RealMoney Silver - IRA Investing: The Volatility Continues

IRA Investing: The Volatility Continues
By Richard Moore
RealMoney.com Contributor
12/5/2007 9:59 AM EST

The wild stock market ride continued over the past couple of weeks, fortunately culminating in slightly higher prices for the S&P 500 and my portfolio. The market is responding positively to government efforts to shore up the economy with interest-rate cuts and mortgage-rate freezes, and I am sure, given the fact that 2008 is an election year, there will be more supporting gestures to come. Will they be enough? Since I have no real insight into economic projections, I'm going to stay with my indicators for the best course of action.

The Indicators Speak

Those long-term indicators remain bullish but have continued to deteriorate in the last few weeks. The average stock has been weaker than the major averages, causing me to hold the evaluation of the indicator in neutral territory until additional time can pass.

Shorting by small investors and speculators remains very high and I continue to rate this indicator as bullish. Finally, stock valuation still seems very attractive, given the low level of interest rates. I view this indicator as bullish also.

My intermediate-term indicators are mixed now. Odd-lot investors continue to buy stocks at a high rate in spite of the decline in stock prices we have seen. The fact that they have not shifted more to the sell side is worrisome and leaves this indicator in a bearish position.

The equity-only put/call ratio improved somewhat during Thanksgiving week, only to stall out in the rally last week. This indicator remains neutral. Let's look at the difference in confidence levels exhibited by smart investors and dumb investors now:

Smart/Dumb Differential vs. the S&P 500

Click here for larger image.

This is a four-week moving average of data compiled at sentimentrader.com showing the difference in confidence levels between smart investors and dumb investors. This oscillator is shown in red. The S&P 500 is shown in black. This difference has been improving and crossed into bullish territory over +15 two weeks ago. Last week, the indicator improved further and still remains in bullish territory.

Sales and Purchases

This combination of indicators calls for a target cash position of 10%, down from the previous 15%. The actual cash position in my IRA at the end of last week was only 5.9%, but I have some sales planned for this week that will increase my cash level.

Since my last report, I reduced my position in Cal Maine Foods (CALM) down to what I consider to be a full position. I have held this stock for seven months and it still appears on my screening system as a buy.

However, it has performed so well that the holding size was far above a full position level. Therefore, I sold some of the position and plan to continue to hold for another seven months.

Most of my recent activity was related to the rebalance of my monthly screen that I actually accomplished on Nov. 26. This screen uses some of the same requirements as my regular screen, but substitutes an increasing volume requirement for the relative strength metric. I still require that any purchase be near its 52-week high.

Sometimes stocks purchased for the monthly screen cross over onto my regular screen, and that happened last week with two of my previous holdings. I converted them into regular holdings.

Casella Waste Systems (CWST) is a solid-waste services company that operates primarily in the eastern U.S. The stock seemed to meet my normal requirements for a regular holding, but upon further research, I have decided not to continue to hold this stock.

The discount to industry median is not quite large enough for me, and I am concerned about the high debt levels and previous management projections that indicate no growth for the balance of this year. I will sell this stock this week.

ICF International (ICFI) was also moved into the regular-holding category. This is a management services company that provides services to the U.S. government (a true growth enterprise), as well as commercial and international clients.

The company is involved in a very large project that is causing earnings to spike currently, but the project will go away next year. Other projects are also showing excellent results, allowing the company to report good outcomes and improving backlog. Even eliminating the one-time earnings from current results, ICF still sells at a 20% discount to the median company in the management-services industry on the basis of enterprise value/EBITDA.

So, in rebalancing my five-stock monthly screen, I sold Arch Chemicals (ARJ) , Res-Care (RSCR) and L.S. Starett (SCX) .

I bought Kirby Shipping (KEX) , Longs Drug Stores (LDG) , Clean Harbors (CLHB) , Labarge (LB) and Magellan Health Plan (MGLN) .

The Portfolio

The following table shows all the current holding of my IRA as of the end of last week:


Symbol	Name	Purchase Date	Cost	Price	Gain
Regular Holdings
AXYS	Axsys Technologies	8/27/2007	$24.14	$42.30	75.23%
CALM	Cal-Maine Foods	4/16/2007	$13.30	$24.63	85.19%
CF	CF Industries	5/3/2007	$40.57	$90.98	124.25%
CTV	CommScope	8/15/2007	$50.79	$40.50	-20.26%
CWST	Casella Waste Systems	10/23/2007	$14.60	$14.97	2.53%
ENS	Enersys	11/13/2007	$19.20	$23.27	21.20%
EXAC	Exactech	11/5/2007	$21.00	$19.69	-6.24%
FTO	Frontier Oil	9/7/2007	$40.60	$44.20	8.87%
GIB	CGI Group	3/9/2007	$8.52	$11.38	33.57%
ICFI	ICF International	9/14/2007	$25.28	$25.85	2.25%
KCI	Kinetic Concepts	2/6/2007	$49.75	$58.64	17.87%
LAYN	Layne Christensen	5/22/2007	$41.26	$56.95	38.03%
MEAS	Measurement Specialties	10/29/2007	$27.94	$24.61	-11.92%
NCX	Nova Chemicals	9/24/2007	$39.18	$32.34	-17.46%
OTEX	Open Text	9/14/2007	$25.68	$32.88	28.04%
PRXL	PAREXEL Int'l	6/12/2007	$39.80	$44.25	11.18%
RDEN	Elizaberth Arden	7/18/2007	$23.44	$24.03	2.52%
RSTI	Rofin Sinar Technologies	9/21/2007	$70.11	$91.04	29.85%
SGY	Stone Energy	11/1/2007	$43.74	$45.20	3.34%
SY	Sybase	11/13/2007	$25.79	$25.64	-0.58%
URS	URS Corp.	8/28/2007	$50.03	$57.49	14.91%
WDC	Western Digital	8/31/2007	$23.33	$27.63	18.43%
One Month Screen
CLHB	Clean Harbors	11/26/2007	$55.46	$53.74	-3.10%
KEX	Kirby Shipping	11/26/2007	$43.49	$48.07	10.53%
LB	Labarge	11/26/2007	$14.74	$13.73	-6.85%
LDG	Longs Drugs	11/26/2007	$53.88	$52.92	-1.78%
MGLN	Magellan Health Plan	11/26/2007	$45.94	$45.45	-1.07%
Performance Results As Of 11/30/2007			IRA	S&P 500
	Quarter To Date		3.1%	-3.0%
	Year To Date		33.5%	6.0%
Total Return For IRA S & P 500 Does Not Include Income For Latest Quarter

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Axsys Technologies, Casella Waste Systems, Exactech, ICF International, Measurement Specialties and LaBarge to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.