The Traders Journal

A Virtual PhD in Institutional Style Investing: Tensile Trading ChartPack Update 5.0

Each quarter, I present you with the ultimate equity shopping list.  A virtual 5-star smorgasbord of alluring delights, showcasing the stocks that Fidelity is presently buying in each of its 40 Select Sector Funds.  This is no newsletter XXX hypothetical model portfolio of recommendations.  Rather, it is the actual equities that they are buying and that are showing up in the top 10 holdings in these  40 Select Sector mutual funds.  Frankly, I look forward to Fidelity releasing their quarterly holdings like a child waiting for Santa to appear at Christmas.

Over the past year, this quarterly review of Fidelity’s 40 Sector Funds has literally evolved into a methodology unto itself.  It yields many tradeable ideas, charting insights, management strategies (when they replace portfolio managers) and offers a PhD equivalent in investing as if you are being personally mentored by  Jesse Livermore himself.  

After all, these are Fidelity’s best and brightest sector specialists who each focus exclusively and in-depth on just one market area.  Most equities’ big runs start with these specialist funds and often their ideas get picked up by the larger Magellan Fund or Contra Fund who further sponsor a big run with the result being that many high probability winning investments can be found here by us individual investors.  

I have many insights to share with you from this quarter’s update pertaining exclusively to Fidelity, but more on those specifics later.  This is the first anniversary of the Tensile Trading ChartPack, and the depth of this quarter’s updates honors that fact.  Let me describe the updates.


1.    Recently, two major individual investor surveys were released and both echoed similar top priorities as verbalized by those individual investors who were surveyed.  Income and dividend yielding stocks are very high up on the radar list, so I have added a chartlist that I’ve labeled GR-640 as Dividend Darlings.  These are the 20 equities most often appearing in the holdings of the top four Dividend ETF funds and the top 4 Dividend Mutual Funds.  You start to see the attraction of dividend paying stocks when you also factor into the equation that from 1972-2013, non-dividend paying stocks appreciated 107% while those stock that had a track record of raising dividends appreciated a whopping 4312%.

In essence, these are the Institutional favorites of all dividend-yielding stocks.  Most have what Morningstar describes as a “wide moat” – or in other words, near monopoly business models.  From what I can tell, most are also growing their dividends year after year.  The annual dividend yields range from 5.19% to 1.86%, with the average being 2.93%.  For that portion of your asset allocation devoted to yield, this collection of equities provides an attractive field from which to harvest ideas.  For fun, check out the chart for two of these equities – MMM and UPS.  They pay a dividend and they’ve performed very nicely indeed.

Important to Note:  Dividend ETFs, mutual funds and stocks demand another layer of scrutiny from technically oriented investors because of this fact.  Dividends are not reflected on price charts.  Only equity prices are incorporated into the price line.  Thus, when comparing or choosing between two identical sister stocks, for example, placing both on a performance formatted chart will yield (pardon the pun) an inaccurate conclusion if one pays a hefty dividend and the other doesn’t.

2.    Something I have intuitively suspected for decades,  I have now managed to confirm and include in the ChartPack.  My supposition was that prior to market peaks, the smart money always somehow knew to begin lightening up on hot stocks that had outperformed the market in the previous run-up.  These momentum stocks consistently began to lose some sponsorship before market tops and produced a type of early warning signal before significant pullbacks and corrections.   Check Chartlist GR-10.4, Permission to Sell Dashboard, and I believe you will be pleasantly and profitably surprised.  Be sure to read the descriptive notes beneath each chart. 

3.    One of the four pillars of Tensile Trading is Industry Groups.  As most of you know, Tensile Trading is based on the four pillars of Market Trend, Sector Outperformance, Industry Strength and Individual Equities’ attractiveness.  As such, the Chartlist GR-450 US Dow Industries is of paramount importance.  Over a dozen new Dow Industries have been added to this essential Chartlist.  Eight of these new industry groups are related to real estate.  Therefore, if this is of investment interest to you, you need to be aware how the folks at Dow Jones slice and dice this universe.

4.    Many investors closely monitor inflation and deflation indicators, and as such, they closely watch gold equities and precious metals.  I’ve added two of Morningstar’s top rated mutual funds to the Chartlist GR-217 Gold.

Back to the insights, lessons and observations pertaining to the Fidelity Select Sector Fund equities.  

     A.    This quarter, every equity that Fidelity added to its top 10 holdings is reflected with three asterisks (***) next to the name of the equity within the individual sector funds chartlist.  Note as well that equities dropped from the top 10 list or possibly being still liquidated by Fidelity portfolio managers remain in the chartlist but are labeled with two XX after their names.  For those of you inclined to play the short side, there may be some unique options to consider here.  

     B.    Individual managers know that to standout performance-wise, they must stand apart from the crowd.  Therefore, many portfolio managers make big bets on a small number of commitments with equities that they know intimately and have researched deeply.  We individual investors review their top 10 holdings knowing that 70-75% of their portfolios are allocated to these 10 holdings.  Funds like Retailing, Multi-Media, Aerospace and Energy Services.  An additional suggestion is that if you buy the fund itself, carefully track their top 10 individual equity holdings.

     C.    For a case study in accumulation and distribution, turn to the Chartlist for the Consumer Discretionary Fund (FSCPX).  The new manager, Peter Dixon  (starting July 1, 2014), came in and certainly cleaned house.  Eighty percent of the top 10 positions have been replaced.  Study the charts on the eight he bought and also the eight he sold.  Beware, however, of the capital gains distributions which happen historically around December 20th for this fund – either sell before that date or buy after the distributions which will no doubt be significant.

     D.    Special attention is warranted when an equity (such as Home Depot) is under accumulation by more than one fund.  In this case, both consumer discretionary (FSCPX) as well as Construction (FSHOX) are picking up Home Depot shares.  Concho Resources (CXO) is another example of an equity under accumulation by multiple sector managers.

     E.    On the flip side in the distribution arena, check out the trading style of the Computer (FDCPX) manager who dumped San Disk (SNDK) in mid-July, selling 30 million shares in a day and driving the price down 15% from $108 to $92.  

     F.    There was clearly much less buying and selling amongst the funds’ top 10 positions as a whole this quarter.  Some funds, such as Chemicals, Communications Equipment, Real Estate and Transportation might have been extremely content and made no changes.  Or could it have possibly been indicative that they felt the market was topping?  Otherwise, they could simply feel that their 10 top stocks were already firing on all cylinders.

     G.    Consider the chart for Sprint (S) which the Telecom Fund started liquidating in June-July in a very orderly manner.  Finally in August, it gets ugly as it gaps down in price on some very big sales.  Almost without exception, when Fidelity starts to unwind a position, the On Balance Volume (OBV) shows a steady downtrend as money flows out of the stock.  Check the stocks with an “XX” after their names in the chartlists and review the OBV trends.  

     H.    On the flip side, review the chart of Panera Bread (PNRA) which was being accumulated by Fidelity Leisure (FDLSX).  Note how On Balance volume trends up from the end of July through a series of six rallies and five reactions.

     I.    Lastly, just as William O’Neil says that all big winners must pass through the “big volume” door, I believe most all significant winning stocks will also be presented to us at our virtual Fidelity smorgasbord table of new acquisitions.  Generalizing from a non-random sample of the past four quarters, the best and brightest at Fidelity seem to be extraordinary stock pickers.

Trade well; trade with discipline!
-- Gatis Roze

LINK TO DOWNLOAD TENSILE TRADING CHARTPACK…

http://store.stockcharts.com/collections/stockcharts-com-chartpacks/products/tensile-trading-chartpack-by-gatis-roze

LOGISTICS:

I’d like you to think of the ChartPack as a fancy buffet covering all the essential investor food groups.  Remember that the objective here is not to eat each and every dish, but to maximize your market analysis while minimizing your time.  Place on your plate only what is most appropriate for the methodology you personally use. 

For example, if you don’t trade commodities, currencies or country funds, then you can jettison chartlists 205, 210 and 215.  Deleting these chartlists is easy and will unclutter your portfolio.  Remember that you only have 250 chartlist slots available to you.  (Pro users have 350 chartlists available.)  Having said that, remember as well that each chartlist can hold 500 separate symbols, giving you a maximum of 125,000 charts.  If that is a constraint, I candidly suspect you have some other organizational issues that you best address. 

The challenge is not chartlist slots or space, but organization.   Therefore, I’d like to describe how best to integrate all 87 chartlists that comprise the Tensile Trading ChartPack Version 2.0.

YOUR PALETE OF CHARTLISTS:

First and foremost, remember that the Tensile Trading ChartPack is based on decades of trading experience and is an organizational tool that’s objective remains to maximize analysis and minimize time.  In that vein, a very high leverage activity for you is to appropriately rename and renumber your chartlists to reflect your investment approach.

To best achieve this objective, it’s imperative to first understand the hierarchy of the symbols or how they get sequenced by the computer.   On any chartlist, use the format pulldown menu where the last option is “Edit”.  From there, you simply “click name to edit” any one of your chartlists and rename it in a manner that makes organizational sense to you.

Remember, this is how the computer will organize your names:

    a. Numbers come before letters (i.e. “792 Microsoft” gets sequenced before “Microsoft 792”)
    b. “10.1” gets sequenced before “10.2”
    c. “401 Energy” get sequenced before “401 Financials” (E comes before F)
    d. “420-36  Fidelity Defense” gets sequenced before “420-38 Fidelity Electronics”
    e. “798” gets sequenced before “7982”
    f. “Mutual -5” gets sequenced before “Mutual -6”
    g. In chartlists, symbols precede all numbers and letters.  If you want to get even more creative, here is how some cool symbols are sequenced in the hierarchy:

1.   #
2.   $
3.   %
4.   ?
5.   @
This organizational template not only is important as it becomes the roadmap for your regular analysis routines, but also remains flexible since renaming any chartlist is quick, easy,  never permanent and contributes significantly to judicious management of your precious time.  Clutter is bad.  Delete is in most cases good.

Remember that when you download the ChartPack, all the chartlists begin with “GR”, therefore they will appear all grouped together in your account.  Compare the organization of the chartlists as I present them to you in my ChartPack versus the organization of your own chartlists.

Now you have three organizational choices:

1.   If you already have a chartlist of International Indexes, you delete the ChartPack’s “GR-200 International Indexes”.  Delete redundancy!
2.   You blend your existing International Indexes Chartlist with the symbols from “GR-200 International Indexes” and then delete “GR-200”.
3.   You do not have a chartlist of International Indexes and you feel it would be useful to keep “GR-200 International Indexes”.    You simply rename it to fit into your portfolio’s organizational scheme.

BENEFITS OF THE CHARTPACK’S CHARTLISTS:

In most cases, I would suspect that you save the ChartPack version of a chartlist  (for example, “GR-450 U.S. versus Dow Industries”) because a full description of each symbol has been typed into the chartlist already for you.  When you add a symbol to any chartlist, you are responsible to “Edit Info” and describe the symbol in a manner you’d best understand.  It’s not an issue for one or two symbols, but it is quite a different issue if you have to look up 96 individual industry symbols and type each name into the chartlist.

An important caveat to remember is that you should NEVER actively manipulate a core chartlist.  Be sure instead to make a copy and then delete charts as you wish using the COPY chartlist.  Once you delete a symbol in a core chartlist, that symbol will vanish permanently.

UPGRADE INSTRUCTIONS FOR EXISTING CHARTPACK USERS:

Important:  If you have modified any of the charts in any of the ChartLists that start with “GR - ”,  those changes  will be deleted as part of the upgrade process.  If you want to keep those changes, you need to copy those charts into a different non-"GR" ChartList before you upgrade!

To Upgrade the Tensile Trading ChartPack, follow these steps:

1.   Log in to your account and then click on the "Your Account" link in the upper right corner of the web page.
2.   Scroll down and find the "ChartPacks" area towards the bottom of that page.
3.   Find the entry for the "Tensile Trading" ChartPack in the table that appears.  (If you don't see it, that means that you didn't purchase it - click here to purchase it.)
4.   Click on the "Re-Install" button next to the Tensile Trading ChartPack to start the reinstall process.
The download should take about 15 seconds.  At that point, you can explore the new chartlists and updates.

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