Blog Round-Up Day

If anyone out there remembers the original Mickey Mouse Club (the one with Annette in it), you might recall that every day of the week had a different theme. Monday was “Fun with Music Day” (my least favorite), Tuesday was “Guest Star Day”, Wednesday was “Anything Can Happen Day” (my fave), Thursday was “Circus Day”, and Friday was “Talent Round-Up Day.” Following that theme, I thought we'd do a follow-up on several of my previous blogs, namely the earnings news strategy, the royalty trusts, and the retailers.

But before we begin, I want to comment briefly on the current market ugliness. If you still don't think we're in a recession, the fact that all of the major indices just broke major support should confirm it. Even the all-important Dow Transport Index, a leading indicator of over-all market direction, broke down. The volatility index (VIX) gapped up continuing it's pattern of higher lows. What's a worried investor to do? If you still have long positions, lighten up your holdings and tighten up your stops 'cause we're in for a bumpy ride at least until the indices test the next resistance level (1235 on the S&P). If you're squeamish about shorting stocks, at least find out about contra-ETFs. They offer downside protection without having to open up a margin account. [Note to self: Do a blog on contra-ETFs.]

Royalty Trust Update (see Feb. 19 blog)
Wow, have these guys been performing! My favorite pick at the time, Permian Basin (PBT), has been the clear winner, up 19%. My second fave, BP Prudhoe (BPT), is up 11%. Jim Cramer picked up on these stocks on March 5th. He likes the ones I mentioned along with Hugoton (HGT) which has also been an advancing juggernaut. Of the others I mentioned, SBR and CRT are threatening to break overhead resistance as we speak. Williams Coal (WTU), the dog of the group back then, is now turning into a leader and is threatening to break-out. (Who knew?) As long as oil and energy do well, so will these. Remember too that the beauty of these trusts are that they pay generous dividends (8-13% dividend yield) and make great assets to any tax-sheltered accounts. (Disclaimer: One of my funds owns PBT.)

Retail Stocks (see Feb. 13 blog)
Higher consumer prices and lower consumer confidence has shoppers shying away from apparel and moving into the lower-end retailers. Although Wal-Mart just announced a dividend increase and reaffirmed guidance, the stock remains range-bound. Today, it's looking like it might be heading lower along with the other best-of-breeds, Urban Outfitters, Buckle, Aeropostale, and Gymboree. I can't find one chart in this group that looks compelling. The best course of action is to wait until the economy shows signs of turning around before jumping in.

Earnings News Portfolios (see Feb. 28 blog)
Last week I outlined a strategy for playing companies just after their earnings are released. I created two mock portfolios each consisting of five stocks; the long portfolio was made up of companies that blew away their earnings estimates, and the other was a short portfolio of those whose earnings came in worse than expected. Since these were short-term plays, I closed out both portfolios yesterday for a total return of -2% on the longs and +22% on the shorts. (I have my portfolio manager set-up to sell when a stock hits a 10% loss, so that I sold HURC and CTRP in the long portfolio a few days ago.)

Does this mean that my criteria for entering the long positions were invalid? No, it absolutely does not. What it does mean is that even good stocks that have just reported great news cannot fight the overall trend of their sectors and of the market in general. If any one of the stocks had been in a rising sector such as materials, metals, or energy, no doubt they would have done well. I do think that this strategy is a good one, good enough in fact to qualify for its own recipe in the Stock Market Cook Book, but with the added caveat that one only plays it according to the overall trend of the market, i.e. only go long in up markets and short in down markets-- a good rule of thumb in general.

Enjoy your weekend!