IRA Investing: Moving With the Times

When the energy area came to dominate the names picked out by my screener, I was cautious, because the situation looked like a bubble, and I held fast to principles of diversification. I also was quick to eliminate stocks that had declined 20% from purchase price, thus preventing any truly horrible losses.

My worst mistake last year was investing in S&P 500 Depository Receipts (SPY - commentary - Cramer's Take) in order to hold my cash position at what I thought were appropriate levels. My screening system was trying to tell me that the market was not attractive, but I didn't listen closely enough. While I may use ETFs again to take advantage of market opportunities when my indicators are at extreme levels, I will be quick to eliminate those investments when my indicators show more normal levels.

This week, I see continuing weakness that has brought most of my indicators into neutral territory. All of a sudden, odd-lot selling picked up dramatically last week. This activity caused the indicator to increase but still not to bullish levels. I am positing that this increase in selling was due to year-end activity, especially taking losses as the year ended. We will have to wait until the statistics are in for this week before making a definite judgment.

The money flows into the Rydex family of funds showed a slight tilt to the bullish funds, bringing the indicator down into neutral territory. Similarly, the confidence level of smart investors held constant, while the mood of dumb investors increased significantly, leading to a decline in the indicator and a neutral reading.

Finally, let's look at the equity-only put/call ratio:

Put/Call Ratio vs. S&P Barron's

This chart goes back into 2002 and shows a four-week moving average of the equity-only put/call ratio in red. It has been adjusted to remove longer-term trend influences. The S&P 500 is shown in black, and the green trendlines relate to the average of the indicator and its standard deviation. After posting extreme bullish readings in October and November, this indicator has declined precipitously now. Last week was the second week in a row of very low readings. While this is only a short-term red flag at this point, further market strength could be a cause for concern.

I continue to believe that more base-building and testing is needed before the market is ready to move higher in a sustainable way. There continues to be no discernable leadership for a new bull market -- so far we have simply seen weak stocks rebound from oversold levels. My screening system is not finding many new ideas to pursue, so my high cash position will likely hold back my performance if the rally continues. I am going to take advantage of the opportunities offered me by my screening system and not force the issue at this point.

There were no transactions in my IRA last week.

The table that follows shows all of the current holdings in my IRA as of the end of last week:

I will be out of town next week, so my next article will appear during the week of Jan. 19.

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At the time of publication, Moore was long Atrion, Conmed, Iamgold, Lincoln Educational, Southside Bancshares, Smithtown Bancorp, Sybase, USA Truck and VSE Corp., although positions may change at any time.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Atrion, Conmed, Lincoln Educational, Southside Bancshares, Smithtown Bancorp, USA Truck and VSE Corp. 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. Richard Moore, CFA, has 40 years of experience in various facets of the investment business. He has been employed by banks, mutual funds and investment advisory organizations during his career and has also owned retail and service businesses. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Moore appreciates your feedback; click here to send him an email.