Relative Strength of Portfolio Stocks

It's been a tough road of late - what is interesting in markets such as this especially is to see which stocks are holding up on their charts - major moving averages I like to keep an eye on are 200 day, 50 day, and 20 day moving averages (I use exponential averages, many use simple averages)

A "good" chart would look like this - they are becoming rare things indeed

Another example

So I've divided our portfolio into sections - (a) the names who might have broken down during the worst of the selling but now that we've had a few weeks of "non panic selling" they've rebounded back above the 50 day moving average (b) those that are below their 50 day but still above the 200 day moving average and (c) stocks below both averages - aka broken stocks. We tend to prefer relative strength around here, but most of the stocks doing well of late are of the category (c) type.

The theory with owning a lot of the merchandise in category (a) is if these stocks can hold up in this environment than it is signaling institutional money wants to be in these names and when the tide turns into a more bullish tone these should run. I like the fundamentals in every stock we own but if stocks fall out of this category we have to begin to question what "big money" knows what we do not. Or if there is simply a change in institutional money buying habits - to sit there and try to fight their tidal wave is useless in the short or middle run. Strict "value" investors tend to end up with a lot more merchandise in the (c) category. The danger here is these are "falling knives" in most cases, people buy them - they fall - they buy more - they fall more - etc etc. Yes, eventually they will turn back up, but many times by that point you are just hoping to "break even". However, if you buy these near the very low you can do very well with this category as well. As with all things investing there is no "correct" or "incorrect" methodology - much of it depends on the type of market you are in, and which style of investing is dominating that time frame.

All names listed below are in order of weighting in the fund as of Fridays's close

(A) Holding 50 day moving average (in bold are names holding above even the 20 day moving average signifying a rare level of strength)

APWR, ANR, FSYS, CF, ENER, AMSC, CMI (20 and 50 day are nearly identical), MEE, EZPW, SOHU (20 and 50 day are nearly identical), CLF, WLT, PWRD, BLK, BIDU, ILMN

(B) Broke below 50 day moving average but still holding above 200 day moving average

Example
EXAC, MOS, FLS, IPI (no 200 day moving average yet but slightly below 50 day), MA, POT, CSIQ, GDP, NOV, FLR, JRCC, PDE, GS, RIMM, HOGS,

(C) Broke all key support levels

Example
FWLT, MICC, TSL (Hall of Fame member of this category), KGC, MDR, XTO, PBR, DHI, LEN, LDK, COG, MELI, YGE, ATW, GFA, CTRP, WX (Hall of Fame member), AAPL, JEC

A few notes

1. I only did this exercise for our stocks, not the ETFs
   
2. You'll note I tend to move those names in category (a) to the top of the portfolio as they should have the least headwinds - so they generally get the highest weighting. The main exception to this rule is when there is a huge "gap" in the chart (usually after a great earnings report) in which I get nervous and usually cut back exposure
3. You'll notice almost every name in category (c) I will cut back (or get out of the stock) as it trails back upward to a resistance level - we've done this for many stocks the past 2 weeks. This means sometimes we are wrong when a stock just blasts right through resistance - no harm, no foul - we'll buy it back. This also means we NEVER catch the bottom - on purpose. We'd rather buy a stock after the trend has changed and it shows strength. Because buying on the way down leads to a lot of "catching knives" and at least in my experience - a lot of lost money. The main exception to this rule is what we did with Millicom International Cellular (MICC) this past week - when a stock looks like it has stabilized after a large fall, it is worth trying a position. XTO Energy (XTO) is another stock with a similar set up. Sometimes you will be wrong and the stock is simply "resting" before another leg downward. (another reason I don't like buying stocks in this category)
4. Earnings can change the face of a chart in 30 seconds - hence technical analysis many times can be proven completely useless on a "large positive surprise" or "large disappointment" - you will see this play out in the solar stocks in the coming weeks. Many have terrible charts but if they have the "right" type of earnings many have potential to gain 20-30% overnight.
5. This is my methodology - it is not right, it is not wrong - it is what it is. Nothing works 100% of the time, we are just trying to put the odds in our favor and not take excessive risk.