New Year Kicks Off With Impressive Gains

[Excerpted from Bill Cara's Week in Review]

The first week of the year includes many impressive gains. Among the DJIA components, all 30 were up this week, and all ten sectors were up as well. That happened exactly four weeks ago too, but the index levels have not changed much in the interim.

However, the psychology definitely has. At this point, traders are more confident. I expect to see trading volumes increase across the board now, rather than just in Oil (USO) and Treasury Bonds (TLT and the inverse TBT).

In preparing for a stronger equity market in 2009, I made three changes in the Cara Global Best 100 companies list.
http://caracommunity.com/content/changes-cara-global-100-list-jan-3-2009

I removed two integrated energy companies, Norway’s StatoilHydro (STO) and France’s TOTAL (TOT) and replaced them with Houston Texas-based independent energy company Apache Corporation (APA) and oilfield services giant Schlumberger (SLB).

I also replaced toolmaker Stanley Works (SWK) with computer network technology company Juniper Networks (JNPR).

The new companies, I believe, are growing faster, have higher margins and investment returns, with less debt. Besides, they are more active traders, particularly in put and call options.

At the end of the day, the Cara 100 companies list is an exercise in focusing on quality. We still have to trade the stock price for a profit. But, with only so much time for research, it pays to study companies you rate more highly. It’s easier too focus on the things you have more respect for.

Having said that, it is true that (i) the three companies I removed are still very high quality and (ii) every company and the industry they operate in has its ups and downs, and traders buy them too high at the cycle tops and sell them too low at the cycle bottoms. The latter point is the basis of our trading strategy.

In seeking alpha, my trading philosophy is really simple: let the market come to you. If there are line-ups of buyers, then be a seller and if there are line-ups of sellers then be a buyer. But do so only at times when the emotions of the buyers and sellers are high. The financial services industry sell-side plus the media will always stir up the emotions of the public; so the market will always come to you. Be patient.

Also, be flexible in your thinking because markets are volatile. You may be a buyer one hour or day or week or month and a seller the next.

Comments

[investor88:]

Like the conclusion that we should be flexible, can be buyer or seller anytime.

Jan 06 07:34 AM