The Global Trader

The Big Ugly...

2008-09-17T16:08:00.000-07:00

Like a boxer,late in a fight, we're ducking and rolling...... trying to keep the guard up. We are at the point in the market that there are very few hiding spots..... even our previously strong stocks have been taken to the woodshed. So lets look at the negatives and positives of where we are today.

Negatives:

1. Credit breakdowns in the markets make for extremely volatile trading. The broad markets are moving very quickly.....leaving very little reaction time.

2. The foreign markets are very weak..... exasperating the U.S markets.

3. Most sectors are under pressure....very few hiding spots to ride out the storm.

4. Forced selling of securities from overleveraged funds and trading firms.

5. Very low levels of investor confidence......fear of the unknown.

6. Many of our formerly great U.S. financial companies will be forced to look to the Far East and Middle East for capital. This bothers me from a pride standpoint and a national defense stanpoint.

Positives:

1. We have not had any direct exposure to the corporate blow-ups that have taken place. No clients have owned Bear Stearns...Lehman Bros...A.I.G. ....Washington Mutual.

2. Fairly high levels of cash...inverse funds... and diversified securities approach have allowed us to easily outperform the markets this year. Although we have given back our tear to date gains that we had thru the summer.

3. The NYSE High-Low index has moved below 10%, which is very unusual. The 90% area of new lows on the NYSE historically has pruduced decent bottoms. There have beeen only 18 such readings in the past 30 years.

4. This week, energy and metal sectors have actually moved higher. These sectors are our heaviest overall weightings.

With the markets in a daily turmoil, it can be a tough time to have faith and confidence in your advisor (me), but realize that I take on the responsibility of safeguarding and investing your capital with a laser focus and discipline that will guide us through these nasty markets.

Please call me to share any thoughts or comments you may want to discuss.

Matt McAleer

President

Classic Asset Management, LLC.

732-677-3710

Bond Price/Yield Alert!

2008-05-08T07:48:00.000-07:00

* click to enlarge

The fixed income ETF's have shown signs of deterioration lately. The same can be said of the fixed income futures. Both T-Bonds [US/] and T-Notes [TY/] exhibit negative action, especially when looking at the longer term charts, using a .50 box size for Bonds and a .25 box size for Notes. Below we show you a view of the T-Bonds Continuous chart so that you can see first hand what is going on. Just yesterday another significant breakdown occurred for US/ when a spread quintuple bottom sell signal was given at 115. This major breakdown follow a change in trend to negative and a change to negative monthly momentum. Furthermore, T-Notes show a very similar situation with trend now negative, as well as monthly momentum. This is yet further evidence that the fixed income arena is weakening, and generally suggests we should look for lower prices and higher yields.

(Dorsey Wright & Associates 5/08/08)

What this means to an investor/trader:

I bring this to your attention as an alert that you do not want to lock-in bonds,bond funds or longer-term CD's at today's level. Remember, price and yield have an inverse relationship. The faltering pricing viewed in the chart and analysis above, is the result of a lack of demand at today's bond yields. Too much supply forces prices down and yields must rise to find a suitable level of demand. Stay liquid with your fixed-income capital .... evidence in the bond market points to higher rates (opposite of what the Fed. is hoping for).

If you have credit linked to any type of Treasury index, I would suggest you attempt to lock in your current rate. The risk in rates movement is currently to the upside.

Matt McAleer
Classic Asset Management - President
mmcaleer@classicasset.net
732-677-3710

What's working.....now!

2008-04-17T08:34:00.000-07:00

The action of the past couple of months further hammers home the importance of being right on the sector, region, and asset class. We have been heavily overweighed energy, commodities, and non-US assets, which has allowed us to protect capital and realize significant gains in strong relative strength areas.

Although the demand for these sectors seems to be overheating, it is important to follow supply/demand in the market to help execute a successful gameplan. There will be a period in the future when the energy and commodity holdings need to be cut back, but there is no reason to guess on that time. Relative strength is the guideline I use to keep our capital in the strongest risk/reward areas. As I've mentioned in the past, an outstanding resource for market, sector and relative strength analysis is Dorsey Wright & Associates (www.dorseywright.com). If you look at the site and have any questions or comments, make sure to give me a call.

New Highs Established on Wednesday 4/16

iShares US Energy Fund [IYE]: Has been a must own sector for five years now.

NYMEX Crude Oil [CRUDE]: Certainly the first ever spike for Crude Oil futures above $115 per barrel helped the Energy stocks hit new all-time highs of their own. Remember the good ol' days when you could get a barrel of oil for less than $100?

Goldman Sachs Commodity Index [GNX/Y]: The rally in Crude Oil on Wednesday, as well as spikes in precious metals, helped push this widely-followed commodity index to new all-time highs. With equity indices still in the red, this commodity index now boasts positive returns of 20% on the year so far.

Euro FX Spot Index [EC/Y]: The US Dollar plunged again versus many major currencies, prompting new highs for the Euro Spot Index at 1.59. That flight to Italy never seemed so far ... away.

iShares Latin America 40 Fund [ILF]: This has been in the iShares Int'l ETF portfolio since it was launched a few years ago and Wednesday's move reminds us why. ILF rallied to hit a new all-time high well in front of any similar move by the major foreign equity benchmarks

Market Vectors Agribusiness Fund [MOO]: This portfolio is one we have talked about a number of times as it contains many High RS positions among its top holdings. With much of the market happy to have found a foothold, MOO is already into uncharted territory.

Market Vectors Steel Index [SLX}: Continues to male higher lows on any pullback. A sign of weakening supply for the stocks in this sector. Names such as Steel Dynamics (STLD) and Arcelor Mittal (MT) have been very strong.

Some technology sectors are beginning to show some signs of demand....particularly medical technology. Stocks such as Analog (ALOG) and Techne (TECH) are now offering very nice entry points with limited downside to our stop/loss. We'll be nibbling on those and waiting to see if they can hold there recent pullbacks.

The financials continue to be a tough area to own, but are off their lows of Jan./March. There will be a time in the future that we can and will make a bigger commitment to this area, but they are an awful tricky trade right now.

Matthew McAleer - President
Classic Asset Management, LLC.
mmcaleer@classicasset.net
732-677-3710

The more things change.....

2008-01-03T07:52:00.000-08:00

I hope everyone has a happy and healthy 2008! I've been reading and hearing all types of financial predictions for the coming year, so I will make my prediction:

The equity,commodity and bond markets will fluctuate....period!

That was pretty easy, but very true! Too many money managers lock themselves into what they think should happen instead of what actually is happening.My job is to keep your assets in strong risk/reward scenarios, where we have a defined strategy to limit losses and allow our strong investments to prosper. By following a strict discipline based on supply and demand (the ultimate market force) opportunities will present themselves.

One of my primary goals for this year is to streamline your individual portfolios into a more consistent replication of my model (my money) portfolio. This is the relative strength portfolio that encompasses the trading/investment ideas that I have previously highlighted in my posts.In doing so, I will be adjusting some of your positions to create some cash (money market) that can be used to invest in these sectors and securities that present themselves as strong investments.

So.... what am I currently looking at and how should we be positioned?

Not much has changed from the last update on 12/5. Many of those securities have made very nice moves for us in the context of overall weakness in the broad markets. Keep focused on the following areas:

Oil- OXY...COP

Oil/Gas Services- ECA...SLB...PBW

Chemicals (Agriculture focused)- MOS...MON...BG

Steel- STLD...MT...SLX

Commodities- DBA...DBP

Technology- ADBE...AAPL

Global- ILF (Latin America)...EWA (Australia)...FXI (China)

Wall St.- NYX...LM (bounce-back ideas after weak '07)

Another goal of mine is to post my updates more often, as many clients and friends have mentioned how much they enjoy them!

Please email or call me with any thoughts or questions you may have.

Matt McAleer-President
Classic Asset Management, LLC
mmcaleer@classicasset.net
732-677-3710

Trading Update....

2007-12-05T06:31:00.000-08:00

We have been talking over the past week or so about the improvement that we have been seeing in our market indicators. Namely, we have seen both our short term indicators, the NYSE High Low Index [HILO] and the Ten Week Moving Average for the NYSE [TWNYSE] give buy signals from oversold levels. Additionally, the S&P 500 and Nasdaq 100 Bullish Percents have recently reversed back into a column of X’s suggesting that we are seeing new demand move back into the market. This suggests that we can begin pushing some new money in the market, and while the NYSE Bullish Percent [BPNYSE] has not reversed back into a column of X’s quite yet, it is now less then 1% away from a reversal up at 40%. A reversal from the BPNYSE would consider the positive action from the short- and intermediate term indicators and would suggest that we could once again run offensive plays, focusing on wealth accumulation strategies. Until that reversal, though, we will merely be toe-dipping back into the market.
When looking to add new positions to the portfolio here you want to focus on those sectors that are being controlled by demand as well. And with the influx of new demand in the overall market, we have seen a handful of sector bullish percent chart reverse up as well. That is, we are beginning to see signs of new demand coming back into some of the individual sectors of the market. On November 27th there were no sector bullish percent charts in a column of X’s, and the average sector bullish percent was 30.25%. A week later we have seen the average sector bullish percent rise to 34.45% as nine sector bullish percent charts have now reversed into a column of X’s. Those nine sectors are as follows:

Chemicals [BPCHEM]

Insurance [BPINSU]

Machinery & Tools [BPMACH]

Metals Non Ferrous [BPMETA]

Protection Safety Equipment [BPPROT]

Steel & Iron [BPSTEE]

Transportation Non Air [BPTRAN]

Textiles & Apparel [BPTEXT]

Wall Street [BPWALL]

Back in August, this turn in the markets offered solid entry points in strong relative strength stocks. So what am I tracking looking to add to our portfolio:

STLD (STEEL)
MT (STEEL)

NYX (Wall St.)
TROW (Wall St.)

BG (Agriculture/Food)
DBA (Ag. ETF...Corn/Soy/Sugar/Wheat)

MOS (Chem)

CBI (Industrial Infrastructure)
JEC (Indust Infra)

OXY (Oil)
ECA (Oil/Gas)

MBT (Telecom)

PDP (ETF focused on strong RS sectors)

I'll keep you updated on new ideas. Notice that we have been buying a few of the names listed above.

Also note how well our short hedge (SKF/SRS) worked in the recent weakness. Reread the provious post to understand how vital it is to play offense and defense in the markets. Protecting your capital is key to strong returns.

Matt McAleer
Classic Asset Management
732-677-3710

Trading Alert

2007-10-30T08:37:00.000-07:00

Last week saw continued weakness in the relative strength of the financials and the REIT sector. Over the spring and summer, I pointed out how these two sectors were clearly lagging the market and were setting up for trouble. By staying clear of banks, S&L's, mortgage companies and REITS, our portfolio avoided much of the August mini-mayhem. Supply and demand are the two factors that control all facets of the trading markets. We want to continue to be positioned in the sectors of the global markets that are clearly in demand and avoid the troubled areas that are for sale.

With that said, I have been adding back into the portfolio our hedge of SKF... UltraShort Financials and SRS... UltraShort Real Estate. These two securities act as inverse positions to the trading activity in the the Dow Jones Financial and Real Estate Indexes. We want to own these positions for two reasons:

* Hedge our long positions....which continue to act very nicely.

* Profit from the weakness that is evident in these underperforming sectors.

This strategy worked beautifully in the August sell-off, and it is prudent to revisit the trade today. By hedging an investment portfolio, we become a bit more conservative in a runaway upside market, but effectively attempt to reduce downside risk.

At the same time, some sectors are becoming very viable from an upside perspective. The agriculture commodities have been strong for a number of years now, but were always difficult to invest in without an account at at futures firm. The advent of Exchange Traded Funds (ETF's) over the past few years has provided a tremendous opportunity for investors. It has allowed us to benefit from true global diversification, and provided strong returns from regions such as Asia and Latin America. Currently we are buying DBA...PowerShares DB Agriculture Fund. This security is designed to reflect the performance of the Ag. sector by investing in the the commodities of the leading products.... wheat, corn, soy and sugar. Again a small allocation to a diversified security that is showing outstanding relative strength vs. the S&P 500 is a great portfolio enhancer.

I have included the DBA point and figure chart below . Notice the outstanding entry point on the pullback we are afforded at $28. I'll continue to look at adding some exposure to this strong RS area in the coming weeks.

***Click on chart to enlarge***

As usual, please leave a comment with any questions or thoughts on the today's note. Contact me directly to further discuss the investment strategy that guides our portfolio decisions, and feel free to forward the note to investors that you feel would find it helpful. Thanks for reading!

Matt McAleer

Classic Asset Management

732-677-3710

Offense vs. Defense

2007-10-05T09:06:00.000-07:00

With the turn of the calendar to October, the changing of seasons is as evident as ever with the turning of the fall foliage and the crisp evenings providing reasons to turn off the air conditioner and open up the windows. It is a great time of year, transitioning from shorts and tee’s to long sleeves and jeans.
The financial markets, too, are providing some interesting times. Just recently, the Dow Jones Industrial Average made a new high by closing above the 14,000 for the second time in history. You may recall the first time the Dow Jones Industrial Average eclipsed this milestone. The day was July 19th when the Dow closed above 14,000 for the first time and at the time the financial media was predicting how soon we would see 15, 16, even 20,000. Fortunately, the risk management discipline that I use, the Point & Figure Methodology, to manage your portfolio warned us when the Dow was hitting new highs in July that risk was extremely high and we should be focusing on wealth preservation strategies as opposed to wealth accumulation strategies. Less then a month later the Dow Jones Industrial Average closed more then a 1,000 points below its high water mark. When all the dust settled, the Dow experienced a correction of more then 10% for the first time in 4 years!
The main indicator that I use to evaluate overall risk in the market is the NYSE Bullish Percent. On June 27th this indicator reversed down suggesting that risk in the market was very high, and we should be focusing on defensive plays at that time. While no correction is necessarily easy to endure, by shifting to defensive posture at the end of June allowed us to cushion the down move in the market. And perhaps more importantly we were able to be positioned with cash in hand to take advantage during this most recent market rally.

*************** CLICK CHART TO ENLARGE ***************

By August 22nd the supply and demand indicators I evaluate told me that much of the risk had been wrung out of the market, much like the excess water out of a dish towel, and we should once again position the portfolio into a wealth accumulation mode. Today, we find the market above old highs of 14,000; however, time around we our risk indicators are telling us that demand is in control of the market at a much lower risk level, as opposed to a high risk market environment with supply in control like was the case back in July. It is interesting, though, that sentiment on many of the major financial media outlets continue to be negative. The other morning I saw some one of the anchors of one of the major financial shows. This was just days after the Dow eclipsed the 14,000 mark for the second time when this person went on to say that the market’s rally was really quite surprising given the continued negative news stories on the credit crunch. I couldn’t help but think how wonderful it is to have soulless barometers to help guide us in the right direction. The indicators that I use provide us with a pulse to the risk environment of the market. Buy signals don’t guarantee that the market is going to go up and sell signals don’t guarantee that the market will decline but they force us to make sure before any trade that we have the odds stacked in our favor.

*************** CLICK CHART TO ENLARGE ***************

I will remain true to the system, and will not be blinded by the headline stories because what is taking place underneath the surface is often where the game is won. So long as my indicators are suggesting offensive posture, I will continue to focus on wealth accumulation strategies in this market. As always, I will be reviewing your account in order to ensure the portfolio is adequately positioned in the market. If you have any specific concerns you would like to address, I am here to discuss them with you.

Thank you for your business and support,

Matt McAleer - President
Classic Asset Management LLC.

P.S. If you think this type of analysis would be of benefit to anyone you know, please share this communication with them.

Trading Relative Strength

2007-09-21T09:52:00.000-07:00

It has been a very nice start to September for the sectors and stocks that we are invested in. Relative strength is a key component to my sector and stock selection, and it again jumps out in the recent performance of the portfolios. As mentioned back on 8/26, the areas of the market to focus on are oil, oil service, aerospace/defense, machinery & tools, technology and select international indexes. These stocks have been standouts. When demand for our merchandise begins to wane, then we will rotate into areas of improving demand.

My relative strength and point and figure charts provided by http://www.dorseywright.com/ eliminate all the noise and opinions in the markets and give us a disciplined picture of the global markets and where to best allocate investment dollars. The concept of supply and demand will never change in the markets, whether that is a grocery market or a stock market. It is the driving force behind all price change. If there are more buyers than sellers willing to sell then price will go up. If there are more sellers willing to sell than buyers willing to buy then price will go down....count on it. Today we are positioned in areas of increasing demand as pertains to our securities. At some point that will change and we will change on an index, sector and stock level (go back and read the REIT warning from 5/30).

If you have any thoughts or comments you would like to share, please don't hesitate to share them with me.

Market Update

2007-08-24T10:26:00.000-07:00

After not initially getting much feedback on the trading blog, clients and observers have been asking me to post more market comments. It was gratifying that many readers read the REIT warnings and either protected themselves or profited by being short that sector. The media acted as if the meltdown came out of nowhere.....but the reality was that supply overtook demand of those securities back in May (re-read the post).

So, how did we perform in the August swoon and where are we today? Great questions!

First off, by avoiding Financials and REITS, client portfolio's held up very well. One of the main keys to managing money is to avoid weak relative strength sectors. By following the discipline provided by point & figure analysis, our portfolio's pulled back an average of 2-3% off our July highs. While never fun, the S&P 500 retraced close to 10%...giving back the bulk of it's 2007 gains. With our minor pullback, most clients are up 10-14% on the year ...depending on investment objective. By the way, I always get a kick out of the industry term "investment objective". Here's my investment objective..... "earn as much return as you possibly can, without losing anything" .....does anyone disagree?

Today, I have our portfolios positioned in strong relative strength sectors and stocks that continue to outperform the broad indexes. Although, you can never be completely comfortable in a dynamic market, I am confident that our focus on sector strength will continue to provide benefits. Here are some areas that look attractive:

Domestic:

Machinery & Tools

Ingersoll Rand (IR)
Pentair (PTR)
Deere (DE)
Roper (ROP)

Aerospace/Defense

Boeing (BA)
United Technologies (UTX)

Oil & Services

CBOE OIL Index (OIX)....100 companies in the development,
exploration & production of oil.
Schlumberger (SLB)
Conoco (COP)
Carbo Ceramics (CRR)

Technology

Apple (AAPL)
Adobe (ADBE)
Cabot Microelectronics (CCMP)

International: We primarily invest thru county indexes traded on US exchanges.

South Korea- (EWY) ....nice entry point
Latin America- (ILF) ...strong relative strength
Australia- (EWA).....buyable after recent weakness
China- (FXI)......strong relative strength vs. global mkts.

In trading the international strength ETF's, it is important buy pullbacks as they tend to be a bit more volatile. Remember volatility is not a "bad word" unless you are on the wrong side of it! Apple's been volatile for a year, yet some of us are up 70-80 points on it.

I am going to attempt to write on the blog once a week. Please let me know if you find it helpful.

REIT's in deep trouble

2007-06-21T12:15:00.000-07:00

The previous post on REIT's has proved to be very timely. The two ETF's (ICF/IYR)that were mentioned have fallen 10% and weakened considerably from a relative strength standpoint. For those that are short the trade, continue to stay with it. That short position can hedge both your long stock portfolio and a weakening bond portfolio. Remember, rising rates will weaken your current bond prices.

Some clients asked about shorting the REIT's within an IRA account. Unfortunately, you can not short stocks and ETF's in IRA's, but you can own a mutual fund that is short. At this time, most of the mutual funds that position themselves short, only focus on the broad indexes. The REIT index did not have a way to benefit from this trade in an IRA, except to reduce any long exposure.

Please email me with any thoughts or questions you would like to discuss on The Global Trader. I would like to use this space to identify timely trading opportunities for clients and friends!

Warning Signs for REITS

2007-05-30T13:17:00.000-07:00

The purpose off this blog is to alert clients and observers to opportunities and problems that are or may be developing in the global markets. One area to point out currently is the domestic REIT sector.

The negative action in this sector is alarming . The Bullish Percent chart reversed down on 5/17, which puts this sector on defense as more and more sell signals develop within the sector. After a strong 6 year run of outperformance, it is time to be very wary of the weakening relative strength from a point and figure standpoint. As the broad domestic indexes continue to move strongly, the Wilshire REIT index and the domestic ETF's (ICF-IYR) have been making lower highs and lower lows.

Interesting info, but what can an investor do to either safeguard or profit from the deterioration....

First, if you own REITs, review their performance and establish a trading strategy to protect the downside. Protecting profits is an important part of trading. Don't allow the past 5-6 years of outperformance to drip away.

Second, for the more aggressive traders, this weeks minor rebound in the sector has opened up a very nice risk/reward trade from the short side of the market. Both the ICF and the IYR are very vulnerable to the downside from today's closing prices (5/30).

As a note, market observations made in this blog are intended to inform and educate clients and readers about trading trends and ideas that I am seeing in the markets. Do not initiate a trade or investment without doing due diligence. Currently, Classic Asset Management, LLC has no long exposure to the REIT sector.

The World of Technology & Investing

2007-05-08T08:02:00.000-07:00

Although I am not a technology wizard by any means, the incredible speed and ease that information can be processed and delivered is life altering. Ten or fifteen years ago, the process of starting an investment advisory firm to manage clients money from across the country and globe would have been an expensive and labor intensive. Yet today, in less than one month, I am a fully functioning investment management firm with more capabilities than I previously had as a broker at a US subsidiary of a global bank. How can that be?

It's all technology! Information for making disciplined trading decisions is at my fingertips 24 hours a day....7 days a week. My accounts are available to me with the flick of a few keys. My research is live and available non-stop wherever I may be at the time. The internet and this blog never shut down and turn out the lights. I can outsource the housing of client assets to a multi-billion dollar company like Ameritrade and focus on what I like to do the most......manage client's investments.

As many of you know, my investment strategy is based on the irrefutable laws of supply and demand. Point and figure analysis allows me to follow and measure money flows in specific sectors, indexes and regions of the world. I will be inviting my clients and friends into the process of how their money is being managed through this blog and monthly video meetings conducted from my office in Colts Neck, NJ. Neither blogs, individual websites, nor video were allowed in my former position as a broker because a broker-dealer must approve all interaction with a client, and make sure my comments jibed with their research....sometimes it did...sometimes it didn't.

At Classic Asset Management, LLC, my goal is to provide clients with outstanding investment management through the use of our two primary accounts:

The Balanced Income Account's main objectives will continue to be conservation of capital, steady dividends and long-term growth of capital. This account is familiar to many clients and is made up of dividend paying mutual funds,ETF's and bonds (muni/gov.). The allocation and investments are determined by specific client needs along with tactical management based on fundamental and point and figure analysis.

The Classic Global Account takes a global investment philosophy and is anchored by point and figure analysis, which attempts to track and chart attractive trade opportunities across all asset classes. The portfolio can be composed of indexes(stock/bond), ETF's (exchange traded funds) and individual equities. The thinking that there is always an attractive investment opportunity somewhere in the world is the focus of this account. It is this investment strategy that brought us in on the strong risk/reward trades of energy...latin america...small-cap ....long before they they were headline trades. The account will also use hedging techniques and position sizing to help generate the goal of "absolute returns", which is quite different than the "relative performance" term so often used by investment managers.

I thank you for your confidence and look forward to a continued relationship of trust and respect.