Trends I'm Watching

The Wilshire 5000 moves up for the week ending 12/29/2006

Trend: This week the daily line turned up and then down, finishing up 81 points since last Friday. The 50-day moving average continues to move above the rising 200-day moving average. Friday's close was 493 points below the all-time high for this index of 14,751, set in late-March 2000.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

Wal-Mart moves forward on Solar Energy

Trend: Wal-Mart's RFP for solar energy systems for its stores that could signal a tipping point for solar adoption in the US.

Joel Makower at the Two Steps Forward blog describes Wal-Mart's interest in using solar power for stores. There's an opportunity for a large supplier to install the solar sytems and sell the power to Wal-Mart, which might set a precedent for commercial and residential adoption (I could see General Electric in this role).

Link: Joel Makower: Two Steps Forward: Wal-Mart's Solar Energy Vision

Wal-Mart ... recently issued an RFP, or request for proposal, to install solar energy systems on its stores in five states -- the largest procurement of solar ever proposed. Bids are due on January 5....

The request for proposal ... asks bidders to consider three options in considering how to power Wal-Mart by sunlight:

• a direct purchase by Wal-Mart of turnkey solar energy systems, along with a plan to maintain the systems;
• solar systems that are installed, owned, and operated by the supplier, which would then sell all of the system's electricity output to Wal-Mart; and
• an arrangement in which Wal-Mart would lease solar installations, own all of their electricity output, and have an option to purchase the systems if it desired.

Those three paths represent a pretty good overview of the options available these days to commercial and industrial purchasers of solar. The second and third options, in which the systems are developed and owned (at least initially) by a third party, help to overcome one of solar's major obstacles: its large, up-front capital expense. Companies are more willing to "go solar" if there's no large, up-front expenditure and their monthly energy costs don't change much, or even go down. In its RFP, Wal-Mart is asking solar companies to act like a small-scale utility, owning the equipment, but selling the electricity to Wal-Mart.

(By the way, such arrangements should by no means be limited to companies. Individual homeowners and renters should be able to purchase electricity generated by solar panels on their roofs, installed and owned by third parties, rather than having to buy and install pricey solar panels themselves. We want the power, not the power plants. As Amory Lovins has famously put it, "It's not kilowatt-hours that we want, it's hot showers and cold beer.")

The Wilshire 5000 moves down for the week ending 12/22/2006

Trend: This week the daily line turned down, dropping 147 points since last Friday. The 50-day moving average continues to move above the rising 200-day moving average. Friday's close was 541 points below the all-time high for this index of 14,751, set in late-March 2000.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

Nasdaq 100 moving average trend update

Trend: The Nasdaq 100 ($NDX) 10-day simple moving average crossed under the 30-day simple moving average on 12-21-2006.

The last time the 10-day moving average touched the 30-day moving average was in mid August (see chart below). The 10-day MA crossed over the 30-day MA at just under the 1500 level. Yesterday's cross-under occurred at the 1790 level. Between the August cross-over and the December cross-under, the Nasdaq 100 increased almost 300 points.

The Nasdaq 100 one-year chart below shows the 10, 30, 60, and 90-day simple moving averages. The indicator below the chart shows the Average True Range.

The Nasdaq 100 Index includes 100 of the largest non-financial domestic companies listed on the Nasdaq National Market tier of the Nasdaq stock market. Each security in the index is represented according to the proportion of its market capitalization in relation to the total market value of the index. This index reflects Nasdaq's largest growth companies across major industry groups. All index components have a minimum market capitalization of $500 million, and an average daily trading volume of at least 100,000 shares (Investopedia).

Cut Your Losses

Trend: In the bear market of 2000-2002, the S&P 500 Index plunged 44%. Many investors rode it all the way down in index funds which track the S&P 500. To recover from that 44% loss, investors had to make over 80% just to get back to breakeven.

Gary Halbert's Weekly E-Letter provides a reminder: don't let losses run.

Link: InvestorsInsight : Forecasts & Trends

The breakeven table below illustrates just how devastating large losses are, and how difficult it is to recover from them.

Amount of Loss Incurred	Return Required To Break Even
10%	11.1%
15%	17.7%
20%	25.0%
25%	33.3%
30%	42.9%
35%	53.9%
40%	66.7%
45%	81.8%
50%	100.0%
60%	150.0%
70%	233.3%

When you take a loss, you have less capital to work with. The larger the loss, the harder it is to recover. If you take a loss of 30%, for example, you have to make almost 43% to just get back to where you started.

The Wilshire 5000 moves up for the week ending 12/15/2006

Trend: This week the daily line continued the up trend, setting a 52-week high on Friday. The 50-day moving average continues to move above the rising 200-day moving average. Friday's close was only 404 points below the all-time high for this index of 14,751, set in late-March 2000.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

Results-only Work Environment

Trend: Work from anywhere anytime may soon gain some momentum if Best Buy's results give it a competitive advantage.

BusinessWeek describes Best Buy's experiment with flexible work hours. Excerpts below.

Link: Smashing The Clock

The nation's leading electronics retailer has embarked on a radical--if risky--experiment to transform a culture once known for killer hours and herd-riding bosses. The endeavor, called ROWE, for "results-only work environment," seeks to demolish decades-old business dogma that equates physical presence with productivity. The goal at Best Buy is to judge performance on output instead of hours. Hence workers pulling into the company's amenity-packed headquarters at 2 p.m. aren't considered late. Nor are those pulling out at 2 p.m. seen as leaving early. There are no schedules. No mandatory meetings. No impression-management hustles. Work is no longer a place where you go, but something you do. It's O.K. to take conference calls while you hunt, collaborate from your lakeside cabin, or log on after dinner so you can spend the afternoon with your kid.

Best Buy did not invent the post-geographic office. Tech companies have been going bedouin for several years. At IBM (IBM ), 40% of the workforce has no official office; at AT&T, a third of managers are untethered. Sun Microsystems Inc. (SUNW ) calculates that it's saved $400 million over six years in real estate costs by allowing nearly half of all employees to work anywhere they want. And this trend seems to have legs. A recent Boston Consulting Group study found that 85% of executives expect a big rise in the number of unleashed workers over the next five years. In fact, at many companies the most innovative new product may be the structure of the workplace itself.

But arguably no big business has smashed the clock quite so resolutely as Best Buy. The official policy for this post-face-time, location-agnostic way of working is that people are free to work wherever they want, whenever they want, as long as they get their work done. "This is like TiVo (TIVO ) for your work," says the program's co-founder, Jody Thompson. By the end of 2007, all 4,000 staffers working at corporate will be on ROWE. Starting in February, the new work environment will become an official part of Best Buy's recruiting pitch as well as its orientation for new hires. And the company plans to take its clockless campaign to its stores--a high-stakes challenge that no company has tried before in a retail environment.

The Wilshire 5000 moves up for the week ending 12/08/2006

Trend: This week the daily line continued the up trend, setting a 52-week high on Tuesday. The 50-day moving average continues to move above the rising 200-day moving average. Friday's close was only 479 points below the all-time high for this index of 14,751, set in late-March 2000.

Here's a 12-month chart of the Wilshire 5000* (a proxy for the stock market as a whole), showing the 50 and 200 day moving averages.

*The Wilshire 5000 is sometimes called the "total stock market index" or "total market index" because it includes more than 7,000 of the 10,000-plus securities that are publicly traded in the United States. All publicly-traded companies with headquarters in the U.S. that have readily available price data are included in the Wilshire 5000. Finalized in 1974, this index is extremely diverse, including stocks from every industry. Although it's a near-perfect measure of the entire U.S. market, the Wilshire 5000 is referred to less often than the less comprehensive S&P 500 when people talk about the entire market.

Insider Selling Ratio Near a 20-Year High

Trend: Company insiders sold a lot more stock than they bought in November 2006.

Roben Farzad at BusinessWeek's Investing Insights reports that the insider sell-to-buy ratio is the highest since January 1987.

Link: Insider Selling Ratio Near a 20-Year High

According to the the CCH Washington Service Bureau, an SEC data miner, November saw US company executives offload $8.4 billion in stock and make just $133 million in purchases. The resulting sell-to-buy ratio of 63.18 has not been seen since January 1987, when the Dow Jones Industrial Average was wowing investors by breaking 2,000 for the first time (it's now at 12,300). With the index up 15% this year, and the S&P 500 up 12% (having nearly doubled from its 2002 low), suits are using the chance to blow out of company stock. The most active offloading is happening at Microsoft (MSFT), Google (GOOG) and retailer Kohl's (KSS). In all, insiders put in 6.34 sell orders for every buy in the two months leading up to Dec 1. And the headline $8.4 billion in sales represents the fifth highest sum since the halcyonic rein of Gordon Gekko 19 years ago. The highest: just under $14 billion in March 2000, when the S&P 500 and Nasdaq were enjoying their bubblicious all-time highs. They have yet to revisit those fateful peaks.

With the US market up 10% in the final quarter of the year, executives are clearly using the opportunity to sell (a lot) into strength.

Equal Weight ETFs

Trend: Introductions of new ETFs offer investors new themes and formulas for investing.

Rydex Investments recently rolled out nine new equal-weighted sector exchange traded funds (ETFs). Rydex is building on the success of the S&P 500 Equal-Weight ETF (RSP). The new ETFs will cover Consumer Discretionary, Consumer Staples, Energy, Financial, Health Care, Industrial, Materials, Technology and Utilities sectors.

The Rydex website explains:

When you invest in a sector, you gain focused exposure to specific industries within the economy. But in a traditional cap-weighted approach, you may also be overexposed to a handful of large companies and potentially passing up the outperformance of the smaller companies. The nine new Rydex S&P® Equal Weight Sector ETFs allow you to invest evenly across ALL stocks within a sector—not just the biggest of the big.

Doug Fabian, in the December 2006 issue of his Successful Investing newsletter, notes that the Rydex S&P Equal Weight ETF (RSP), introduced April 24, 2003, has returned 19.15%, compared to the giant cap-weighted SPY EFT, which returned 13.81% during the same period.

ETF Name	Symbol
Rydex S&P Equal Weight Consumer Discretionary ETF	RCD
Rydex S&P Equal Weight Consumer Staples ETF	RHS
Rydex S&P Equal Weight Energy ETF	RYE
Rydex S&P Equal Weight Financials ETF	RYF
Rydex S&P Equal Weight Health Care ETF	RYH
Rydex S&P Equal Weight Industrials ETF	RGI
Rydex S&P Equal Weight Materials ETF	RTM
Rydex S&P Equal Weight Technology ETF	RYT
Rydex S&P Equal Weight Utilities ETF	RYU