The next couple weeks will be dedicated to reviewing the past year. We need to take a look at how our picks performed relative to the overall market, which Sectors fared best in 2013 and what looks like it will continue to lead into 2014. This week we are going to review our Top 10 Holdings one by one to see trend and patterns that will give us hints toward future performance.
Some of our selections dramatically outperformed the market averages and others did not. We had a few big winners in DDD, HAIN, and PBW, while several names traded more or less in line with the SP500 like WFC, CMI and HD. We then also saw several names dramatically underperform the averages such as F, AAPL and ENB. This is mostly what we have come to expect when picking groups of stocks; some of the picks do very well, some fall in line, and others fail to live up to potential. Whatever the outcome turns out to be in hindsight, it doesn't change a thing in how we approach the next setup. We simply take each stock on its own setup of trend and trade it without bias. For example AAPL has been a poor relative performer overall this year finishing up only 5%, yet we are currently up over 18% in our position since entry, which would in fact be a pretty decent year relative to the averages. So it really depends how we manage each position and not necessarily the exact YTD returns that matter. But it is good for review purposes to at least take a look at the passive return of each pick to get an idea of underlying strength/weakness in the market.
Lets take a look at our Top 10 Watchlist stocks. The charts will reflect the Daily, 1-year view.
DDD +155%
3D Systems was the big winner this year for us. Up a stellar 155%, this is what everyone hopes for when they pick a stock. Everyone loves a "double" and DDD didn't disappoint. After some very volatile trading in the beginning of 2013, it took a 6 month sideways consolidation breakout to really blow this thing open. This type of "explosion" in share price though is why we like to follow sideways consolidations near all-time highs after big rallies. Typically they allow for the stock to cool off and for supply and demand to gather equilibrium. Then once balance of supply and demand shift (by breaking out of the consolidation) you can see very powerful moves that make your year. I will continue to do my best in identifying these types of setups as we have done this past year. From coiling, tight trading ranges, come violent moves that can be extremely profitable if one can correctly identify them ahead of time.
HAIN +65%
Hain was a very solid runner up for 2013. Finishing with more than twice the return of the SP500, Hain was impressive. The stock had to deal with the large selling from Carl Ichan's liquidation of his stake in the company this year, and I was surprised how well price digested that surge in supply of shares in the late summer. Most people consider big investors like Carl almost bulletproof in their actions, yet Hain gathered itself orderly and has now made two new all-time highs since his sale in late August. I read a few articles calling for "the Top" for Hain after Ichan's sale, but I continue to yield to what price actually does, and here the price trend suggests more upside to come. It doesn't look like price cares what Carl did with his shares, the stock simply absorbed the sale and is ready to move forward.
Basically from the peak in late August though price has traded more or less sideways between $88 and $72. This past week however it seems that the consolidation could be over and the next leg higher is beginning. It looks to me that a breakout is underway and we could see a nice strong surge heading into the next earnings report. We can also move our stop up to the lows just below $80 now. This has been a consistent winner and we need to continue to follow the trend higher.
PBW +54%
Clean Energy made an impressive showing this year. I don't like to pat myself on the back or anything, but we did pretty much nail the bottom so far in the Clean Energy space. We are seeing one reversal setup flow into another and each one is larger than the last. This is what we look for in terms of positive price action and secular reversal moves. Energy use is expanding in the US and with a Democratic president in office it is often Clean Energy that gets a strong funding boost. While we have recently taken a cash position in this space, I do expect this to continue to setup bullish price action and create many more profitable opportunities for us as we go forward.
PPG +38%
We switched to PPG midyear, but it continues to show strength. PPG replaced a failed watch list stock (MOS) and has since been a leading performer in our Portfolio. I have been watching this recent, 3-month sideways price action for a while now. It is interesting because it is occurring above the prior channel resistance barrier and at all-time highs. When a stock can extend beyond upper resistance levels and hold them, it is a very bullish thing. Once again though it will be a break of the range that will be of importance. A break below will likely cause a correction down to the lower channel support, while a break above will simply indicate more upside to come. I believe this will resolve itself higher, but will be watching the support levels at $180 closely.
WFC +33%
Wells has been a solid performing stock this year. It has been a leader in the XLF group and a laggard as well at times. We have recently reentered a position into WFC and I believe this continues the uptrend higher. Basically all the gains for the year were achieved between January and July. Since that July high the stock traded sideways and is only now emerging from that range. With the recent break to new highs, Wells could have a lot more upside ahead. Our new trailing stop on the position is going to be just under the $43.25 lows.
HD +32%
HD looks to be regaining its mojo from the beginning of last year. Similar to WFC, HD had nearly all of its yearly gains in the first 5 months. The stock has been choppy and range bound for over 7 months and is only now breaking through that upper boundary. I've been hearing a lot of chatter out there about how the next 5-10% pullback is truly imminent, but I look at a chart like this or WFC and I see a stock (a leading stock at that) that has been correcting through time for the better part of 6 months and is only now emerging from the trading ranges. When more people start guarding for protection, that is when the market keeps leaving them in the dust as it climbs higher. This is just an observation of my charts and the noise I am hearing. My charts say that a significant correction
has occurred over the last half a year, and now these old generals are ready to step back into a leadership role.
CMI +29%
Cummins was the example of a "market perform" stock in 2013. It had its moments but they were short and if you missed them, all that you got was chop for multiple months at a time. However at the current moment it appears that CMI is emerging from one of those ranges into a "good" period for the stock. The stretch from late June through early September was truly sweet. The stock rallied 30% over a 3-month period of time. It then corrected through time for the next 3 months and now seems poised to surge once again.
I think CMI will see strong new highs in 2014. There is currently a large Cup/Handle formation in motion for CMI with a projected target of $162-174 depending on where you draw your Cup neckline. I seem to favor the closer of the two targets because the $162 target acknowledges the breakout and throwback at the end of October. The corrective move retested the $122.50 neckline perfectly and seems like the pattern level the market is paying attention to most.
The point is this has significant upside potential going forward and I think its just getting started.
SP500 +29%
The SP500 had a record year. It was just a fantastic year for stocks. This rally has had many doubters and has left them all in the dust. We continue to see support levels hold and new highs being set. As long as that's the case, we are very constructive on stock prices going forward.
F +18%
Ford has cooled off lately, but if it can regather itself, 2014 could be another good year. F was really humming along for the first half of the year, but has since experienced a similar fate to many of the larger stocks. The corrective action from July to December had been more or less constructive. It was the breakdown last week that has changed the picture here in the near term. I was really expecting $16 to hold as strong support, when it failed, we closed out our remaining position. If this can turn around quickly here I think it would create an very interesting false breakdown and would be worth a look back into our account. There is still the massive base formation under construction and that could lead to dramatically higher prices in the future.
AAPL +5%
This one made great strides in the last half of the year and seems poised to lead into 2014. While many of our prior leading stocks were taking a breather from July through December, AAPL was just getting itself together to give the market a well timed pick me up. When names like HD and WFC were topping for the year, AAPL was bottoming in a major way. We have seen a textbook uptrend over the last 6 months and prices still seem poised to continue higher. The stair-step action here is very encouraging as it creates very reasonable trailing stop locations along the way. Lets stay with this as long as we can, they say big things are in store for Apple in 2014. We'll see if the stock agrees.
ENB +0%
Enbridge really had a tough second half of the year, but I remember a time early last year where it seemed it would never come down. Now its holding at a flat return for the year. If it can maintain the $40 level as support, I think it could go on a nice run.
Total Top 10 picks
+42% vs +29% for the SP500
While we had some big leaders and laggards this year, our total 1-year passive return for our picks outperformed the SP500 by 13%. This is exactly the type of return i hoped to see when I selected these stocks for our list at the beginning of last year. Lets see how they get this new year started.
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Often at year end most people will try to predict what next year will bring. They dig up any study that suggests that due to the strength this year, next year will be strong/weak based on their findings and they will stick to that prediction when making current portfolio choices. This is something you will NOT find me doing.
I will not be one for trying to predict what next year will bring good or bad, I will simply maintain a flexible approach to the market and let it tell me when my investments are poor or strong. Here's a little hint, nobody knows what's coming...the future is uncertain, that's what we have to deal with. The best we can do is recognize strong movements and weak movements, and position ourselves as correctly as possible relative to the strength and weakness.
That being said, currently our charts suggest strength for the intermediate term trend heading into 2014 and we will continue to be positioned that way until the market proves our current holdings wrong.
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