Please read carefully our disclaimers at the end of this newsletter. Weekly Status Report: Contents
Year-To-Date Performance
* An average of managed accounts, net after commissions and fees. Individual account results may vary. See also www.deencapital.com/perform.htm. For information on managed accounts, see www.deencapital.com/mgdaccts.htm. Market Stance: BULLISH (since May 25, 2004) This was a boffo week! Our account values jumped more than 4% last week. That's remarkable in any market, and all the more so given that the S&P 500 lost 0.1% over the same five days. To what do I attribute this excellent performance? For my answer, please read my "Research Update" below. We also had the following bullish developments last week: + My Performance-of-Recent-Stock-Picks Index (PRSPI) moved higher, from +4.7 to +6.6 (scale -10 to +10). It is now in "green light" territory, meaning I have a "green light" for buying. (One week ago I had a "yellow light".) + Heavy volume returned to the NASDAQ, and it was mostly on the buy side. We had 1.7 billion shares on Wednesday and a very surprising 2.5 billion shares on Friday. Both days were up days. We haven't seen a 2.5-billion share day since January. The NASDAQ closed the week at a 2-month high. The NASDAQ rally which began May 18 (May 17 was the low for the year) is now more than six weeks old, making it the longest rally of 2004 so far. But, if this rally is for real, as I suspect, it may still be young. + Market internals improved again. The percentage of stocks ($8 and up) trading above their 50-day moving average increased from 55% to 66%. That's after hitting a low of 19% on May 17. In short, the factors I look at when timing the market are unanimously bullish. Even so, as always, my take on the market's direction is subject to change without notice, as I re-evaluate market conditions on a daily basis. -KD, June 26, 2004 I see two reasons for last week's excellent performance: 1) Market conditions, especially for growth stocks, are improving. 2) I've recently changed my stock-picking criteria. I believe I am now buying higher quality stocks. (By "higher quality" I simply mean "more likely to go up". I do not mean "less risky".) #1 is almost certainly the primary factor, but I suspect #2 may also be a contributing factor. Consider that all seven stocks I've bought since June 9 are showing a profit (DHB, GMAI, WGO, CYBX, PLMO, ATYT and SIMG). All seven also meet the new stringent stock selection criteria I recently adopted. The difference between my old criteria and my new criteria is subtle but significant. First, let's review. Here is a summary of my criteria for buying a stock. None of this is new: Before I buy a stock, I want to see: - A catalyst -- Some news item suggesting that the company's future growth prospects are brighter than previously thought. - A strong market reaction -- The stock should be up sharply on heavy volume in reaction to the news. Even though I may buy on or after this price spike, it could be just the first day of a multi-week or multi- month rally in the stock. - Stock NOT at a 52-week high prior to the news. Ideally, the stock should be trading in a flat to down pattern during the weeks leading up to the news. - A recent history of strong, preferably accelerating, sales and earnings growth, based on actual reported results. - Strong sales and earnings growth projections for future years, based on Wall Street estimates. - Upward revisions over the past 90 days in future earnings estimates from Wall Street analysts. - A recent history of earnings surprises. (This increases the likelihood of future earnings surprises.) - Attractive valuation. I like to see a price-to-earnings ratio, based on next year's projected earnings, that is close to, and preferably less than, the company's 5-year projected earnings growth rate. All this is old hat for me. What's new is this: I've subtly tweaked the "strong market reaction" requirement. Remember, I look for a spike in price and in volume as the market reacts to some unexpected news. What's new is that I now insist on the stock price being up 8% or better and the volume being a 9-month record AND at least six times average daily volume. In other words, I am now passing up all but the very strongest of market reactions. In historical back-testing, imposing this requirement on my stock picks weeds out a great many losers, while preserving nearly all of my best winners. This is a subtle, but potentially very important, change; one that could, potentially, make the difference between average and outstanding performance for the remainder of this year and beyond. (Note: On the spike day itself, I may buy early, before volume reaches my new minimum threshold, if the stock appears to be on track to meet or exceed that threshold by the 4:00pm ET close. For example, if volume is halfway to the threshold after only the first hour of trading, I may go ahead and buy at that point.) By the way, I also have further tweaked the parameters of my NASDAQ Timing Model. I've replaced Version 10f with Version 10l. There are no differences in signals since April 2002, so we're still looking at a May 25 bullish signal as our most recent signal -- and a good one it was. -KD, June 26, 2004
* Net buy prices shown are the total net purchase cost after commissions for all managed accounts divided by the total number of shares. Stocks Sold Over Past 13 Weeks
* Net buy (sell) prices shown are the total net purchase cost (proceeds) after commissions for all managed accounts divided by the total number of shares. The Gain(Loss) is therefore net after commissions. Welcome to The Deen's ListTM, a new e-mail stock newsletter from Deen Capital Management, Inc. My intention is to inform you as quickly as is practical regarding my stock market moves. When I buy or sell a stock, first I take care of client accounts, then I buy/sell for my personal account(s), and then, third, I send out this newsletter. Your feedback is welcome. Send e-mail to deenslist@deencapital.com. To subscribe or unsubscribe, include the word "subscribe" or "unsubscribe" in the Subject line. This newsletter is free to managed account clients. For a limited time, it is also free to all interested parties. Your personal information, including your e-mail address, will be held in confidence by Deen Capital Management, Inc. We will not share it with or sell it to others. All stocks discussed in The Deen's ListTM involve a high degree of risk. It should not be assumed that any stock discussed in The Deen's ListTM or purchased by Deen Capital Management, Inc. will be profitable. Past performance is not necessarily indicative of future results. The information contained herein has been compiled from sources deemed to be reliable; however, we are not responsible for its accuracy or completeness.
Ken Deen Copyright © 2004 Deen Capital Management, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||