Simplespread

A former secretary of the Treasury is reputed to have said that the Efficient Market Hypothesis (EMH), more popularly known as the Random Walk, is the worst mistake economics has ever made. Additionally, a famous and successful money manager is rumored to have said that the Efficient Market Hypothesis (Random Walk) is a case of dementia. Whether wrong or sick, EMH - Random Walk has visited disease upon investors for some 30 years.

Over the past two years, oil and oil related securities have trended higher and higher in an non-random manner. Investors had a choice in January 2004: they could follow the siren's call to be average by putting their money into index funds, or they could have put their money into strong stocks in strong industries in a (demonstrably) strong sector - Energy. The table below shows how they would have fared.

The chart below shows how consistently the energy sector climbed ever upward over this 2-year period, taking practically every energy related stock with it.

The table below shows how the Energy sector consistently attained Top Ten status over the 2 years in question. For the past 29 months, with the exception of February and March of this year, Energy has been one of the Top Ten places to have put your money. Numerous Simplespreads have been available netting astute investors plenty of cash in their pockets.

Turning to specific stocks, the table below highlights a small sample of the vast (and high profile) opportunities that have been available to investors who use the correct screening filters to find profitable situations:

Each of these stocks provided Simplespreaders with opportunities (plural) for profitable option writing profits. Their charts showed stair-step patterns of higher highs and higher lows. They were strong, market leading stocks, and usually, they had juicy call options available for the selling.

Of the 233 stocks in the Energy complex since January 2004, 210 (or 90%) rose in price during the time covered by our discussion. However, for the rest of the market, of a total of 6200+ stocks, less than 3800 of them rose in price, or something in the vicinity of 60%.

Bottom line: Over the past 2 years, about 90% of Energy stocks rose in price, many of them well in excess of 100%. During the same time, of all stocks, only about 60% rose in price. There was nothing mysterious about the oil rally. Strong performing stocks created a strong uptrend. It was clearly evident to anyone who wanted to take a look.

Trends exist. Call it information cascades; call it momentum. Whatever you choose to call it, know that trends are how humans conduct business, and always have. Life is not chaos. Civilization is when we impose some type of order on the otherwise chaotic state of Nature.

Therefore, the moral of the story is to keep your money in the strongest stocks at all times. That's the most intelligent way to approach investing in the stock market. And forget trying to be randomly average. It doesn't satisfy.

Pretty much a digestion of the bounce back after the stabilization after the wipeout. Most indices have moved back up into areas of resistance. The resistance for the Dow isn't as formidable as it is for NASDAQ. A summer rally must somehow mount an offensive to eat through these barriers, if it is to happen at these levels. If it can't do it, the market will have to drop lower in order to find sufficient buying interest. Gradually rising interest rates don't help.
Metals & Mining had a good week to add to its commanding lead over the rest of the pack. Air Freight helped Transportation to move into the #2 spot. Aerospace/Defense continued to bounce around in the Top Five, holding strong at #3. Manufacturing came in at #4 and Automotive held tight at #5.
Gambling kept Leisure in the Top Ten at #6. A big drop for the week for #7 Real Estate wasn't enough to knock it out of the Top Ten. But a few more weeks like this and we'll be saying "bye-bye." Energy made a big comeback after two week's absence. The #8 position might not be much more than a bounce if the charts don't firm up. Media had a bad week but maintained position #9. Food & Beverage rounded out the Top Ten by being its usual "do-nothing" self.

Sector	23Dec05 to 23Jun06	Week of 23Jun 06	Visual Chartist Commentary
Metals & Mining	+16.92%	+2.40%	A very strong week. Most groups are right at or just below support, except the super-strong Iron & Steel, which remains well above its support. So far, the backing and filling is healthy, but we have to remind ourselves that all stocks here have had tremendous runs and are now experiencing significant retrenchments. The quality of any rallies must be watched carefully. And, as always, keep in mind the risk/reward metric of all Simplespreads. If you've made a large portion of your max profit and there is still a lot of time to go, then look seriously at closing out the trade, taking your profit, and retiring to the sidelines. The risk/reward metric of each trade is the most important determinant of whether you should stay in the game or take the money and run.
Transportation	+10.97%	+2.70%	A super week. Airlines and Railroads still in uptrends. Air Freight stocks, bouncing off support, just like they're supposed to, had a fantastic week, aided by FedEx's reporting of superlative earnings. Other companies in the Air Freight business also showed strong gains, some up over 6% in one week.
Aerospace/Defense	+9.83%	-1.32%	Not many stocks in this strong group. The strongest are the big defense contractors which are behemoths who move slowly and deliberately. No volatility here, so not much for Simplespreaders.
Manufacturing	+6.63%	+0.72%	Not much of interest here right now. Many stocks look good, but have low volatility. Also, the whole sector doesn't have that many option-related stocks. The sector does hold promise for the future so we should keep our eyes on it.
Automotive	+6.28%	+0.68%	Dull, duller, and dullest. The sector has held up but offers little of interest.
Leisure	+4.14%	+0.01%	Traveling, eating, and gambling continue to pace this sector. Some interesting situations developing here if at the right price at the right time and with the right option.
Real Estate	+3.94%	-1.21%	REITs still holding. But no interest to Simplespreaders.
Energy	+3.70%	+1.32%	As much as we've loved this sector for 2 years, we don't like the fact that many of the charts are tilting over to the right, meaning they're having a hard time rallying back up to previous highs. A warning sign for sure. But it was a slick ride while it lasted. Hopefully, they can regain past glory. When they're good, they're very good, but when they go bad, they can really hurt. Watch closely and monitor any positions daily.
Media	+3.21%	-1.31%	The fact that the sector flamed out last week right at its previous multi-year highs does not make for the best of conditions. Needs more work, although it's good to see the sector finally show some strength.
Food & Beverage	+3.04%	+0.72%	Repeat last week's comments: From the looks of the stocks, the depression is already here. Only alcoholic-related consumption is showing any signs of strength.
AND THE REST...
Utilities	+2.65%	-0.74%	Foreign utilities holding sector up. The rest of the group is "winning" by not losing. Not much here.
Tobacco	+1.94%	0.00%	Relatively dull stocks with little movement.
Conglomerates	+1.82%	-0.45%	Not much going on here.
Dow Jones Industrial Avg.	+1.43%	-0.23%	Stuck in "no man's land." Sitting on top of support that keeps getting weaker. However, it is making a stand here, and from a longer term perspective, you have to admit that the trend is still (barely) up. The past few days have seen some improvement in the Soldier's actions, meaning maybe the General's gallant leadership is beginning to carry over to the troops. This lackluster action was expected in light of the technical damage done recently.
Telecommunications	+0.92%	-0.45%	This is a sector that hasn't shown any leadership since early 2004. The past few month's improvement catches our attention so we plan to keep our eyes on it.
Banking	+0.76%	-0.91%	Usually wise to avoid. Lack of volatility.
Diversified Services	+0.45%	+0.48%	Consistently an also-ran. Usually shows compatibility with high tech, which is dead right now.
Chemicals	+0.26%	+0.35%	A flash in the pan a few weeks back, then died.
Retail	+0.02%	-0.33%	Department Stores still holding the group up. Anything to do with the home is flat on its back.
Specialty Retail	-0.26%	-0.10%	Group 1 Automotive, which shot from $30 to $60 during January to May, is now falling back, and with it comes the whole sector.
Consumer Durables	-0.27%	+0.35%	Nothing to look at here.
Consumer Non-Durables	-0.51%	+0.38%	Continuing to be a big disappointment. Don't know why. Doesn't make any difference, either. If it can't perform, it can't perform. So, we have no interest.
Drugs	-0.65%	-0.64%	Disappointment of the week. What will it take to get this sector moving?
Insurance	-1.50%	-0.46%	Hopefully this sector is not waiting for another hurricane which put some wind beneath its wings...like last year...but for only a few months.
Financial Services	-1.66%	+0.40%	One of the best places to have been from last October to this May, but since then - disaster.
Computer Software & Svcs	-1.78%	+1.25%	Weakness all around. Some areas are sitting at or near supports and need to rally from here to keep support from turning into resistance.
Electronics	-2.91%	-0.70%	Having failed at the 2002 and 2004 highs in April, and now retreating back down to support, we must watch for any signs of strength. If not, only bad things can continue to happen. So, will support hold, or not?
Wholesale	-3.89%	-0.97%	Not much to interest Simplespreaders here.
Computer Hardware	-4.04%	-1.04%	Since Apple went rotten in January at $85 after its two year run from $8, it's been nothing but the Blue Screen of Death for this sector. Some areas are barely holding at support. Now, if only the relative strength weren't so bad.
Materials & Construction	-6.61%	+1.10%	Plenty of upside bounce-back room here that won't mean anything. This sector has a mountain to climb before it can look investable again.
Health Services	-7.98%	-0.39%	Just when you think the sector might be able to get on its feet and escape the terminal ward, it practically dies again.
Internet	-10.96%	+2.59%	A good week. Now, we need a couple dozen more.
Statistical Data: TeleChart 2005