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INM February 2010 - The M Criteria Recently Raised A Warning Flag Again
Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net
CANSLIM.net


The Pro Bowl in Miami last night was a high-scoring shootout fairly typical of the all-star NFL football game, but it reminded me of how so many fund managers and individual investors are all offense.  Most have an "always in" mentality, and they do not seem willing to spend enough time on the sidelines.  The lack of a more aggressive offense (i.e. heavier buying outright, or on margin) was discussed in last month's INM article (read here) for having contributed to the underperformance that plagued many professional portfolio managers in 2009. It was suggested that investors should stick to "following the good old M criteria" and that the ability to generate above average returns depends on us doing a better job of that. However, those who are doing a good job of following the M probably ended the month of January with a heavier weighting in cash than in stocks than when the month began. This new decade has begun with a call for greater defense!

A number of investors called our Lighthouse Point office in the first part of January, having apparently started the new year with a resolution to be proactive on the buy side. We urged patience because so few ideas were truly matching up with all of the essential criteria of the investment system - which we steadfastly stick to. And by the time the month had ended, the M criteria was clearly pointing us in a different direction - away from having an active buying bias.

It seems like a wise option to consider, since the money market interest rates are so low, to pick up a couple of extra percentage points "safely".  So, a few long-time customers approached us in recent weeks with the idea of buying municipal bond funds.   The edge an investor might gain by moving cash from a money market fund to a muni bond fund has very little appeal in my view. I have disagreed with the suggestions many professionals have made of putting large amounts of capital to work in that manner.  The concern I have is that the perceived safety in many such investments may be far greater than truly is that case. I am not the only person who has considered the notion that municipal bond defaults could be a big problem in the future.  Ratings agencies let investors down before, and the amount of confidence that can be placed in them now is still very low.

None of us knows how long nd how deep the current correction may be.  However, in the Certification course they teach that the next confirmed rally can always be just one week away. Hopefully, the market will have another faily contained pullback and then resume with a healthier crop of strong new leaders.  This has been one of the encouraging characteristics of the rally since last March, where each pullback was followed by an expansion in the new highs list and more leadership coming from "growth stocks" and not cyclical or commodity-linked areas. 

Even if this correction turns out to be more substantial than the others we have since during the recovery period, eventually a new rally with a confirming follow-through day will come along.  In the meanwhile, we will continue closely tracking the market and the action in high-ranked stocks.  There is no need to force trades and generate activity for activity's sake.  Waiting until the system's rules tell us we have better odd again is the most prudent thing to do at this juncture.

About Kenneth J. Gruneisen, Founder and Contributing Writer, www.CANSLIM.net :
Kenneth J. Gruneisen has successfully completed the CAN SLIM® Certification Program.  Mr. Gruneisen became a Registered Representative in 1987 and his career includes experience offering personalized assistance to investors with more than a decade of experience as a Registered Principal managing a branch office.

The recommendations made by CAN SLIM® certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil & Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil & Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.


Comments contained in the body of this report are technical opinions only and are not necessarily those of Gruneisen Growth Corp. The material herein has been obtained from sources believed to be reliable and accurate, however, its accuracy and completeness cannot be guaranteed. Our firm, employees, and customers may effect transactions, including transactions contrary to any recommendation herein, or have positions in the securities mentioned herein or options with respect thereto. Any recommendation contained in this report may not be suitable for all investors and it is not to be deemed an offer or solicitation on our part with respect to the purchase or sale of any securities.

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The recommendations made by CAN SLIM® Certified individuals are their own and may not be attributed to the CAN SLIM® Certification Program, William O'Neil + Co., Investor's Business Daily or their affiliates. The CAN SLIM® Certification indicates only that the individual has successfully completed the CAN SLIM® Certification Program. CAN SLIM®, William O'Neil + Co., Investor's Business Daily and any of their affiliates are in no way responsible for any loss or damage caused as a result of the services provided by these individuals.

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