April 2005 TeraDime Newsletter
Topic: Freetrade no
more!
Nothing free is forever.� It was a good ride, but the Freetrade accounts that we have used for trading will become Ameritrade Izone accounts by the end of April (check your e-mails for more detailed information from Freetrade).� What does this mean for us?� It is bad news because it will now cost us $5 to execute a buy order and $5 for a sell order.� Visit the Izone web site: http://www.ameritradeizone.com/introduction.html for more details.� $5 is still cheaper than most of the other on-line brokers, but it is not free.� If you trade a lot you may want to consider Interactive Brokers. Since I only trade in my �play� account with very small amounts of money (around $1000 per transaction), the round trip (buy and sell execution) will cost me $10 or 1% of assets. 1% of assets is too much to pay to recycle electrons.� So, I am making the following decision.� In the �Gamblers� section of the update e-mail, I will only trade QQQQ.� I will probably trade in $2000 - $3000 amounts per trade. In the �Conservative Investor� section, I will describe which indices I think will outperform in the near term and which ones will not.� If you want to trade on these tips go ahead, but I will NOT be following these indices daily.� So, please do not expect stop orders or regular updates on ETFs besides QQQQ.
Gamblers: Since I have decided to trade QQQQ only, I will only give updates on QQQQ from now on. I would hope for a small bounce in QQQQ during the first 5 days of April.� It is an April tradition to have a small bull run in the beginning of the month. I do not know what so special about April?� Maybe tax refunds are hitting the market vs. Macy�s, or maybe people are trying to put more money into IRAs? So, to make the story short, a small bounce is needed before the short position can be taken. If QQQQ does not break the 200 or 50 days moving averages on the way up during the first week of April, it will be a great short signal. For now, I am neutral (in cash and watching).
Conservative investors: Based on the technical indicators, S&P 500 and Dow are in the neutral territory.� There are 2 ETFs, IGE (based on Natural Resource Index) and XLE (energy companies of S&P 500) that represent a good buying opportunity from a technical standpoint.� Oil futures are trading above $50, but the P/E ratios of oil stocks are equal to S&P 500 as a whole.� I am not saying that XLE or IGE are bargains, but technical indicators say �buy�.� Every analysts saying that oil prices will go down below $40, and it may be true, but the futures market is pricing oil above $50 for the next 3 � 6 months.� So, �watch what they do, not what they say�.� Oil prices may be in a bubble, but real estate has been in the bubble for 4 years now (maybe this is the last year?) and the stock market was in the bubble from 1996 � 2000 before the sell off.
Which asset class should you be in during the rising
interest rate environment?� Small Cap growth
stocks should under-perform and Large Cap value stocks should outperform.� Consumer Staples (XLP -> this is Coca
Cola, Wal-Mart, Altria, etc�) should outperform.� Banks, especially small banks, will take a
hit.� These are the lenders that gave you
your 30 year fixed rate mortgage at 5.5% and have to pay now 3% on
deposits.� Their margins are getting
squeezed, and small banks do not hedge all of their mortgage portfolios; plus
most of their lending is mortgage lending.�
If you have to be in banks, try to hold onto dividend-paying big banks
like JP Morgan Chase, Bank of America, and Citigroup.� Sell small mortgage lenders.� If you hold REITs for income purposes, then
no change is needed, but be prepared for a big hit when the real estate bubble
bursts (�when� being the key word here). Bonds � long end bonds are going to
take a hit.� Try to re-allocate some of
your money either into really long maturities (20+ years), or really short
maturities (3 � 6 months).� Everything in
the middle will take a hit.� International
funds � emerging markets will outperform since most of the emerging markets
export natural resources (