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November 29, 2005
Sentiment and overbought conditions, the Wal-Mart experience and the best Mutual Funds
Good day! There is a lot of talk about stocks being overbought and that there are too many bulls. This is the talk of those afraid to initiate new longs. Can’t say I blame them. However, those that are long should not worry about this chatter as long as the price action remains strong. One mild down day is not enough to reverse four strong weeks. Stocks can become overbought and remain overbought. In addition, sentiment can become too bullish and remain too bullish. Both the tape and the seasonal patterns are bullish. With prices trending higher, there is no reason to be short or to start picking a top. It seems that traders are way too eager to pick a top. You cannot time a trade based on overbought conditions and excessive bullish sentiment. At best, these serve as a warning not to take NEW longs or to wait for a pullback. Remember, the trend is your friend and the trend is clearly up.
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In a CNBC interview Monday, the Chairman of Wal-Mart, John Menzer, said, "We're seeing the customer actually shop less due to higher gas prices but buy more on each individual trip." That sounds like inventory buildup to me! For what it is worth, you will not catch me near a Wal-Mart. I find the stores over crowded and messy. It is not a nice shopping experience. Maybe that is why people are making fewer trips.
This next quote comes from CNNMoney and a Black Friday shopper: “Next up Sears, which I'd heard was giving away $10 gift cards to the first 200 customers when it opened at 6:00 a.m. On the way, I pass a Wal-Mart, glance over, shudder slightly and accelerate. I tried Wal-Mart on Black Friday a couple of years ago and still have the psychological scars to show for it. There might be amazing deals, but the mental toll there is just too much”. She echoes my sentiments.
On the price chart, WMT is running into a major resistance zone from broken support and the July high (~51). The stock is up around 20% the last 2-3 months and ripe for either a consolidation or a correction. RSI is also overbought for the first time since November 2004. I really think that the big support break around 51 engrained the long-term downtrend and this is one sharp reaction rally (bear market rally) for WMT. More importantly, the risk-reward ratio at current levels is not good and I would expect side ways price action at best.
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Timothy Middleman of MSN Money picks the seven best fund managers. The top line shows the fund and symbol, the second line shows the manager and YTD/5 Year return and the third line shows the top holdings.
Amana Mutual Funds Trust Growth (AMAGX)
Nicholas Kaiser 19%/3.9%
Top Holdings: AAPL, QCOM, ECA, AMX, RTP, BOBJ, PEP, AAUK and BMHC
JennDry Jennison 20-20 Focus (PTWBX)
Spiros Segalas, David A. Kiefer 20%/6.5%
Top Holdings: NXY, TXU, SU, HAL, GSF, DNA, GOOG, PD, SRE AND MO
Bridgeway Micro Cap (BRMCX)
John Montgomery 28.3%/20.8%
Top Holdings: CMTL, BMHC, ITRI, QSII, NSS, MIDD, PKD, RT, ASVI AND JCOM
James Balanced: Golden Rainbow (GLRBX)
Frank James, et al. 7.5%/8.3%
Top Holdings: CVH AND Assorted Treasuries
Ivy Asset Strategy (WASAX)
Michael L. Avery, Daniel J. Vrabac 19.8%/8.1%
Top Holdings: RIO, ABX, NEM, XOM, CX, GE and some foreign stocks.
Diamond Hill Focus Long-Short (DIAMX)
Ric H. Dillon Jr., Charles S. Bath 17.4%/11.6%
PD, DVN, COP, APA, APC, FLR, NSC, BR, D AND PHS.
CGM Realty (CGMRX)
G. Kenneth Heebner 22.5%/29.5%
ACI, CBG, CNX, GGP, LHO, EPR, SHO, CBL, HMT AND KPA
Posted by Arthur B. Hill at November 29, 2005 09:45 AM