Trend Notes: 8/31/2006

It's recording day! August sucked! Woohoo!

I finished the month up 1.18%, which is not bad until........DJW5K and S&P500 both posted 2.13% gains. Booooooooooo! Actually, my results are a bit deflated because of the giant special dividend removed from the value of my account that will be returned next month, but even with that I was thumped fairly handily. One month does not a lifetime make, unless you're a housefly or something.

Going forward, I'm going to shake things up just a bit. First, I need to stick to my "sale plans" and not get impatient. I dumped CNST and FE before they stopped out, and I have a bad feeling it was the wrong move. CNST made a powerful move over the past two days - the first two days I was not a holder - out of a sideways consolidation pattern. That's a healthy pattern and I should have held. Granted, I got spooked by the huge spreads, and those will continue. But, having an explosive little guy around could be a portfolio maker. The book is open on FE. It may or may not turn out to be a good sale, although sticking with the rules would have been best no matter what. I should have pushed the stop up aggressively instead of just selling.

Second, I'm going to apply a few simple fundamental tests before pulling the trigger on new positions:

Rule #1: I want to avoid sluggish big old companies with huge floats. I think I'll skip companies with floats over 500 million shares unless they've proven they can really move when necessary. I need companies that can really run if I'm going to put a hurting on the market.

Rule #2: Profitability and growth. I need companies that make money and that are growing. I'll look for profitable companies with 20%+ quarterly year-over-year net income growth.

Rule #3: Institutional ownership. I want to see 70%+ of the shares owned by institutions.

Hopefully I can get mostly quality, explosive companies in the portfolio as some of the sluggos exit. This longer-term stuff is a work in progress, so I'll likely find ways to adjust in October, too.

Here's the report on individual stocks held:

LH: The run may be over. I'll set an aggressive stop. 68 is looking like it might be an area of support. Bulls make money. Bears make money. Pigs get slaughtered. I have almost 12% of gain built up in this one in less than three months.

ECL: The past two days haven't been wonderful from a price perspective, but the volume leads me to believe we may be setting up for another upleg.

OKE: Strong stick today. The stock is oversold and volume has been slowly picking up the past few days.

RAI: Volume is back on the upleg.

CXW: Another whose run may or may not be over. It tends, though, to trend sideways and then jump all at once.

TXU: Spent the entire month of August in a flat, narrow consolidation pattern. We'll need some volume poppage very soon.

HCR: If it bounces off 52 again, Ill call it support and move the stop up.

LNT: Nice price action lately, but volume is not encouraging. This one is getting long in the tooth. If it doesn't break out soon, I'll set an aggressive stop. 36 should be a decent support level.

SBIB: Winding up to pop again.

XOM: I fear we're 2/3 through a head and shoulders pattern. There is now a lot of red to fight through.

CMCSA: I'm hoping it is carving out a bottom and a nice steady uptrend will develop.

LTR: Slow, steady move up should be consolidated. It should not need long to turn ownership over enough to continue moving. A new stop around 38 would make me happy.

GIS: I'll start adding this one now. It is near the top of the channel. I'm expecting sideways/down action for a bit.

Stats @ August 31, 2006. My August was +1.18%, Monthly average since 6/1/06 +.46%. DJW%K August +2.13%, with monthly average of .71%.

Bleh.

Here's to a better September!