CANSLIM.net News SEPTEMBER 2003
"A Vital Source for the CANSLIM Investor" 

Volume 6, Issue 9 - $7.95 
Tuesday, September 1st, 2003 | 2:56 PM
 
SEPTEMBER  2003  CONTENTS
CURRENT MARKET CONDITIONS

Positive Post-Labor Day Action Carries Bullish Connotations
 by Kenneth J. Gruneisen, Registered Investment Advisor, Source Capital Group, Inc. Members NASD/SIPC

September and October are months known for their history of downward action and volatility. Yet, despite the quiet action normally associated with the summer months just passed, a positive bias has clearly developed in recent weeks, with the small-cap and mid-cap issues setting the pace for the market.  In fact, this cover story was held back just long enough for me to be able to report the S&P 500 Index’s post-Labor Day breakout above its prior June-July highs at 1,015.   So, with broad-based strength it is clear that the market has at least started the month of September by charging higher, with the bellwether S&P 500 Index confirming the recent strength shown by Nasdaq and a wide swath of smaller stocks. 

The latest broad market action carries with it some undeniably bullish connotations from many a technical analyst’s view.  Readers may recall, however, that in our recent issues we have looked closely at the financials for clues about the overall market outlook.  Right now, their chart action is improving as the NYSE Financial Index is climbing back above its 50-day moving average line and above a 7-week downward trendline.

It is worth noting that without the participation of financial issues, the sustainability of the major indices’ rally is questionable.  So, in the immediate days ahead investors should be watching for any signal of weakening or strengthening if the financial group.  Either such move can be expected to serve as a fairly reliable clue for how the overall market is likely to behave.  That means watching the NYSE Financial Index for more meaningful indications by either a break below the summer lows, or a move above the highs, to change from a basically neutral reading.  Meanwhile, it presently is hovering in the middle of that range and near its 50-day moving average line.

 While it seems to be a much-repeated theme these days, I am sure that our readers have noticed as the Nasdaq continually has outperformed the blue chip indices from their bear market lows.  The source of Nasdaq’s strength has been many strong showings from within the tech sector, and one could say the semiconductor group is the backbone of the tech sector.  So, with a look at the chart of the Semiconductor Index (SOX) you may note a brief violation of the 50-day moving average line (blue line) in early August, which was quickly repaired and soon followed by a move to new highs.

The good news is that the present rally looks even healthier when taking into account the widespread strength in many other key areas.  These include plenty of Retail, Medical, Transportation, Business Services, Telecom, Energy, Machinery issues.  Each of the groups just mentioned has shown leadership characteristics with a respectable handful of companies making the new highs list. 

Gold & Silver Index Breaks Out on Long-Term Chart

Outside of the other areas of strength we’ve already noted, mining issues are another group that has shown a bullish break in recent weeks.  Sure, this is a group that is often looked at as a defensive safe-haven, but chart readers will appreciate that the Gold & Silver Index (XAU) has cleared its May ’02 highs. This long-term breakout could carry some significance, and stocks in the group may be expected to follow through.  As a result, it is probably worth considering companies in the gold mining group with the best fundamental stories to accompany their good charts.  And in the event the market surprises us with a turn for the worse, the gold group can be at least one area that insulates the damage. 

MARKETS LEADING GROUPS
The purpose of this section is simply to make sure that you are familiar with the pace setters in each of these top-ranked groups at the present time.  The symbols of companies listed should not be considered specific buy recommendations, nor should you assume that all of the stocks listed are proper CANSLIM-based choices.  Know that your chances will be better by choosing a leading stock that meets the CANSLIM guidelines and is in a leading industry group, or essentially, one that has plenty of company or that is among several strong-performing peers. So, make yourself familiar with the list of the top performing industry groups and the leading stocks below.  
1  Internet-Content 6  Elec-Semiconductor Mfg  
  NTES, YHOO, ASKJ, SINA, FWHT  MRVL, LEXR, SNDK, SLAB, POWI
2  Internet-Isp 7  Elec-Semiconductor Equip  
  UNTD, JCOM, WEBX, CRFH CCMP, UTEK, BRKS, ASML, IBIS
3  Telecom-Wireless Equip 8  Retail/Whlsle-Cmptr/Cell  
  UTSI, KVHI, SLNK, QCOM, CMTL  NSIT, SCSC, CELL, CDWC, PCCC
4  Internet-E Commerce 9  Transportation-Airline  
  UOPX, AMZN, ECLG, AMTD, EBAY  AAI, JBLU, MESA, FRNT 
5 Elec-Misc Products 10  Medical-Nursing Homes  
   AFCO, RSTI, MTLG, RSYS, PLT   ODSY, SEM, VSTA, KIND, HCR
INVESTING   FOR THE   NEW  MILLENNIUM
How Can You Make Up Losses? The Key is Keeping Them Small
 by Kenneth J. Gruneisen, Registered Investment Advisor, Source Capital Group, Inc. Members NASD/SIPC

I am sure that if you have ever suffered a major loss you never want to have it happen again. Afterwards, as you get the courage to go about making more stock purchases, a successful investor must resolve to not make the same mistakes again and again. It shouldn’t take much convincing for everyone reading to agree that limiting losses in stocks with some sort of reliable defense mechanism makes good sense! If you feel timid about buying these days, at least know that you can be wrong many times (realizing losses several times) and still be fine as long as you limit the size of your losses and keep them to just a small percentage of the amount invested. That way, all it takes is one or two big winners afterwards and you can be ringing up an impressive net gain. 

Hopefully, more than a few of our longtime readers will recognize this repeated table, yet it has also been long enough that a reminder might also be considered due. In fact, here is what I suggest for any of you with a history of holding on to losing positions and letting them become magnified. Print an enlarged copy of the following % gain % loss table and tape it on the wall as a reminder you can see when you are making future investment decisions. It can help you improve your discipline at keeping your losses small and make the right decision next time. 

The table shows the (%) gain necessary to fully repair a preceding (%) loss. I am not trying to get over anyone’s head with fancy algebra here. This is simply a list of losses in increments of 5% along with the corresponding percentage gains that would be necessary to follow on the remaining investment money in order to repair the previous loss. See how minimizing a loss makes it possible for an investor to easily make up the difference with a gain that is only of a slightly larger percentage? But as losses are allowed to reach a higher magnitude it starts taking much greater percentage gains to repair the damage. 

This helps you see why losses greater than 7-8% can’t be allowed to run out of control. I hope we can find the mathematician who originally helped create this table for us (first appearing in our July 2000 issue) and thank them once again. 

Managing your risk should start by keeping your losses small. If you don’t have the discipline to sell when a loss is small, eventually you could find yourself sitting with a big loss that is very hard to make up. It is absolutely crucial to your long-term survival that you avoid too many large losses! For the greatest success, it is recommended that you use a systematic approach to go about removing the weakest stocks from your portfolio first. Sell whenever you see a stock break O’Neil’s basic 7-8% ground rule for selling, or be prepared to suffer the painful consequences. Continuing to hold a stock that technically breaks down can sometimes become a long-term proposition, and it is not wise to let a position continually deteriorate day after day or week after week. If you are holding a stock with a larger loss, unwilling to sell and determined to hold until it improves, you must realize that during the time you sit holding onto a poorly performing issue you are locking up funds that could be put to work in a more constructive area. It is never too late to sell a losing position and move on, and often that is the smartest thing you can do to put yourself closer to buying the next big CANSLIM-based winner!

This is Not a Time for Bargain Hunting

So, when you’ve done the job correctly and put some duds behind you by selling, what should you do with the cash you have ready to invest? Don’t go bottom fishing! CANSLIM investors should focus on the best-looking, high-ranked leaders. Assuming small-cap and mid-cap stocks continue their latest run of strength, there may be many new and continuing breakouts in the immediate future. Also, in the short-term it would be better to have the confirmation of the S&P 500 Index accompanying the Nasdaq and other small and mid-cap indices in their latest break to the upside out of their summertime trading ranges. 

While watching for that broad-market confirmation, investors are no doubt being reminded of the market's history of September-October declines. In the words of the great trader, Mark Douglas, it is important to "trade what you see, not what you believe". If the market sprints higher, don’t hesitate to latch onto a good one.

Always choose quality, high-ranked leaders within the CANSLIM guidelines. For now, give the market and the best acting stocks the benefit of the doubt until you see a reason to do otherwise by either a technical failure or violation of sound selling rules. In each specific case with individual issues, as always, we recommend the use of a strict selling discipline to always protect from losses growing greater than 7-8%. 
Kenneth J. Gruneisen - A Registered Investment Advisor & Registered Principal, Ken manages a Source Capital Group (Member NASD,SIPC) branch office and offers personalized assistance. Investors with a significant financial interest in equities may inquire about opening an account by calling 1-888-237-8399 or emailing to kgruneisen@sourcegrp.com

Comments contained in the body of this report are technical opinions only and are not necessarily those of Source Capital Group, Inc. 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. Source Capital Group, Inc. is a NASD/SIPC member firm.

Further information is always available upon request. If you know anyone that may have an interest in receiving this or any of our other reports, please call our office locally at (954) 785-1990 or (888) 237-8399 or email kgruneisen@sourcegrp.com
STOCKS    TO  WATCH   IN   THIS  NEW    MARKET

EDITORS NOTE: THIS SECTION WAS PART OF THE 
"EARLY EDITION" RELEASED SUNDAY, AUGUST 31st, 2003
"Trade What You See, Not What You Believe"
 Assuming small-cap and mid-cap stocks continue their latest run of strength, there will be many new and continuing breakouts. In this section we aim to give you some of the better ideas to focus on under the guidelines outlined by O’Neil in "How to Make Money in Stocks". In the short-term it would be better to have the confirmation of the S&P 500 Index accompanying the Nasdaq in the latest break to the upside out of its summertime trading range. But while watching for that broad-market confirmation, investors are also reminded of the market's seasonal history. It is no secret that the September-October period has often brought declines. For now, however, it may be most important to "trade what you see, not what you believe", in the words of the great trader, Mark Douglas. Give the market and the best acting stocks the benefit of the doubt until you see a reason to do otherwise by either a technical failure or violation of sound selling rules. In each specific case with individual issues, as always, we recommend the use of a strict selling discipline to protect yourself from losses greater than 7-8%. 

K-Swiss, Inc.
by Mark Van Kampen

www.kswiss.com

Ticker Symbol: KSWS (Nasdaq)

Industry Group: Apparel - Shoes Rel Mfg

Shares Outstanding: 17.6 Million

Price: $39.74 (at close 08/29/03)

Day's Volume: 219,066  (at close 08/31/03)

Shares In Float: 12.1 Million

52 Wk High: $39.89

50-Day Avg Vol: 218,300

Up/Down Vol Ratio:  0.9

Pivot Point: $39.69 (7/15/03 high plus .10)

Pivot Point +5% = Max Buy Price: $41.57

Financials, Historical Prices, Industry, Insider, Messages, News
Options, Profile, Reports, Research, SEC Filings

Profile:  K-Swiss Inc. designs, develops and markets athletic footwear for sports, fitness and casual wear under the K-Swiss brand. The Company also designs and manufactures footwear under the Royal Elastics and National Geographic brands.  KSWS reported record earnings and revenue on July 29th.

What to Look For and Look Out For:  Look for support at the upward trend line as the first line of defense, with the 50-day moving average near $37 as yet another important support point of reference.  Taken in the context of a quiet August, and going into a holiday weekend, Friday’s 218,000 shares against August’s 108,000 daily average was stronger than it might at first appear.  Watch the overall action in the retail sector for continued confirmation.  A more significant increase in volume behind any further price progress would be another sign of meaningful institutional demand.

Technical Analysis: K-Swiss closed at a new high on Friday 8/29, clearing a 7-week base with what could be called a short 3-day handle.  This is not uncommon with market leaders, but after a fall back in a slightly downward sloping handle on light volume there is often a stronger case for a longer upward trend with lower risk. KSWS is sitting near its pivot point, but is not displaying the volume action usually associated with a classic breakout.  Ideally, a stock will break out with volume 50% above its daily average.  Using its typical 50-day average, Friday’s volume was barely above the mean.

Metrologic Instruments
 by Mark Van Kampen

                         www.metrologic.com

Ticker Symbol: MTLG (Nasdaq)

Industry Group: Computer Peripherals

Shares Outstanding: 8.5 Million

Price: $40.25 (at close 08/31/03)

Day's Volume:  419,508 (at close 08/31/03)

Shares In Float: 3.3 Million

52 Wk High: $(8/31/03)

50-Day Avg Vol: 146,900

Up/Down Vol Ratio: 1.6

Pivot Point: $39.79 (7/09/03 high plus .10)

Pivot Point +5% = Max Buy Price: $41.78


Financials, Historical Prices, Industry, Insider, Messages
News, Profile, Reports, Research, SEC Filings

Profile: Metrologic Instruments Inc. designs, manufactures and markets bar code scanning and high-speed automated data capture solutions using laser, holographic and vision-based technologies. MTLG declared a 3:2 stock split effective July 7th, 2003. It proposed a public offering of additional shares on 8/1/03. On Monday, August 25th, the company raised both earnings and revenue guidance for third quarter and for the year 2003.

What to Look For and Look Out For:  Until the stock offering is completed and the market has time to digest those additional shares, MTLG may have a harder time making much progress.  It has been forming a new base since July 9th after a very strong run up that began in November ‘02.  While earnings have been strong, expectations are equally high.  MTLG has not had consecutive down days on big volume since mid-June, and that kind of price-volume behavior would be cause for reconsidering.  It is important to have strict selling discipline, as one should realize that after having rising four-fold since April, in this kind of scenario there is always the possibility of a sharp pullback.  Where it previously faced resistance near $39 and was turned back, that is now a somewhat important chart area that will need to serve as support.

Technical Analysis: MTLG tested and held it’s 50-day moving average four times in mid-August, and is now nearly $11 above that point.  While the last two trading days have been high-volume breakout sessions, there has been a sharp sell off in the final hour on both days that caused it to close well off its intra-day highs.  This action hints that there are still a number of willing sellers who may be losing patience.

Coach, Inc.
 by Tate Dwinnell

coach.com

Ticker Symbol: COH (Nasdaq)

Industry Group: Retail – Clothing/Shoe

Shares Outstanding: 90.8 Million

Price: $58.04 (at close 08/29/03)

Day's Volume:  501,500 (at close 08/29/03)

Shares In Float: 88.1 Million

52 Wk High: $58.17

50-Day Avg Vol: 776,000

Up/Down Vol Ratio: .9

Pivot Point: $57.50 (8/21/03 high plus .10)

Pivot Point +5% = Max Buy Price: $60.38

Financials, Historical Prices, Industry, Insider, Messages, News
Options, Profile, Reports, Research, SEC Filings

Profile: Coach is a designer, producer and marketer of modern American classic accessories and a leader in the high end retail industry. With an average quarterly sales increase of 33% over the year ago period in the last 4 quarters and an average quarterly earnings increase of 75% over the year ago period in the last 4 quarters, it is a company with superior fundamentals.  In addition, Coach is part of a rapidly rising industry group that is now in the top 10% of all 197 industry groups listed in IBD.  Considering that the economy is improving and the holiday season is just around the corner, this is a stock that may continue to do very well.

What to Look For and Look Out For:  This is a stock that on Friday August 29th, 2003 surpassed its resistance area of around $57 (green line).  However, it didn’t do so with heavy volume.  In the next few days look for a surge in volume as the stock rises, which would indicate the institutions are jumping aboard and signal further gains for the stock.  Consider taking half of your position now and taking the other half on a surge in volume.   However, avoid buying above the $60.38 max buy point to minimize risk of being stopped out at an 8% loss.  As always, a breach of the 50-day moving average  (blue line) with heavy volume would indicate weakness and be a likely sell signal for the stock.  Another thing to keep an eye on is the upcoming 2-for-1 split on October 2nd.  The stock last split 14 months ago, and it could run into trouble as the float supply will double.  Let the charts tell you if you should be selling!

Technical Analysis: This is a stock that appears to have made its first big move on April 22nd with a breakaway gap on heavy volume (always a very bullish move).  From there it has risen over 40%, where it has been consolidating for the past 7 weeks, providing an excellent entry point for the stock.

Ventana Medical Systems, Inc.
by Tate Dwinnell

ventanamed.com

Ticker Symbol: VMSI (Nasdaq)

Industry Group: Medical- Systems/Equip

Shares Outstanding: 16.4 Million

Price: $40.44 (at close 08/29/03)

Day's Volume:  51,000 (at close 08/29/03)

Shares In Float: 11.2 Million

52 Wk High: $40.58

50-Day Avg Vol: 94,400

Up/Down Vol Ratio: 1.2

Pivot Point: $38.45 (7/29/03 high plus .10)

Pivot Point +5% = Max Buy Price: $40.37

Financials, Historical Prices, Industry, Insider, Messages, News
Options, Profile, Reports, Research, SEC Filings

Profile:  Ventana Medical Systems, Inc. is the leading global supplier of automated instrument reagent systems to histology laboratories.  They develop, manufacture and market instruments and consumables that automate tissue preparation and slide staining in anatomical pathology and drug discovery laboratories.   Ventana's clinical systems are important tools used in the diagnosis and treatment of cancer and infectious diseases. Ventana's drug discovery systems are used to accelerate the discovery of new drug targets and evaluate the safety of new drug compounds.

What to Look For and Look Out For:  On Friday, VMSI moved past the "max buy point" for this stock by $0.07.  With a very small float, this is a stock that could move and move fast.  Keep in mind that stocks with a small float could drop as fast as they rise, so it is important to minimize risk by not chasing a stock too far past the ideal buy point.  Look for the stock to enter its buy range again before purchasing, as many stocks take a rest and/or retest prior resistance (new support) after the initial breakout before resuming their advance.  As always, a breach of the 50-day moving average (blue line) with heavy volume would be cause for concern.

Technical Analysis: VMSI is a stock that appears to have formed a long two-year base with a high handle.  On August 27th it broke through its pivot of $38.45 (green line) on decent volume, and it has continued upward and nudged just past the maximum buy point.  

 
Each month the above section is compiled by several expert contributors who hand pick these ideas.  In this issue we have insight from the following experienced professionals:
Kenneth J. Gruneisen - A Registered Investment Advisor & Registered Principal, Ken manages a Source Capital Group (Member NASD,SIPC) branch office and offers personalized assistance.  
 (954) 785-1990 or (888) 237-8399 or email kgruneisen@sourcegrp.com		 Mark Van Kampen -  an independent investment analyst with more than 20 years of experience. mvankampen@aol.com Tate Dwinnell - Private Investor. Holds a
Western Washington University degree focused in Mathematics and Economics and a Member American Association of Individual Investors
 		John Derway - Vice President,  Coburn & Meredith. A Stockbroker and Registered Investment Advisor for 25 years.  
150 Trumbull Street, Hartford, CT  06103 1-800-825-2244 ext.334
jderway@coburnfinancial.com 		 Dee Hendon - Professional technical market analyst. Years of experience in investing and using CANSLIM. 
INVESTOR's EDGE          
Odds Favor a Move to the Upside - Give the Market the Benefit of the Doubt
 By Gary Kaltbaum, TradingMarkets.com
Let me be blunt right out of the box. Pay no attention to anyone on Wall Street who are telling you to sell now because it is September. Pay no attention to anyone telling you the market is about to get trashed. Of course, anything can happen. But, the fact is the technical condition is in too good of shape to get in real trouble here. In fact, it is just the opposite. There are just too many stocks that are acting well and not enough that are breaking down to cause this market to go lower. In fact, if the S&P 500 busts out above 1016, you may get another round of short covering...leading to higher prices. Yes, I know the VIX is low. I know volume has been light. I know that there are too many bulls out there. I know that the market is overvalued. I don't care. I am a technician first and as of right now, the market is saying otherwise...and until it says otherwise, I believe it is folly to be short the market...and I know some of you probably are. Will there be heck to pay eventually? Maybe...but we must let the market be our guide. Opinions count for nothing.

Technically, small and mid-caps continue to rule the roost. But if FINANCIALS get legs, the S&P will easily break out. The FINANCIALS held support (take a look at the BKX) last week. FINANCIALS are 30% of the S&P. That's why the S&P started to move. The SEMIS are now very extended...and should pull back a bit soon. I will not buy a lot until a pullback occurs.

Other Positives...

THE NEW HIGH LIST has expended quite nicely over the past few days.

WORLD MARKETS are going along for the ride...and ASIA is cooking.

THE BOND MARKET seems to have put in a short-term low...and may start a relief rally.

In any event, I believe the market will show its hand very quickly. I don't believe this trading range will last too much longer. Odds favor a move to the upside. Until things change, give the market the benefit of the doubt.

Gary Kaltbaum is an investment advisor with over $100 million under management. For over 18 years he has specialized in identifying and trading growth stocks in the intermediate-term time frame. He can be heard nightly on his nationally syndicated radio show "Investors Edge" on over 50 radio stations and at the Investors Edge website. Listen to live or archived shows here. He has been featured on the FOX News Channel and is regularly quoted by by CNBC, the Wall Street Journal, Dow Jones News, Reuters, and Bloomberg.
MARKET SENSE         

Fidelity’s 529 Plans. An Excellent Way To Fund Your Children’s Education, While Simultaneously Removing The Deposited Monies From Your Estate!
 Article by Soraya Nasrallah, Registered Representative, Source Capital Group, Inc. Members NASD/SIPC

Ever since the market started its upward move I have seen an increased interest in the market shown by a wide variety of investors. I can’t believe the market keeps chugging along, and the DOW seems to get closer and closer to the 10,000 mark each day. A few dips would actually be healthy occurrences. 

Overall, the components that make up our economy seem to be improving, which is helping our future economic outlook, and helping the market’s outlook. Let’s face it - after every slump we have ever gone through we always managed to get back on track and move forward. It is just a fact of the economic cycle; we go up, we go down, and we go back up again. 

The rising cost of education makes it a must that you set aside the necessary funding as early possible for your children to be able to afford a college education.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 brings to investors the benefit of investing without the worries of high tax rates imposed on capital gains or dividends! Dividend income offers us the opportunity to take advantage of the returns that may be obtained from investing in dividend paying stocks, which usually carry a lower risk level (and you may select to receive or re-invest the dividends). Here are a few facts of the new act.

     1. The tax rate brackets of 27%, 30%, 35%, and 38.6%, have been reduced to 25%, 28%, 33%, and 35%, respectively.

     2. The maximum tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) has been reduced from 20% to 15% (and from 10% to 5% for taxpayers in the 10% and 15% tax rate brackets)

    3. The same 15% (or 5%) maximum tax rate that applies to net capital gain also applies to dividends paid by most domestic and foreign corporations after December 31, 2002.

What is a 529 Plan? A 529 Plan College Savings Plan, formally known as a Qualified Tuition Programs (QTPs), is a state-sponsored college investment program that qualifies for special tax advantages.

 With that said, I want to offer you some wonderful information about investing for your child’s or a loved one’s education with Fidelity’s 529 Plans!

     1. You may open a 529 Plan for any beneficiary, child, spouse, parent or relative.

     2. Each donor may deposit per plan a gift of $11,000 per year or $55,000 for a five-year period. There is a cap of $250,000 per 529 Plan! Gifts (as they are called) are removed immediately from your estate.

     3. Federal tax-deferred growth and tax-free withdrawals when the monies are used for a variety of qualified expenses, (in the prospectus on page 10 you will see information on what these qualified expenses are). Depending on where you live, you may also obtain state tax-free withdrawals. 

     4. The “A” shares are recommended due to the fact that they carry the lowest expense ratio, the yearly charge imposed by Mutual Fund companies for their expenses. This fee is charged based on the monies inside the fund, so while your fund grows, you will be charged less in comparison to the other classes of shares. Breakpoints are available.

     5. A variety of investment choices available, from individual funds to age-based portfolios (investments that are reallocated from aggressive to conservative as the beneficiary reaches his or her college years). Sample: If the beneficiary will be attending college in 10 years, then the age-based portfolio 2013 would be the correct choice.

     6. By enrolling into their no annual fee credit card program, you will earn (free money) 2% on all purchases when you link your new credit card to your 529 Plan of choice. This 2% will be automatically deposited into the 529 Plan you have selected. Anyone can apply to obtain this credit card and link it with the 529 Plan of his or her choice. This enables others to contribute to the cause! It is a great way to help your investment grow.

     7. You maintain control of the monies within the 529 Plan, unlike the (UGMA/UTMA) accounts. Also, unlike the Coverdell Educational Savings Plan (which carries mandatory age disbursements), 529 Plans do NOT have age restrictions.

     8. You may change beneficiaries, determine time of withdrawals and even reclaim your assets (they will revert back to your estate).

     9. Proceeds may be used to attend any school in any state!

   10. 529 Plans are open to anyone regardless of income level (unlike the Coverdell Plan).

   11. You can avoid Fidelity’s $30 yearly fee by gifting a lump sum of $25,000 per plan.

   12. Growth is taxed as ordinary income and a 10% penalty is assessed for proceeds NOT used for qualified college expenses.

   13.  IRS form 709 is the form used for monies entering a 529 Plan that will be removed from your estate. (Your accountant will know what to do).

 Please feel free to contact me if you have any questions regarding Fidelity 529 Plan(s).

 
Soraya Nasrallah, obtained her Series 7 license in 1992, and has served in the capacity of Sales Assistant, Head of Operations Department, and Stockbroker.  Contact Soraya Nasrallah via email at snasrallah@sourcegrp.com or by phone at (954)785-1990 for assistance you with your portfolio. She will be pleased to offer ideas that suit your investment needs, and she can help you achieve the gains you have been searching for.  Miss Nasrallah will soon introduce a new 12-month educational program called StockWiz News! specifically created for teenagers and novice investors, incorporating stock market basics with CANSLIM in a colorful and picturesque format. It is the perfect gift for those who just don’t know much about the world of stocks and investing!

Comments contained in the body of this report are technical opinions only and are not necessarily those of Source Capital Group, Inc. 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. Source Capital Group, Inc. is a NASD/SIPC member firm. 

 SPECIAL      ARTICLE                    

Ideas for Managing Mutual Funds
Article by Dee L. Hendon

Part I - Inverse Mutual Funds

Many of you are invested in mutual funds and have been for years.  You have probably done very well unless you began investing within the past five to seven years.  However, in the mid to late 1990’s some investors began using inverse and leveraged mutual funds, and if you were one of these investors you were able to hedge or even short the market during the severe bear market of 2000.

Text Box: “SHORT FUNDS HAVE LESS DOWNSIDE [RISK] THAN SHORTING INDIVIDUAL STOCKS”…”THESE INVESTMENTS ALSO GIVE INDIVIDUAL INVESTORS A CHANCE TO HEDGE THE VERY RISKS THAT HAVE SHOOED SO MANY OF THEM TO THE SIDELINES.” Money Magazine, August 2002 There are a multitude of investors that are not aware of these products, and many who could benefit from them.  Those of you that manage your IRA and 401k accounts should know that you can short the S&P 500, Nasdaq Composite or the Nasdaq-100 indexes, and perhaps use these types of investment to protect your accounts in a severe market downturn.  Other investors with taxable investing accounts are exposed to adverse tax situations that can possibly be avoided by using an inverse fund to hedge a position in your taxable account, instead of selling at an inopportune time and thus incurring the tax.

 Let’s look at inverse mutual funds and a couple of different approaches to better money management. 

 What is an inverse fund?  Normally mutual funds increase in value when the underlying security appreciates in value, such as an  S&P 500-index fund. An inverse fund, on the other hand, is a mutual fund that that is designed to appreciate in value when market indexes are declining in value. For this reason they are sometimes called bear or negatively correlated funds.

 Why are they gaining popularity?  In the past, investors simply had to ride out severe down turns or bear markets and hope their losses were small and the market would turn around.  Over the past three years, investors decided this wasn’t the best approach to managing their assets.  Companies like Rydex Funds and ProFunds have added inverse funds to their other mutual fund offerings. They offer investors and money managers an additional option to protect profits after a big run up in the market, and/or the opportunity of making a profit by shorting the market in a downward trending market.

 

 The chart above illustrates the divergence between the Rydex Ursa Fund (the S&P-500 index inverse fund) and S&P-500 Index.

How do these funds work and what are the risks?   They are created by shorting stocks, or by purchasing or selling options on certain securities, and through the purchase of futures contracts.  The risk of any mutual fund is capped on the amount invested, but individuals investing in derivatives like the ones mentioned above can potentially create losses exceeding their initial investment.  For this reason inverse funds are less risky than buying derivatives on an individual basis.  Additionally, expenses incurred by an individual using these hedging techniques can be much greater, while in a fund the economies of scale can work to an investor’s advantage.

Some of the Benefits of Inverse Funds 

   1. They act as a hedge to your overall market exposure. 
   2. They can counterbalance higher risk sector holdings.
   3. They can be held in retirement accounts.
   4. They eliminate the need to speculate on where market tops or bottoms will occur because of the protection of hedging.

Which Investors can Benefit from Inverse Funds?

   1. Investors not wanting to incur capital gains taxes.
   2. Investors over weighted in specific sectors.
   3. Investors seeking to reduce market volatility and downside market risks.
   4. Investors seeking to protect profits in a market correction.
   5. Investors who want to take advantage of bear markets.  In closing, let me stress that for the average investor theses funds are designed to hedge not speculate, even though many people trade in and out of inverse funds.  Inverse funds are not to be confused with “leveraged” funds.  Leveraged funds will be our topic in Part II of this series.  Switching funds can cause additional expenses, if your fund charges for these services. 

And of course I couldn’t end this article without saying, “we do not endorse any funds mentioned in this article and past performance is not a guarantee of future performance.” Do your homework and make sure all investments are suitable to your financial situation. 

Next month will be Part II of this series:  Leveraged Mutual Funds.

 
If you need further information, feel free to contact me via e-mail at dhendon@cfl.rr.com or by telephone at 407.736.1780.
EDITOR's LETTER               


Time Flies, New Arrive, We Meet and Then Remember

     It's already September! One thing that I realize is that when you run a publication with a deadline every 30 days or so the months just seem to whip on by. At this rate I will be Christmas shopping before I know it!  August seemed a little short for me, but I really had a good time while it lasted and I hope you all did as well.  Our days here were filled with lots of praise form subscribers who really are enjoying our products and services. Our subscriber list is growing, allowing us to provide better services and continue to grow as a company. In fact, we recently hired Mr. Frank DeBold to head up our Customer Care department.  Frank's strong work ethic and honest character help him fit in well with us, and I am proud to have him representing our company. As some of you know, we like to take very good care of our customers. We strive for those who call in to be able to immediately speak with someone who is polite, knowledgeable and helpful.  Some folks have even been surprised with this level of service and remarked "Wow, I didn't expect to actually get to speak with a live person!"  to which we simply have responded "Well Sir, as a matter of company policy we don't hire any dead people!" 

     From most all accounts the month of September is slated to turn out to be a good month for the overall markets.  If we find that is the case, then we will have a chance to publish more of our reports including CANSLIM.net Stock Bulletins, CANSLIM.net Special Reports and CANSLIM.net Stock Alert Reports. You will receive all of these publications via email as soon as they are released.  No username or password is needed as we send you the direct links. Other services may overwhelm you with stock ideas by giving you a long list every day. The frequency at which we release our reports is dictated by the overall market conditions.  Also, keep in mind that we are a news company, and that our reports contain more editorial substance than a simple list of ticker symbols. At this point we have a fantastic editorial staff of "CANSLIM Experts" and we are poised to be bringing you the best CANSLIM based news and stock information as these pros notice the most ideal opportunities unfold.

    In August, the Investor's Business Daily held their first nationwide meet up. I have heard from several of you asking if there was any way we could help provide good educational information for your meetings. To that I can say that we have an archive of Power Point presentations, videos, printed materials, etc from our previous seminars that I would gladly forward along to anyone who is in need. We may even be able to do a live presentation at a meeting if the demand was great enough. Just write in or call and ask. As always we'd be glad to help.
     On a closing and somewhat somber note, I am sure that I need not remind anyone that the 11th of this month marks the 2 year anniversary of the attack on the World Trade Center.  Take a moment on that day to remember those we have lost, and what we stand for as a country.

 
As always, best wishes for your financial success,

James F. Taulman
Editor-in-Chief, COO
CANSLIM.net News
CANSLIM.net, Inc.

 

If you know someone who might find this report or the features on our website useful, please tell them about http://www.canslim.net/.  As CANSLIM.net's subscriber base grows we are able to offer more FREE resources to help you become a more successful investor.  We appreciate hearing any feedback that you may have. Please submit any questions, comments or suggestions here.

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. This is an unsolicited opinion, and CANSLIM.net, Inc. has not been compensated in any way by the company(s) mentioned in this report.

Comments contained in the body of this report are technical opinions only and are not necessarily those of CANSLIM.net, Inc.  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.  This is an unsolicited opinion, and CANSLIM.net, Inc. has not been compensated in any way by the company(s) mentioned in this report.

Charts provided by www.stockcharts.com unless otherwise noted. 

Copyright © 1999-2003 CANSLIM.net. All rights reserved.
Protected by the copyright laws of the United States and Canada and by international treaties.
Privacy Policy | Terms of Use | Contact Us