Friday's TSM Report (07/30/10)New to TSM? Find how I suggest you use it here
and a Note: I've started tweeting again, if you want me to continue that intraday, please click on the above add, as it helps pay for the services. You don't have to buy anything, just click on the link.
TSM Articles of Interest
(Richard Miller) Part II: Drawdown" These TradingMarkets.com articles describe strategies, analytical
indicators (e.g., 2-period RSI) and present results from my own analysis.
TSM's strategy in a nut shell is to identify a group of fundamentally sound
stocks through 15 multiservice screens (IBD, Zacks, Vector Vest,
Morningstar) then concentrate on buying those stocks with value remaining at
their current price (2-yr PEG ratios as they pullback. The 2-period
RSI and TradingMarket's PowerRatings provide measures of pullback strength.
Thursday, the S&P continued falling after bouncing from the resistance of its 200-day moving average. Though its 50-day moving average still hovers below its 200--commonly called a "death cross"--our market indicator has turned bullish. Note too, the market's preference is favoring smaller caps. Today, 39 of 137 (28.5 percent) TSM stocks moved up more than half a percent while 31.1% of the total market did. Remember that earnings reporting season continues this week.
...(07/23/10)...The following chart shows over the last few months how money has been flowing into various financial assets: stocks, bonds, the Euro and gold. There continues a flight to safety into bonds and gold. Further, over the past few weeks, the Euro continues to rebound.
 John Murphy (StockCharts.com) made a good point in a recent column. Money is flowing into our markets, and the strong dollar is a reflection of that fact. The strong currency reflects a strengthening economy. The net effect is that US stocks become favored over foreign stocks. American investors lose money two ways investing in foreign stocks: stocks falling prices as well as falling currency values. Look at these relationships in the following chart. As the dollar strengthens, our goods sold overseas become more expensive. Over the last month that relationship has reversed itself: the dollar continues to weaken and foreign stocks outperform US stocks....(07/23/10)
 The S&P closed +2.12 relative to its 20-day moving average. Nineteen of this week's 137 TSM stocks made a 21-day high (6 other(s) a 21-day low), while 77 of 137 traded within 10 percent of their 52-week high. Earnings reports for Friday {07/30/10}.
The weekly chart below shows the S&P broke through its April and Feb
lows, fell to the support of its 38 percent Fibonacci level and then
reversed higher last week..... 07/23/10
 The following chart shows several relationships reflecting the state of the current economy: The dollar (UUP), generally up, continues falling against the Euro (FXE) over the past few weeks; the S&P is pulling back; the Consumer Discretionary Sector cycles against Consumer Staples (and between bullish and bearish moves in the general market) (a sign of a flight to safety when the curve is falling like it has over the past few weeks). Gold, Oil and Commodities are all moving higher relative to the general market...... 07/23/10 
This next chart shows the average gain/loss in the S&P 500 presented by day of the month. Performance-wise, it's the tail of two halves. While over the past 42.2 months, the S&P has lost 12.73 percent: days 1 through 20 in the month have lost 21.40 percent, while days 21 through 31 have gained 8.68%. It pays to be in the market during the latter half of the month. Here's how days 21 through 31 have performed, summed over the 41.4 months between 01/03/07 and 07/12/10: 21 (+9.3%), 22 (-17.3%), 23 (+9.9%), 24 (+4.6%), 25 (+5.3%), 26 (-0.1%), 27 (-15.1%), 28 (+13.9%), 29 (-8.1%), 30 (+2.1%), 31 (+4.2%).
Over the past 33 weeks, TSM has picked 575 unique stocks. The following chart shows the TSM life of this group. For example 25.4 percent of the group made the TSM list just once, while 81.9 percent of them made the list from one to ten weeks. Looked at another way, 18.1% of the group were on TSM's list just for 11 to 33 weeks. 
Successful day trading is all about finding edges. For me that means getting to know well a few, very liquid, high quality stocks. Ideal candidates have the following characteristics: 
Find a discussion of various edges here and a few examples here. Special Report: "Seven Day-Trading Edges" Recent Examples of a new day-trading strategy used to place money in the market at 20 percent plus annual returns: identifying a market that's stretched in pullback and ready to spring higher; day trading that reversion to its mean until it peters out; exiting the trade writing an in-the-money call ("covered call"). Click chart to enlarge.
Trading TSM StocksTSM Trading Returns have been summarized from the last 27 quarters of forecasted stock picks. A
$35,000 account on 9/15/03 would have grown to $719,585
over these quarters (a 1,956% return over a period the S&P
gained at a +3.49%). On a quarterly basis, TSM trades averaged 100 half-position trades to completion
over 6.3 days/trade, and in only four of the 27 quarters did the S&P outperform the TSM trading returns. Find more details
here.
Note, I don't make every one of these trades myself, though I do make many. Trade results are hypothetical. Think of TSM results as
what's possible from these forecasts. Note, it's highly unlikely that you (or I) will consistently match these results (because one would
have to be sitting in front of a computer screen all day long while the market's open). Having said that, I do actively trade TSM
screened and forecasted stocks for my own accounts (TradeStation).
"Buy Weakness and Sell Strength" Long TSM Buys for Tomorrow (in addition to highlighted purchase) See my article, "How I Trade Using Both PowerRatings and Fundamentals," describing the benefit of combining PowerRatings with TSM stock qualification. See TradingMarket's description of the product here.
Highlighted TSM Stock Buy for Tomorrow - LII Company Information: Lennox International Inc., through its subsidiaries, engages in the design, manufacture, and marketing of a range of products for heating, ventilation, air conditioning, and refrigeration markets in the United States, Canada, and internationally. It operates in four segments: Residential Heating & Cooling, Commercial Heating & Cooling, Service Experts, and Refrigeration. The Residential Heating & Cooling segment manufactures and markets furnaces, air conditioners, heat pumps, packaged heating and cooling systems, indoor air quality equipment, prefabricated fireplaces, and freestanding stoves for residential replacement and new construction markets; and hearth products, such as factory-built gas, wood-burning, and electric fireplaces; free standing wood-burning, pellet and gas stoves, and fireplace inserts; and gas logs, venting products, and accessories. The Commercial Heating & Cooling segment offers unitary heating and cooling equipment used in light commercial applications, such as low-rise office buildings, restaurants, retail centers, churches, and schools. The Service Experts segment provides installation, preventive maintenance, emergency repair, and replacement of heating and cooling systems to residential and light commercial customers through its wholly owned service experts dealer service centers; and sells a range of equipment, parts and supplies, and third-party branded products. The Refrigeration segment manufactures and markets condensing units, unit coolers, fluid coolers, air cooled condensers, compressor racks, process chillers, and air handlers. The company offers its products and services through distributors, independent and company-owned dealer service centers, other installing contractors, wholesalers, manufacturers� representatives, original equipment manufacturers, and to national accounts. Lennox International was founded in 1895 and is headquartered in Richardson, Texas.
Daily Chart | Weekly Chart | Daily Point & Figure Chart Company Fundamentals: LII
is a 2.37 billion market
cap company. Its sector is Consumer Durables - Appliances (209th
in performance over past month {21 trading days} of 239 industries and
5th of
11 stocks within its own industry). Zacks ranks LII a
1 (ranked 3 four weeks ago). PEG ratios of 0.40 and
0.56 for the next two years reflect the value left in the price (read about
the effectiveness of PEG ratios in forecasting value
here), though it has
increased +9.5 percent in value over the past six months
(S&P 500 decreased +1.57 percent).
LII
reports earnings on
10/20 Technicals: LII has been oscillating in a range over the past three months. It's been supported by its 200-day moving average six times in that period as well. It's made the TSM list 2 in the last 37 weeks.
Town's Rule 1 Characteristics for
I introduce here, Phil Town's Rule #1 criteria for each TSM pick. The analysis, described in his best selling book, evaluates the long-term potential for a given stock. Of course, the average TSM pick plays out over the next six days (most times sooner). I insist on the TSM fundamentals screens (all long-term based utilizing a combination of IBD, Zacks, Vector Vest, Morningstar and Navellier criteria) because they identify those stocks with quality fundamentals (including short-term PEG ratios add a value metric), and these are the ones that institutions buy (providing us short-term traders a safety net). Note, a 10-year projected EPS (estimated from historic growth rates) combined with a P/E estimate allows one to calculate stock price expected in 10 yrs. That future price in turn can be combined with an assumed IRR rate of growth (Town's 15%) calculation to estimate what today's price should be (sticker price). Town then recommends buying at half that price (MOS - Margin of Safety). Note, I use an Excel program to qualify TSM stocks that was developed by Jerry Erwin. It automatically pulls data from free internet sites and populates an Excel sheet, but beware the calculations are only as good as the free data provided by moneycentral.msn.com. If you would like to purchase your own copy of the program, contact Jerry.
Writing Naked Puts on TSM stocks has proved very successful over the past year (101 winners in 109 forecast picks generating $53,614 in premium). (TSM Puts must meet these requirements: >18% annualized return, >10% downside protection (from 15 to 40 days before expiration and >5% <15 days), high relative volatility (rich premium) level (relative to the volatility experienced over the life of the option) is also a plus. I'll supply these TSM Put candidates each evening (and during the day occasionally through Twitter).I'll forecast Put trade(s) intraday on the TSM twitter account (TSM_rm) and track these trades on the "Open/Closed Put Trades" accessed from the link in the Index box at the top of the page. All TSM Put Positions with
Potential for Tomorrow
Plus Their Fundamentals
 Naked Put Strategy: Find an article that I wrote about the benefits of writing naked Puts here--especially if you're trying to allocate money conservatively at a higher rate of return. That's right, writing Naked Puts is a conservative play. Believe it or not, it's even more conservative than buying stocks outright. Envision five market scenarios for a given stock over the next 30 days: stock goes up a lot (>10%), stock goes up a little (to 10%), stock stays the same, stock falls a little (to 10%), stock falls a lot (>10%). Well if you own that stock, you make money with the first two; if instead, however, you had written the 10% Out-of-the-Money Put, you make money in the first four scenarios and don't lose as much in the fifth. Enough said. Each day, I suggest a particular TSM stock and its Naked Put play. If there are 15 or fewer days before expiration (3rd Friday each month), this play will have >5 percent downside protection (make money even if stock falls up to 5 percent over those 15 days). If there are 16 to 40 days left before expiration, this play will have >10 percent downside protection. In either case, I expect an 18 percent annualized return. Those are my three criteria: high quality TSM stock, 5-10 percent downside protection, 18 percent annualized return. One always worries about the impact a catastrophic event might have on your stocks. The Naked Put strategy gives ~10 percent protection, but it will still be susceptible to a further downturn. Hard stops, on the other hand, hurt performance so the question might be: "Just how big a fall might we expect in our stocks with a catastrophic event? From 9/10/01 to 9/21/01 (over 5 trading days following the 9/11 attack on the "Twin Towers") the S&P fell 11.6 percent before rebounding. More importantly, 59.1 percent of 6,530 stocks fell that amount or less, while another 27.2 perfect fell between 11.6 and 25 percent, i.e., 86.3 percent of these stocks fell less than 25 percent. From my perspective the downside protection offered in our Naked Put strategy (used on quality TSM stocks) has more than enough protection.
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