Investment Grade Value Stocks (IGVS) Bargain Stock Monitor (07/31/2010)

July Explosion Nearly Erases May-June Correction!
& You've Taken Some Profits --- Right?

The Bargain Stock Monitor is one of three market statistics used as performance expectation analyzers for Market Cycle Investment Management "Mirror Portfolios". It is derived from the Month End Value Stock Watchlist spreadsheet. The Watchlist Program identifies Investment Grade value Stocks trading at least 15% below their 52-week high, and that also meet the price selection criteria outlined in The Brainwashing of the American Investor: The Book that Wall Street does not want YOU to read. The "15% down" break point allows you to keep your eye on "Bull Pen" items. (You really need to be familiar with the selection rules to get the most from the BS Monitor - chuckle - and from the Watch List program.) 

The fewer IGV stocks at bargain prices, the stronger the market and the more Smart Cash that should be accumulating in the equity bucket of your portfolio. As the list of bargain IGV stocks grows (indicating market weakness), portfolio Smart Cash should be finding its way back into undervalued securities. 

• The 2009 Monitor clearly showed the end of the 20 month correction, reported the slow reduction in available "bargain stocks", and encouraged profit taking. At year end, just 5% of the entire IGVSI universe were at bargain price levels--- only 19 stocks. The lowest level since the summer of 1987. 

• Market Cycle Investment Management (MCIM) Portfolios  were at their highest levels in nearly three years on May 2nd (Sandie's birthday)--- and well positioned to take advantage of the weakness that has rocked the world (markets) since. 

• MCIM portfolios should thrive on volatility, and the July bounce should have enhanced market values and produced significant profit-taking opportunities in both equity and income securities. Based on active (70/30) mirror portfolios, users of MCIM techniques could expect gains of over 10% vs. an S & P average that is still negative.

•  Only the shadow knows if this is a resumption of the rally --- BUT, you all should know what to do with your good fortune.  What matters is what you do with greasy profit opportunities to keep them from slipping through your fingers, while you continue to select from buying opportunities that are still knocking at the door. Check the chart for the exact numbers. 

• Remember, no correction or rally ever lasts forever, and be smiling when you have both buying and selling opportunities on the same day! 

• If you did not take profits in July, one of these things happened: (a) You were greedy, and ignored MCIM profit taking guidelines; (b) you didn't have profits because you failed to make new equity purchases during the last correction; (c) you didn't want to be burdened with those short-term capital gains that will surely disappear --- yet again;  (e) you thought that the rally would last forever.

• The rally may or may not have restarted itself, but heed the warning you ignored in April: Take your profits, and reload selectively (and patiently) before the purchase opportunities disappear.

• On the "income" side of your portfolio, don't hesitate to take profits and to move into other positions --- compounding your earnings rate always makes sense, even after taxes. Both income indices moved sharply upward (even net of dividends) in July.

• Finally, think about the painful (but essential) ATH decision making you need to take care of again, while your Market Cycle Investment Management portfolio is once again moving back to new All Time High levels! 

What does all this mean? See the Investment Grade Value Stock Expectation Analyzer.