Because of the envisioned broad trading range, since 1999 I have advised participants to divide equity portfolios such that 80% of the portfolio is for investment stocks. The remaining 20% of the portfolio should be used in an attempt to take advantage of the various mini-bull/bear markets. Currently, that 20% portion of the portfolio, aka the trading account, should be relatively “flat.” Investment accounts, however, should always be on the prowl for decent risk/reward situations. To that point, the Bespoke Group penned a study titled “Bespoke’s Custom Portfolio Trading Range Screen.” The report highlights a number of stocks that are oversold as measured by the distance (in standard deviations) each stock is below its 50-DMA. Of the 30 stocks mentioned, 12 are part of the Raymond James research universe. Of particular interest were: Chevron (CVX/$70.06/Strong Buy); Home Depot (HD/$30.20/Strong Buy); and Wal-Mart (WMT/$48.80/Strong Buy). Wal-Mart, under $50 per share, is pretty compelling given the fundamental metrics expressed by our analyst Budd Bugatch. And on a completely separate note, I was intrigued by Peabody Energy’s (BTU/$43.55/ Outperform) article regarding the “Supercycle for Coal,” which can be viewed on the company’s website. You can also read Raymond James’ opinion on the subject in the most recent report by our coal analyst Jim Rollyson, dated 6/21/10.
The call for the week: I continue to attempt to “keep” the profits accrued since the March 2009 bottom. Accordingly, I remain cautious in the short-run for the aforementioned reasons. Longer-term I continue to think the equity markets are okay into the mid-term elections, which as stated should be a referendum between the progressives and their more fiscally conservative counterparts. If the progressives “win,” I think it puts a HUGE headwind into the economy and the markets. The quid pro quo would suggest easier “sailing” going forward. Until then, the yield-curve is still relatively steep, credit spreads have not leaped, the Advance/Decline Line appears steady, and earnings comparisons should remain favorable; so unless it is different this time the recent correction in the equity markets should resolve itself with higher prices.
ECRI Weekly Index of Leading Indicators
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