Things were going so well for Top 20 and The Analytical Trader that I didn't really realize that this was the worst month for the market since May 2012. After posting an all-time high of 1710 on 8/2, we closed near the lows of the month, which were 1627.5 roughly, for an almost 5% retracement. The previous pullback, the one where I really saw it coming, had a 7.5% peak-to-trough. As I look at the market, I continue to target 1740 for year-end, but I see a potential range of 1500-1800 over the balance of the year. In the near term, there is a confluence of support near 1600. First, it's a round number. Second, it was April resistance and, with a brief violation, acted as support during the summer. Third, it is the rising 150dma (1605). This is area is 2% below the current 1633. If we break 1600, then the lows of the the summer come into play. 1574 is an interesting area, and that might concide with the 200dma. If we bounce there and rally, people will be talking about a potential head-and-shoulders top formation developing (pay attention to that if so). Finally, 1541 is the Fib retracement from the May 2012 lows (the last real correction). It would also represent a 10% correction. Things look sloppy now, and if we break 1600, it likely points to a little more downside and will indicate that the 1710 top was the 2013 high. On the other hand, if we come out swinging hard next week and bounce, we might have enough to extend the rally to new highs. Hedge funds are sucking this year from what I read, and they might just pile on to boost performance.
REITs are getting clocked. I think interest-rate risk is not as big an issue as some fear - the economy is just not strong enough to force them a lot higher. There have been too many people chasing yield, and this is more technical than fundamental. My client owns a bunch of REITs and I pay very close attention even if I don't write a lot or discuss REITs that frequently. The secret is to be aware of REITs that look like bonds. These include those who sign long-term leases with little ability to raise prices. A good example is the triple-net lease companies, like O or NNN. Healthcare REITs can be in this camp too. At the other extreme are storage companies. What you want to do is focus less on yield and more on the growth - that's how to fight the rising rates. It's hard to get good data - these things trade at a multiple of adjusted funds from operations (AFFO), which is a free cash flow calculation, and not PE. I look at price to book or price to NAV too. There are some great buys now. You can research my client, Friedberg Investment Management, and their holdings - they own a lot of REITs. I have another client that invests too. As I look at some that I like right now, they would include BMR, SKT and ROIC. SBRA is a bit riskier but very attractive too.
Looking at stocks on the watchlist ( Download Watchlist083013 ), 79 out of 100 are below the 10dma, which is constructive in my view. There were no 10% movers in either direction this week. The stocks offering 35% or more to my one-year target added AVP, which has pulled back sharply this summer. I liked that one lower - not sure right now. Technically, it's getting close to the support 19-19.50. My target is based on 18 PE and assumes a big turnaround. I may be too aggressive. Again, this is a management change story that where I think the new CEO (Sheri McCoy, from JNJ) can improve things over time and win back the confidence of investors. The other names remained the same: BCEI (we have ROSE, but BCEI could be marginally better - great story), ANV (playing with fire), IRG (getting interesting), and URI (like it a lot - almost added last week vs. selling PBI).
Oversold names include IRG, MAT (which I will likely add back to CG/B), FL, SWI, ANV, ISRG, CAG, MSM, CPRT, TITN, HAYN, RAVN, INGR and CHS. On my "prospects", a few that jump out are MO, AEO, XEL, AGN, BMR, BRJI and RTIX (which I wrote up on SA and could be interesting). Black 1s number 17, which is down slightly but still way too high. The good news is that several are close to turning into 2s.
Not much going on with respect to names in the models - here is the spreadsheet ( Download Positionwatch083013 ). TITN reports on Thursday - very cheap and oversold, but I have low confidence. Besides MAT, I am watching JNJ and STJ for addition to the CG/B potentially.
