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Sterling Weekly for the Week of January 4th, 2010
Performance Results for the Year and Decade

Since the previous edition of the Sterling Weekly, the Dow Jones Industrial Average declined 92.05 points, or approximately 0.9%, to finish at 10,428.05 For the year ended December 31st, 2009 the Dow Jones Industrial Average rose 1,651.66 points or approximately 19% For the decade ended December 31st, 2009 the Dow Jones Industrial Average lost 1,069.07 points or approximately 9.3%. I've published below a table of the various indices I track on a regular basis with their closing prices on December 31st of the years 1999, 2008, and 2009 and showing their overall point gains (or losses) as well their percentage changes. I thought I would take a look how things have performed over the last year and decade to see what the market may be telling us.

Sterling Investment Services

Year & Decade End Index Performance Report

 

 

 

 

 

 

 

 

 

 

Ticker

Dec 31

Dec 31

Dec 31

1 Year Change

10 Yr. Change

Index Name

Symbol

1999

2008

2009

Points

Percent

Points

Percent

Amex Airlines Index

XAL

153.47

24.35

33.79

9.44

38.8%

(119.68)

-78.0%

Amex Biotech Index

BTK

391.44

647.17

942.13

294.96

45.6%

550.69

140.7%

Amex Disk Drive

DDX

98.85

53.28

119.85

66.57

124.9%

21.00

21.2%

Amex Gold Bugs

HUI

74.03

302.41

429.91

127.50

42.2%

355.88

480.7%

Amex Gold Miners

GDM

N/A

927.39

1,273.29

345.90

37.3%

N/A

N/A

Amex Interactive

IIX

573.37

134.02

233.86

99.84

74.5%

(339.51)

-59.2%

Amex MS Commodities

CRX

208.75

507.34

772.91

265.57

52.3%

564.16

270.3%

Amex Networking

NWX

880.47

143.89

231.06

87.17

60.6%

(649.41)

-73.8%

Amex Oil & Gas

XOI

503.00

979.28

1,068.21

88.93

9.1%

565.21

112.4%

Amex Pharmaceuticals

DRG

350.58

272.83

309.21

36.38

13.3%

(41.37)

-11.8%

Amex Sec. Broker/Dealer

XBD

89.26

77.47

115.04

37.57

48.5%

25.78

28.9%

CBOE 10 Yr. Treasury Yield

TNX

64.35

22.45

38.43

15.98

71.2%

(25.92)

-40.3%

CBOE 30 Yr. Treasury Yield

TYX

64.77

26.87

46.41

19.54

72.7%

(18.36)

-28.3%

CBOE 5 Yr. Treasury Yield

FVX

63.42

15.51

26.86

11.35

73.2%

(36.56)

-57.6%

CBOE Technology Index

TXX

1,006.16

442.60

739.30

296.70

67.0%

(266.86)

-26.5%

Computer Tech. Index

XCI

1,394.19

542.15

889.12

346.97

64.0%

(505.07)

-36.2%

Dow Jones Industrial Avg.

DJ-30

11,497.12

8,776.39

10,428.05

1,651.66

18.8%

(1,069.07)

-9.3%

Dow Jones Transportation

DJ-20

2,977.20

3,537.15

4,099.63

562.48

15.9%

1,122.43

37.7%

Dow Jones Utilities Index

DJ-15

283.36

370.76

398.01

27.25

7.3%

114.65

40.5%

KBW Banking Index

BKW

77.00

44.32

42.71

(1.61)

-3.6%

(34.29)

-44.5%

MS. High Tech. Index

MSH

920.78

340.83

578.10

237.27

69.6%

(342.68)

-37.2%

MS Consumer Index

CMR

534.77

550.41

670.32

119.91

21.8%

135.55

25.3%

MS Cyclical Index

CYC

585.78

475.51

829.86

354.35

74.5%

244.08

41.7%

MS. Healthcare Providers

RXP

812.36

1,236.70

1,528.22

291.52

23.6%

715.86

88.1%

NASDAQ 100 Index

NDX

3,707.83

1,211.65

1,860.31

648.66

53.5%

(1,847.52)

-49.8%

Natural Gas Index

XNG

128.94

375.44

539.61

164.17

43.7%

410.67

318.5%

North Am. Telecom Index

XTC

1,578.94

588.64

777.94

189.30

32.2%

(801.00)

-50.7%

Phlx. Gold/Silver Index

XAU

67.97

123.89

168.25

44.36

35.8%

100.28

147.5%

Phlx. Oil Services Sector

OSX

85.96

121.38

194.92

73.54

60.6%

108.96

126.8%

Phlx. Semiconductor Index

SOX

704.56

212.17

359.91

147.74

69.6%

(344.65)

-48.9%

Phlx. Utility Sector

UTY

273.82

398.49

418.00

19.51

4.9%

144.18

52.7%

Russell 1000 Index

RUI

767.97

487.78

612.01

124.23

25.5%

(155.96)

-20.3%

S&P Banking Index

BIX

282.67

138.23

125.35

(12.88)

-9.3%

(157.32)

-55.7%

S&P Chemicals Index

CEX

N/A

184.47

259.76

75.29

40.8%

N/A

N/A

S&P Healthcare Index

HCX

N/A

309.41

362.22

52.81

17.1%

N/A

N/A

S&P Insurance Index

IUX

N/A

148.10

164.80

16.70

11.3%

N/A

N/A

S&P Retail Index

RLX

376.38

279.30

411.12

131.82

47.2%

34.74

9.2%

S&P 100 Index

OEX

792.83

431.54

514.09

82.55

19.1%

(278.74)

-35.2%

S&P 500 Index

SPX

1,469.25

903.25

1,115.10

211.85

23.5%

(354.15)

-24.1%

For the year ended December 31st, 2009: The average stock index posted a gain of 41.5% for the year. Surprisingly enough the top performing index was the Amex Disk Drive Index 'DDX' posting an approximately 125% gain followed by the MS Cyclical Index 'CYC' and the Amex Interactive Index 'IIX' each posting gains of 74.5%. The next set of top performing indices includes a majority of the high tech indices, followed by commodity based indices, then followed by a pack of indices primarily composed of Healthcare, Consumer, and Transportation indices. The worst performing indices were the Banking, Utilities, and Insurance indices.

What can we learn from 2009 year end results? Well 1st off, the indices that are historically more volatile performed the best in 2009. That is probably because they sold off 1st and the most during the financial crisis of late 2008. Sectors such as commodities which benefit from low interest rates were the next best performing indices. The lower performing indices were the ones which are most likely to have new regulation enacted in 2010. This list includes healthcare, utilities, transportation, and financial services.

What are the results of 2009 telling us about 2010? Well, the forecasting crystal ball gets a little cloudier due to the way the financial crisis of 2008 skewed the start of 2009, but I see three (3) main messages for 2010 in the results of 2009. The 1st being that continued low interest rates will continue to benefit commodities. The 2nd being that the pain isn't over year in the financial services sector; and finally the overall economy and the American consumer isn't going to find much enjoyment in 2010. This third messages is based upon the low relative performance of the MS Consumer Index with a 21.8% return and the Dow Jones Industrial Average with a 18.8% return.

For the decade ended December 31st, 2009: The performance results for the decade are quite different from the last year, and they tell a different story. The average stock index posted a 27% gain, while the broader market as measured by the S&P 500 declined 24%. This disparity is primarily the result of two (2) factors. The 1st being the bursting of the dot com bubble which occurred shortly after the start of the decade, and as a result we started the decade from lofty levels resulting from a bubble that had not yet burst. The second factor being the tremendous gains from a small number of commodity related indices.

The top performing index for the decade was the Amex Gold Bugs Index 'HUI' with an approximate return of 481% followed by the Natural Gas Index 'XNG' with a return of approximately 319%, and the Amex MS Commodities Index 'CRX' with a return of approximately 270%. In fact 6 of the 7 top performing indices were commodities related with the lone exception being the Amex Biotech Index 'BTK' with posted a gain of approximately 141%. The next tier of top performing indices were primarily consumer based indicating the strength of the American consumer during the decade. The rest of the indices, which comprised approximately 1/2 of the indices I track, were primarily composed of high tech, and financial services. The worst performing sector index of the decade was the Amex Airline Index 'XAL' with a 78% decline for the decade. This poor index had the misfortune of being hurt by the September 11th, 2001 terrorist attacks, and rising commodity prices.

What can we learn from the results of the decade? The 1st decade of the 21st century saw unusually low interest rates, that were much lower than they should have been given the level of inflation. Those abnormally low interest rates contributed to outsized gains in the commodities sectors. The consumer related sector did well as the american consumer loaded up on debt. And probably the most important lesson of the decade concerns the bursting of bubbles, as we had two (2) of them burst during the decade; the damage caused by the bursting of a bubble can be very long lasting and painful. A majority of the decades worst performing sector indices were high tech indices heavily tied to the dot com bubble, the rest were tied to the housing bubble.

What are the results of the last decade telling us about the next? Well, in looking how the decade performed and how 2009 faired as a year as well I see the following. First, look for commodities to continue to perform as long as interest rates remain low. Secondly, much of the decades success was tied to the increasing debt load of the american consumer, and with that party now ended it is going to be tough for consumer related companies. The third is that it could take another decade before the high tech indices reach their dot com bubble highs. And finally the financials as a group could be feeling a lot of pain for a long time to come. With the housing industry joined to the hip of the banking sector like a Siamese twin, I do not see the housing market recovering at the earliest until late this decade, if even that soon.

For the record. I do not try force results from the data to fit my personal views, I would never make any money trading that way. What I do is try to look at the market data in an unemotional manner and simply see what the market is trying to tell anyone who will listen.


Sterling Calendars for the Week of January 4th, 2010.
Economic Calendar
Date Est. Time Release

For

Consensus Prior
01/04 10:00am Construction Spending Nov. (0.5%) 0.0%
01/04 10:00am ISM Index Dec. 54.0 53.6
01/05 10:00am Factory Orders Nov. 0.5% 0.6%
01/05 10:00am Pending Home Sales Nov. (3.0%) 3.7%
01/05 2:00pm Auto Sales Dec. N/A 3.8M
01/05 2:00pm Truck Sales Dec. N/A 4.6M
01/06 7:30am Challenger Job Cuts Dec. N/A (72.3%)
01/06 8:15am ADP Employment Report Dec. (75K) (169K)
01/06 10:00am ISM Services Dec. 50.5 48.7
01/06 10:30am Crude Inventories 12/31 N/A (1.54M)
01/07 8:30am Initial Claims 01/02 445K 432K
01/07 8:30am Continuing Claims 12/26 5,040K 4,981K
01/08 8:30am Average Workweek Dec. 33.2 33.2
01/08 8:30am Hourly Earnings Dec. 0.2% 0.1%
01/08 8:30am Nonfarm Payrolls Dec. 0k (11k)
01/08 8:30am Unemployment Rate Dec. 10.1% 10.0%
01/08 10:00am Wholesale Inventories Nov. (0.3%) (0.3%)
01/08 3:00pm Consumer Credit Nov. ($5.0B) ($3.5B)

Prime Update:

The Prime Stock Newsletter is our daily newsletter that contains commentary on the overall market, and our single best trading idea for the day! (Both Long & Short Sale Recommendations) We select this stock through a combination of technical (charting) and fundamental (financial) analysis. The Prime Stock Newsletter provides select expanded quotation information, corporate description, select recent company news, our technical analysis of the shares and our expectations, and our options recommendation for the company.

Our most recent Performance Report is now available available (here). We are proud to report 18 of our last 20 recommendation resulted in profitable trades for an average profit of $0.67/share. This is an 90% success rate.

Archived copies of our Performance Reports can be found (here).

Highlights from Recent (20) Editions of the Prime Stock Newsletter
Recommendation Date Entry Point Recent Close or Exit Price Profit* Note
Rockwell Auto 'ROK' Nov 17 $45.18 $46.72 $1.54 Sold on the 18th
Murphy Oil 'MUR' short Dec 8 $54.46 $52.55 $1.91 Covered on the 9th
Southwestern Energy 'SWN' short Dec 9 $41.77 $39.76 $2.01 Covered on the 9th
Travelers Co. 'TRV' short Dec 17 $49.50 $47.89 $1.61 Covered on the 18th
Patriot Coal 'PCX' Dec. 23 $14.90 $17.24 $2.34 Sold on the 28th

* Our December 10th recommendation of US. Steel 'X' @ $46.74/share, set a new yearly closing high of $56.86/share on December 24th for a gain of $10.12/share.

* Our November 19th short sale recommendation of JC Penny 'JCP' @ $29.15/share reached our stated target of $27.15/share on December 18th for a gain of $2.00/share.

* Our November 12th recommendation of Western Digital Corp. 'WDC' @ $38.53/share set a new yearly closing high of $44.64/share on December 24th for a gain of $6.11share.

* The per share PROFIT is a theoretical calculation based upon the opening price the day the recommendation is published and the intra day high (or low for short sales) on the exit day. The exit day is determined based upon the application of our "Rules for Trading", the implementation of "stops" within our stated policy, and may not reflect the complete or full movement of the underlying recommendation.

 

Disclaimer: The Sterling Investments series of newsletters is produced by Sterling Investment Services, Inc. All information used in the production has been obtained from sources believed to be reliable and accurate. Sterling Investment Services does not warrant or assume any liability for inaccuracy of the information used to produce our publications. To receive further information on these services please visit our web page at: www.sterlinginvestments.com If you would like to contact us our fax # is (404)-816-8830 Email address is: enelson@sterlinginvestments.com Sterling Investment Services may hold positions in the securities recommended or may be providing consulting services to the companies mentioned within this report.
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