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Stock Market Picks / ETFs

Stock Market Picks of the Litter

Whether you are focused on using our Market Direction Model service for picking ETFs or any of our other services for your stock market picks, know that all stocks that are recommended make it through our rigorous screening process. The parameters we use and the levels set are based on decades of historical precedent analysis. We studied what stocks led during each market cycle and distilled down the common characteristics.

The levels set on each parameter depends on the general health of the market. In more challenging periods, the level of rigor is very high as only the best of the best stocks make the cut. In more bullish periods, we may relax this level as more stocks can well outperform the market during such favorable times. 2011 has unfortunately not been such a time as the market has remained fairly trendless in a choppy fashion as of this writing [June 2011].

Some of the screening parameters we use include improving or accelerating earnings and sales, strong pretax margins and ROE, good industry group rank, composite rating, liquidity, price, PEG ratio, accelerating institutional sponsorship, being a leader in its space, and so forth. When a stock makes the cut and is actionable, we email out a report on it. Determining whether a stock is a leader in its space requires much reading which we do regularly as it is a part of the investment process we very much enjoy.

As for ETF selection, while 3-times ETFs did not exist a few years ago, had they existed, the model's long term return of roughly +33%/year would have been roughly triple that return, or +99%/year. The birth of 3-times ETFs is certainly a wonderful device when it comes to timing the market. We found that a modest amount invested from 2000-2010 not including taxes would turn a $50,000 investment into well over a million had one been invested in any number of 3-times ETFs such as TQQQ, TNA, TYH, or UPRO.

And in 2008, such 3-times ETFs would have scored a triple digit return in a year where most funds lost half or more of their Net Asset Value (NAV).

And just for fun, in the worst bear market in the history of the NASDAQ Composite where it lost -78% of its value from March 2000 to October 2002, the Market Direction Model would have been up roughly +301% using these types of 3-times ETFs.

So whether you are looking for stock market picks that focus on ETFs or individual stocks, remember to always make sure you are not exceeding your risk tolerance levels as the path from zero to 301% can be a bumpy one, so position size accordingly so you wont get knocked out of your position prematurely.

By Dr. Chris Kacher and Gil Morales
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