How Stella got her groove back...and kept it

When it comes to Stella-Jones Inc. (TSX:SJ), investors should be impressed with its Bullish stamina. SJ ranks at the top of the Toronto Stock Exchange in terms of Stock Trends Bullish longevity - logging in an incredible 255 weeks to date. In case you have never heard of SJ, today's Report on Business in The Globe and Mail can help:

 

AN UNORTHODOX POWER PLAY

Ever wonder where all those utility pools and railway ties that line our highways and byways come from? Stella-Jones Inc. of Montreal.

The only public company of its kind in North America was rated "buy," with a price target of $42.50 in initial coverage by Desjardins Securities. The stock is unchanged at $36.03 on the TSX Thursday, after coming from $17.50 last summer.

SJ was founded in 1993 out of Domtar Inc.'s wood preserving assets. Since 2003, it has spent about $110-million on acquisitions that have generated new sales of $160-million, winning a 15 per cent market share in North America. Running at a rate of one acquisition per year, SJ is the industry's leading consolidator, says analyst Pierre Lacroix.

He likes the story both for its internal and growth-by-acquisition potential. Two years ago, SJ expanded into the United States, which is expected to be the main growth platform, including acquisitions, in coming years, he predicts.

Given its growth potential, he is "confident that SJ will be able to maintain high valuation multiples in the next 12 months."

 It seems this bullish trend may reach epic proportions.

 

Stock Trends Report on SJ:

http://www.stocktrends.ca/?page=streport&symbol=SJ-T

Toromont Industries advances

Recent strength in industrial stocks has translated into an improved outlook for Toromont Industries Ltd. (TSX:TIH). TIH advanced 10% over the last week, and is now one of the Stock Trends New Weakening Bearish stocks. The stock's move about resistance at $25 signals that the stock may move to its August highs above $26.

Stock Trends Report - TSX:TIH
http://www.stocktrends.ca/?page=streport&symbol=TIH-T

Stock Trends TSX Portfolio trading results

The Stocks Trends TSX Portfolio trading strategy has been active for over 13-years. It has generated 43.5% annualized return on average investment (See http://www.stocktrends.ca/?page=stport ). However, this result is not the full story. It is always beneficial for investors to look at the trading statistics of their portfolio record. This analysis reveals the true character of the trading strategy.

The ST Portfolio equity line (see below) shows the path to its current level. In the 690 weeks since inception there have been 393 positions taken to date. The number of winning trades (159) gives this mechanical trading strategy a 40% success rate on individual trades. This may seem low to inexperienced investors, but many successful traders have winning percentages below 50%. Indeed, professional traders expect losses – they are a part of the business of trading. Generally, traders manage to succeed against these odds because they limit position losses and let profits run.

Stock Trends TSX Portfolio Trading Statistics

• Total Gain $240,912 (577%)
• # of weeks 690
• Total # of trades 393
• Winning Trades 159
• Losing Trades 234
• Winning % 40%
• Average # of weeks each position held 7.3
• Average # of positions held each week 4.2
• Average Gain $3,028 (30%)
• Average Loss $1,028 (-10%)
• Average Investment $41,737
• Average trade $10,000
• Maximum Drawdown (%) -34.2
• Largest Gain $40,880 (409%)
• Largest Loss $3,542 (-35%)
• Maximum losing trades in Succession 12
• Standard Deviation 7.7%
• Ulcer Index 9.8
• Profit factor 2.00
• Pessimistic Return Ratio 1.97

The Stock Trends Portfolio gives an example of this relationship. The average return on winning trades is 30%, while the average loss is 10%. Although there is some variability in returns – the standard deviation is 7.7% - the sporadic achievement of some hyper-return trades generates the desired positive result. The skewed distribution of returns shows a clustering two standard deviations around breakeven. The vast majority of trades cancel each other out, leaving the portfolio returns determined by the balance of high return trades versus the limited losses of the losing trades. Traders will recognize this pattern: managing losses of frequent infield hits in between scoring periodic “home runs”. Some of highly profitable trades are documented in the Stock Trends TSX Portfolio trading history found at ( http://www.stocktrends.ca/stonline/stp-tsx1.php ).



An important consideration for traders is drawdown, or the drain on equity that invariably comes when trading goes sour. Indeed, even with an exceptional winning percentage of 75% there is a 10% probability that a trader will experience a loss run of 5 (See Van K. Tharp’s article on randomness and streaks at http://www.iitm.com/Weekly_update/Weekly_241_oct_12_2005.htm ).

That means that even the most prescient stockpicker will face drawdowns. The Stock Trends TSX Portfolio trading record shows the longest loss run (Jan 1997 to May 1997) was 12 trades but only resulted in a 4% drawdown. However, a run of 10 losses lead toward the biggest drawdown (-34%) in mid-1999. As the graph of the ST equity line shows, the portfolio was in a prolonged drawdown phase from mid-1997 until early 2000.

These areas of drawdown are measured by the Ulcer Index. The Ulcer Index was originally devised by Peter Martin in 1987 and described in The Investors Guide to Fidelity Funds: Winning Strategies for Mutual Fund Investors (See http://www.tangotools.com/ui/ui.htm ). The UI differs from Standard Deviation in that it measures risk only on the downside and exposes the risk of sequences of losses. As described by Martin: “Ulcer Index measures the depth and duration of percentage drawdowns in price from earlier highs.”

As a comparison of drawdown, the S&P/TSX Composite Index is shown with its Ulcer Index graphed along with the Stock Trends TSX Portfolio Ulcer Index. The ST Portfolio managed to provide risk protection against the considerable 5-year drawdown after the September 2000 market collapse. This shows us that the buy-and-hold approach exposes investors to higher levels of risk compared to market timing trading systems. Stock Trends promotes the use of trend analysis in the timing of trades not only to generate superior returns, but to also limit downside risk.

Platinum Group shines

The shares of Platinum Group Metals Ltd. (TSX:PTM) advanced 18% today, closing at $2.84. This is a welcome move for holders of PTM as the breakout of early Q4 2006 seemed more promising than it delivered since. Until this week the $2.50 mark was setting up as a stubborn resistance level - the prospect of a trading range ever more looming. This week's trading has opened up new ground, and given new legs for this trade. PTM was a Bullish Crossover and a Stock Trends TSX Portfolio BUY on November 23 at $2.37. Trading was active among small retail investors this week, with almost 1,000 transactions. However, trading volume was relatively thin (about half the previous week's volume) considering the big price move. Look for bigger stakes to add to the PTM move.

Stock Trends Report on PTM:
http://www.stocktrends.ca/?page=streport&symbol=PTM-T

RIM-ed out

It was a nice ride, but Research in Motion Ltd. (TSX:RIM,NASDAQ:RIMM) has hit the Stock Trends Portfolio sell trigger, closing below its stop loss ($150.41 stop). Volatility this week has taken the fun out of this holding. Closing today at $142.67, investors are concerned about the shifting landscape for the company as Apple Inc. (NASDAQ:AAPL) bids for a consumer telecommunications presence. Word of falling Blackberry prices tip squeezed margins going forward. Whatever the case, stock price volatility and diminishing price momentum has served up the exit door for RIM. The stock holding had its beginnings on September 21 at $97.50, so the return has been satisfactory.

Agriculture chemical stocks fertile

Amid the drop in crude oil prices and the inevitable strain on energy stocks, the market has found good reason to be bullish on the global agriculture economy. Agriculture chemical stocks, in particular, have been especially bullish through the end of 2006...and have piled on even more gains in the new year. Agrium Inc. (TSX:AGU, NYSE:AGU) scaled $40 today reaching another new high. Monsato Co. (NYSE:MON) added another 5% to eclipse its 52-week high. Also hitting new highs were Terra Industries (NYSE:TRA), Bunge Ltd. (NYSE:BG), Dupont (NYSE:DD), and Hanfeng Evergreen Inc. (TSX:HF).

HF was a Stock Trends Pick of the Week and TSX Portfolio buy a year ago at $3.09, although the trade was stopped out on volatility in the spring ($3.70). HF has remained a ST Bullish stock and today's move to a new high of $5.15 promises further advances.

Stock Trends Report - TSX:HF:
http://www.stocktrends.ca/?page=streport&symbol=HF-T

Resverlogix surges again

Stock Trends followers will remember Resverlogix Corp. (TSX:RVX) as a Pick of the Week stock on November 23. It rallied that week on high volume, closing at $8.19. The biotech breakout was first revealed last autumn as a number of pharmaceutical stocks hit the Stock Trends alerts. RVX surged almost 15% today to close at $17.88.


Stock Trends Report:
http://www.stocktrends.ca/?symbol=RVX-T&page=streport&Go=Go

Theratechnologies jumps 79%

Theratechnologies Inc. (TSX:TH) powered to a high of $5.05 today after the company announced positive clinical results for its HIV-related visceral fat treatment. Volume of trading in TH surged to over 3.6-million by midday. TH had been a Stock Trends TSX Portfolio holding until it was stopped out at $2.52 on November 30th. Evidently, the trade could have scored a lot better than the 5% gain it managed for the TH holding.

For a complete trading history of the Stock Trends TSX Portfolio see http://www.stocktrends.ca/stonline/stp-tsx1.php

Stock Trends Report for Theratechnologies Inc. TH
http://www.stocktrends.ca/?symbol=TH-T&page=streport

RIM turbulent, but in motion

Compared to the first two months of the final quarter of 2006, December has been challenging for Research in Motion Ltd. (NASDAQ:RIMM, TSX:RIM) shareholders. After rallying in powerhouse fashion to its 52-week high in the last week of November, the stock hit resistance and retreated almost 12% last week. A support rally closed out the week, with the stock closing near the top of its weekly tick. Trading will again be active and volatile this week as the company announces its Q3 earnings. RIM is a current Stock Trends Portfolio holding and has returned 56% since its BUY signal on September 21.

 

http://www.stocktrends.ca/?page=streport&symbol=RIM-T

 

Boeing, Boing!

After two relatively short months in the Stock Trends bear pit Boeing Co. (NYSE:BA) joyously returns to a ST Bullish trend. The Bullish Crossover (13-week moving average has moved above the 40-week moving average) makes BA a Stock Trends short-listed stock. BA's previous bull trend expired after an impressive 168-week run that commenced in the summer of 2003.

 

Things have picked up nicely again. Of Dow Industrial stocks, only Dupont (NYSE:DD) has performed better over the past three months. BA was a Stock Trends Pick of the Week selection on November 10 at $85.62, and remains a selection this week with its Bullish Crossover. The stock reached a high of $92.05 last week, but retreated a bit early this week. Today's close was $87.94.

 

Boeing's ST Report:

http://www.stocktrends.ca/?symbol=BA-N&page=streport

Dow 12,000? Big Deal.

The Dow Jones Industrial Index closed above 12,000 today for the first time. This achievement has been heralded by the financial media in the usual euphoric manner, delivering both excited investors eager to join in on the rally and fretting pessimists ready to bail before it implodes. But the 12,000 marker should be put into a proper monetary context, since the DJ Industrial is a price index. Adjusting the index for inflation reveals that today's close is 15% short of the inflation adjusted 2000 high.

Revealing for investors that do not consider the effects of inflation on the value of their equity assets is the comparison of compound rates of return for the Dow in nominal and real terms. In the post-WWII era the annual compound return on the DJI index is 7.3% (excluding dividends). The real compound rate of return is only 3.2%. Of course, real returns on the index should include dividends, but the effect of inflation on the value of the asset is not diminished. For the 19-year period since the days before Black Monday in 1987 the compound rate of return (nominal) of the index, inclusive of dividends, is an impressive 12%. But applying the CPI price deflator yields a 8.6% inflation adjusted return over this incredible bull market.

The advance of the stock market will always be a battle against alternative assets. And it will always be handicapped by monetary debasement. Investors should remember this important context when making judgments about the nominal price level of equity markets. Dow 12,000? Big deal.

The graph above shows the real (inflation adjusted) level of the DJ Industrial Index at 10-year October intervals over the past 60 years. This logarithmic representation misses the volatility of the index, most appreciably the highs of early 2000, but the trend of the real price level puts the advance of the U.S. stock market in a better context.

Telecom hits new highs

After testing its 40-week moving average during the summer months, Telecom HOLDRS (AMEX:TTH) is back on track. It's ralling point was almost two months ago when it surged from $29 to $31, but the current high is breaking as a resistance point. Consumer stocks in general are doing well, but a strong move by telecom stocks should be a very good sign. TTH closed today at $32.40, as its performance continues to best the market.

 

http://www.stocktrends.ca/?page=streport&symbol=TTH-A

Gold stocks champion the market still

The performance of gold stocks in recent weeks shows us that investors have not abandoned their attachment to the commodity's bullish fate. Trading in Goldcorp (G) was again active, although the stock only advanced 1%. Goldcorp's courting of Glamis has been measured by the market, and the verdict is acceptable. Most importantly, the gold sector remains the market leader on the TSX, outperforming the broad market over the last 3-months by 11%. In the context of the ascendancy of this important commodity, it is again worthwhile to review the gold sector's relative performance to the equally important energy sector. Although both sectors are drivers of the TSX, they have a long-term pattern of inverse correlation. The graph above shows us that gold stock's relative performance has wrestled the lead from the formerly ascendant energy sector. This shift dates from about 52-weeks ago. The commodity currency for the two years prior to September 2005 was crude oil, but the pendulum has again shifted back to precious metals. Gold stocks are sparkling because it is their time to sparkle.

Rentcash breakout continues

Summer holidays over...back to the market!

 

After reporting stellar earnings for the fourth quarter, Rentcash Inc. shares (TSX:RCS) surged today by over 7%. RCS advanced 26% last week to the $7 level, bringing it to Stock Trends attention. The breakout coincided with the Bullish Crossover and triggered the stock's inclusion in last week's Picks of the Week report. RCS was also a Stock Trends Portfolio BUY last week at $7. Today's high was $7.80.

Bidding heats up on Canada Southern Petroleum

Sometimes corporate acquisitions are simple - a done deal at midnight. Sometimes the card playing moves on into the wee hours of the morning. Canada Southern Petroleum (TSX:CSW) seems to be holding the cards on its potential acquisition. The bidding for CSW has been raised to US$13 as PetroCanada (TSX:PCA) gets more aggressive in its interest in CSW. PCA's original May bid of US$7.50 has now been raised 73% thanks to active interest from Canadian Oil Sands Trust (TSX:COS.UN) and Canadian Superior Energy (TSX:SNG).

 

The original buyout offer triggered a Stock Trends Portfolio buy of CSW on June 8th at CDN $10.18. CSW trades 15% up today at CDN $15.17. Trading on the news sometimes pays off when the news just keeps coming. It's always nice to be wanted.... CSW shareholders are enjoying the popularity of the day.

 

http://www.stocktrends.ca/?page=streport&symbol=CSW-T

 

Smucker jams it up

Some consumer staple stocks have picked up recently, and there is no better morning staple than jam. J.M. Smucker Co (NYSE:SJM) has rallied over the past few weeks as the market responds to strong financial results. Given the move to defensive stocks in some quarters, SJM's growing price momentum spells bread and butter for value investors. The changing trend situation has also made the stock a recent Stock Trends Pick of the Week.

 

http://www.stocktrends.ca/?page=streport&symbol=SJM-N

Bullion ETFs vs. Gold stocks

For much of the early part of this year the iShares Comex Gold Trust ETF (TSX:IGT) under-performed the iShares S&P/TSX Gold Index ETF (TSX:XGD), but with the plummeting sector turning investor sentiment sour, investors in gold stocks and XGD are taking relatively more off the table. Measured by Stock Trends 13-week Relative Strength Indicator (RSI), the comparative price performance has now turned in IGT's favour.

Fortis utility

Rising volatility is factoring into sector moves. The Volatility Index (VIX) is now up over 25% in the last 13-weeks. Some investors may see this as a sign to move to defensive stocks. One TSX utility stock that is building price momentum is Fortis Inc. (TSX:FTS). It advanced 11% this week and has shifted to our Weak Bearish trend category. Current 13-week Stock Trends RSI is 108, ranking it highest among TSX utility stocks. Unusually high volume punctuated this week's move.

 

See : http://www.stocktrends.ca/?page=streport&symbol=FTS-T

 

 

Broad correction on TSX

The TSX suffered considerably this week as the fear of a commodity blowout sent many investors to the exit. As a sample of this broad selling the Stock Trends distribution of Bullish stocks shifted considerably toward Weak Bullish. The S&P/TSX Composite, the big cap S&P/TSX 60 Index, as well as the S&P/TSX Midcap and Smallcap Indexes all lit up us Weak Bullish this week. Most telling of the breadth of the selloff is that 28% of trending stocks are now Weak Bullish. This is an important moment for the TSX as investors will look for a signal that the commodity cycle, while partially deflated, is still in swing.

 

 

Bulls & Bears graph

http://www.stocktrends.ca/?page=stbvb

 

May begins TSX symbol changes

Yes, the Toronto Stock Exchange has begun its about-face on the symbol extensions it introduced in 2004 - the ones that denoted specific subordinate, non-voting, restricted-voting, and multiple voting stocks. Stock Trends must endeavour to manage these changes again. The schedule for these symbol changes is published by the TSX at http://www.tsx.com/en/pdf/SymbolChangeList.pdf