No. of Recommendations: 9
An interesting observation that I found on RCarr's 
Scoreboard #2:  YTD returns on the WER screens 
increase significantly along with increased holding 
periods.

                      YTD Returns, %

Hold     WER-ADRS   WER_RS    WER-RSAD   Average

 M         -9.5       0.2        5.9       -1.1

 Q          7.5      13.2       21.0       13.9

 S         59.2      35.8       59.2       51.4

 A         83.4      40.7       83.4       69.2


I don't think I would conclude anything from this 
limited data, but it is interesting.

cudafooledme
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No. of Recommendations: 6
Hi Dave,
Nice to hear from you. Here's my system as I'm tracking it at clearstation.com:Here's my stock buying system as it now stands:

1. Determine Market direction:

'Market condition green' means the 5 day ema (moving average) of the NASDAQ COMP is above the 15 day ema. Go/continue long and cover shorts (unless you have one really bucking the trend). You'll know you're on the wrong side of the market if you start losing your shorts!

'Market condition red' means the 5 day ema of the COMP goes below the 15 day ema. Go/continue short and sell remaining long positions (unless you have one really bucking the trend). You'll know you're on the wrong side of the market if your most recent buys are not working out!

A 'market condition yellow' exists at possible market tops and bottoms. Market condition yellow is based on short term market trend analysis. I'm attempting to determine if a market change in direction is occuring. This involves drawing straight lines along recent NASDAQ COMP closing prices, as well as considering if the COMP closes above the 5 day moving average in the case of a possible bottom reversal, or below the 5 day moving average for a possible top reversal. I'll also be taking IBD market commentary into account regarding market price and volume activity.

When a market condition yellow is noted at a possible market top reversal, don't take any new long positions, be prepared to take profits, be vigilant regarding stop losses, and find some stocks to consider shorting.

When a market condition yellow is noted at a possible market bottom reversal, take partial long positions, be prepared to take profits on shorts, and be vigilant regarding stop losses.

Stock selection for long positions uses a 'mechanical' approach:

The name of the screen as tracked on the Motley Fool's Mechanical Investing board is Werrsad. This stands for Weekend Review (wer), Relative Strength (rs), Accumulation/Distribution (a/d).

The year to date return of the five stock version of this screen traded on a weekly basis as of 07/22/00 was 158.7%. For the market as a whole, the past six months included a good first three months of the year, followed by a poor three month period.

Background: Investor's Business Daily (IBD) publishes the Weekend Review(WR) on Fridays (it's on the last page of the B section in Friday's edition). IBD's WR consists of:

"All stocks above $7, within 15% of 12-mo. high and with Earnings Per Share (EPS) and Relative Price Strength (RS) of 85 or more, shown by Industry Group Relative Strength Rating (IGRS)."

What the IGRS part means is that stocks at the beginning of the list belong to the strongest price appreciation industries as compared to stocks that occur further down the list as ranked by IBD. You can find IBD's industry price performance ranking on the next to last page of the A section. On that next to last page of the A section, the industries that IBD tracks are listed as 1-197 or so. The first one fifth of these (1-39) are the A industries, the second fifth are the B's, etc.

To find the top five stocks in IBD's Friday edition weekend review, consider only those stocks whose IGRS=A. Sort by RS, then use A/D as a tie breaker for stocks with the same RS. The final tie breaker is the stock which occurs higher up on the list (corresponding to a stock that belongs to a stronger industry group). Buy equal dollar amounts of the top five stocks.

The stop loss criteria is the LOWER of 1) 15% less than the high made in the last 30 days, or 2) 10% less than the purchase price. After all, the first, second, and third rules of investing are "don't lose money"!

So why does this modified werrsad mechanical investing screen work? Why was this past June and last mid-October through March such great times to be invested in werrsad stocks. Why was this past April/May and the two weeks prior to this past Friday a crappy time to be invested in werrsad stocks?

Here's what I think. Take these three factors regarding the werrsad stock screen into consideration when you read the paragraph below: One, it's an RS screen. Two, to remain on the list, a stock has to be within 15% of its 52-week high. Three, the whole list is sorted by Industry Group Relative Strength.

When the market trend changes for the worse, the high fliers get knocked down and the remaining 'relatively strong' stocks percolate up to the top. This could take weeks or months. Once the market reverses, these stocks race forward (break out) with pent up energy (demand). My feeling is that the longer the market correction, the faster the leading stocks will rise once the market direction changes. That's why I'm not that bullish on this apparent market reversal (uptrend) we're experiencing. I would've liked to see the NASTYDAQ meander on down to 3000, then turn up. Who knows, maybe I'll still get my wish!

Now, here's something I've decided NOT to do because I think that using market trend analysis more than compensates for it:

I use to say this:

"One change I'm going to make regarding the buying and selling of Werrsad stocks, is to buy near the market close on Mondays and sell (when the lineup changes) at the market close on Fridays. IBD indicates that historically you would have enhanced your returns by 15% annually using this technique. The idea being that Fridays tend to be net market up days, and Mondays tend to be net market down days."

Instead, I'll base my buying and selling on market trend analysis which could change any day of the week.

Here's something else I'm NOT going to do (I do have a wonderful wife and two beautiful kids that I need to spend time with, after all!).

Here's what I said:

"In terms of individual stock analysis, I'll be using the same criteria on stocks that I use to guage market direction (trend lines, moving averages, and price and volume activity).

Instead, if I have accurately gauged market direction, most of the werrsad stocks will work out. Stop losses will take care of those that don't. If I sell a position because I think it's topping out, I'll say so, but it doesn't mean I'm right. So whatever I do with the top five werrsad stocks, I'll get the word out. But, I... make... mistakes!

What about shorting? For those of us who also have margin accounts, we should also benefit from the general market decline by shorting stocks. Currently, I am making short recommendations using IBD's 'new low' list. The criteria is that the stock price must be greater than $20. I've had additional technical criteria suggested, but I haven't had the time to follow up on them. I'm even considering shorting the werrsad stocks (which become the high flyers). This last statement should make you really think about the nature of these werrsad stocks. You absolutely have to be on the correct side of the market trend to be 'invested' in these stocks. It can be a wild ride.

Other ramblings:

For more info go online at http://www.phillysites.com/foolishness/ then click on 'current screen rankings', from drop down, select 'weekend review: RS & A/D. Once there, click on 'more info'. Also check out the archives.

Also availabe from author JackCade: go to http://boards.fool.com/ , plug jackcade into 'search', press 'search', plug jackcade into 'author', press search. Look for messages with 'screen rankings' in the subject line. YTD returns are posted in the 'YTD ledger' messages.

I started the first version of werrs (short for IBD's weekend review, relative strength) more than a year ago after following some Value Line screens at the Motley Fool's mechanical investing message board. I wanted something I could calculate myself, but I didn't have access to Value Line. I did have IBD and its weekend review. Since IBD tracks a lot more stocks (maybe 10,000?) compared to Value Line (1700), it seemed to me to be a potentially better initial screen as well.

Another Motley Fool message reader took my initial idea and improved the return by utilizing the accumulation/distribution data and expanding the number of stocks considered by using all stocks whose IGRS=A. Thus was born wer,rs,ad. There are currently four variations of werrs. There are several Motley Fool mechanical investing board contributors involved in an 8 year back test using various sorting techniques of IBD's weekend review data (there is more there besides RS and A/D).

Currently, year to date, as measured by JackCade, the werrsad top 5 stocks traded on a weekly basis bests all other 5 stock screens traded the same way (about 40 screens).

Please refer other readers to this post. Thanks to those of you who have been helping mold this 'living and breathing' process. If you still have questions, buy this Friday's IBD and go through the process yourself. It took me a long time to figure it out, and I'm always learning something new from the e-mail I get. Thanks for the 'critical' e-mail especially. I'm sure there's plenty I've left out. I'm certain this will generate even more e-mail. I'll continue to do the best I can to respond to the e-mail I get. It's just that I'm time limited. Again, thank you.

Mark


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