changed. Fortunately, DHH began with the premise that how news is going to be headlined and short-term market moves have proven over time to be nearly impossible to predict with any consistency.

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