Subj : Market Action To : All From : Paul Rogers Date : Tue Jan 18 2005 05:02 pm Content-type: text/plain Except for an hour or so this morning the market performed well all day. Prices were up nearly enough to be significant on their own, and volume increased to +13% above average. By my book, that's an "Accumulation" day, buyers were enthusiastic. So after a one-day breather my timing signal says BUY again. Geez Louise! Earnings reports are starting, that's likely to dominate the market for a few weeks. But beware, options & futures also expire this week and that's likely to drive volume and volatility. My sister is moving her retirement accounts from one mutual fund family to another. That brings an obvious allocation issue. This time I'm trying to force her to do it herself, but I don't mind telling you what I'm telling her. Always be mindful in this, NOBODY can predict the future. But most likely of all for the next year or two interest rates will consistently trend higher. That means bond funds are NOT the place to be. Buying bonds to hold, if that were possible, wouldn't be advisable until it seems like interest rates are near their highs--whatever that means these days. Similarly, that probably lets out Balanced Funds with major fractions in bonds. So it's equities or money-market. Here's the approach I'm recommending to divide and conquer the task. One of the best places for "impartial" fund information is Morningstar reports. They catagorize mutual fund styles as "Growth", "Blend", or "Value", in "Large", "Medium" or "Small" capitalization companies. That results in the 9-square box I think you've all seen. For ease of understanding we had characterized growth funds with the economy of the 90's. Value fund managers we called "dumpster divers", finding good companies among the currently unloved of the Street's Traders. Growth funds didn't have a lot of fun during the Bear Market, they need a growing economy to shine. Value funds had lots of bargains and driven-down stocks to choose from. They were coming up from their dumpster diving saying, "Hey, look at this! This is a good one." "Large cap" companies were called "ocean liners", impressive once they get their momentum going, but it's hard to shift them from their course. "Small cap" companies were the "nimble speedboats", better able to change course and adapt to the currents, but also more easily swamped or crushed if they get in the way of the ocean liners. So the first thing I suggested is that she fill each square with the balance she had in each of the 9 types of funds in the old family, calculate the percentages, and sum the rows and columns to see how she was weighted in each of those two dimensions. She saw it was pretty unbalanced. To start the reallocation, suppose we started with the 9 squares, and allocated 11% to each. That would be evenly diversified. It's a reasonable starting point, but not reasonable for investing. So from that, I told her to adjust the percentages, jiggle them based on what it seems reasonable to expect of the next couple years. If she thinks we're going back to the 90's, over-weight the growth column. If the economy is going to be tougher, disappointing the growth investors, take advantage of their discards with value funds. On the other dimension, if she expects the big companies to just get bigger, then overweight "large cap". Many "small cap" companies do well in many environments. It's the "mid-caps" that often have difficulty finding just the right environment to out-pace the ocean-liners or speedboats. The "timid" position, right in the middle, mod-cap blend is probably where I wouldn't want to be heavy. And there's some money-market cash to swing one way or the other after she gets some experience with her new allocation. My current personal allocation is 0% Growth, 42% Blend, 23% Value, 16% International, and on the other dimension 43% large-cap, 11% mid-cap, 27% small-cap, and 20% in money market, i.e. "TBD". Obviouly I DON'T see a return to the 90's very soon. But as the Buddha said on his death-bed, "Don't follow me!" I wouldn't bet you a quarter that's the right allocation for anybody over the next year, even me! In case you missed my announcement, my "Tracking the Market" page has been updated. Pick one of the URL's below. Price Vola- Momen- Volume Oscil- Summ. Change tility tum lator Index -__+ -__+ -__+ -__+ -__+ -__+ _|__ _|__ _|__ __>_ |___ ___< 01/11 __|_ _>__ __|_ __>_ _|__ ___< 01/12 _<__ _>__ _|__ __>_ _|__ ___< 01/13 __<_ _>__ _|__ _<__ _>__ ___< 01/14 __|_ _|__ __|_ __|_ _|__ ___| 01/18 Timing Signals: I don't use or recommend timing signals, but they're fun to watch. If I did though, well, I might use something like this. (Be warned!! It tends to whipsaw around signal points!) Last Signal: BUY Date: 01/18/05 S&P: 1196 Winner or Loser: tbd By: tbd See my market tracking charts for '03-'04 and my investment strategy study at my website(s): http://www.xprt.net/~pgrogers/Pers.html http://www.angelfire.com/or/paulrogers/Pers.html http://www.geocities.com/paulgrogers/Pers.html Paul Rogers, paulgrogers@yahoo.com -o) http://www.angelfire.com/or/paulrogers /\\ Rogers' Second Law: Everything you do communicates. _\_V .... Yeah, but what's the speed of DARK? ___ MultiMail/MS-DOS v0.35 --- * Origin: The Bare Bones BBS (1:105/360) .