Jeff Mishlove: A Bull-Market Momentum Strategy
Hey folks, we have guest blogger Jeff Mishlove with some thoughts for the final week of the contest. Here's his post: One week ago, I recommended a momentum strategy based upon selecting stocks that had been surging in price during the past three months. At that time, I recommended five stocks: SCHN, NTRI, FCX, LRCX and VCLM. I see that four out of these five stocks are now up for the week.
Now that the Million Dollar Portfolio Challenge is entering its final week, this is a good time to reflect about which stock picking strategies are likely to be useful for real trading and investing in the coming months and years. Naturally, one’s investment decisions will be conditioned upon one’s overall outlook for the market in general. Is the market peaking right now? If so, are we in for a severe correction? Or are we in a strong bull market?
One of the financial newsletters that I read is the Dow Theory Letterwritten by Richard Russell. Since 2000, Russell has maintained that the primary trend was bearish. He originally felt that the bull market ran from about 1982 until 2000. And that the bear market could well be equally long. With this theory in mind, Russell argued that the recent bullish phase was just a bullish correction to a primary bear market that would inevitably reassert itself. However, to my surprise, Russell now claims that his original appraisal was wrong. He now asserts that the bear market years of 2000 to 2003 were simply a bearish correction to a primary bull market that is growing in strength. Richard Russell now believes that we are entering into the third and strongest phase of the bull market.
With this in mind, I would like to share with you the momentum investment strategy that was taught to me by my mentor H. Dean Brown. Readers of the Handbook I have written for contestants in CNBC’s 2007 Million Dollar Portfolio Challenge will know that I dedicated that book to H. Dean Brown – because he infused me with his enthusiasm for the stock market and also taught me his system. He was one of the founders of the Zylog corporation and worked on the design of the Z80 microchip – one of the very first. I regard him as a great creative genius in many different fields. Here is a link to an obituary and tribute I have written to Dean.
Dean’s investment strategy, worked out over a period of many years, was elegantly simple. He basically looked for stocks that had a smooth, steep, positive price chart during the past two years. His reasoning was that if the stock had done consistently well for two years, one could be confident that a strong management team was in place. Today, examples of such stocks include the following:
AK Steel Holdings
Trina Solar Limited
Rio Narcea Gold Mines
These are the sort of stocks that have not only done very well during the contest period – but also deserve consideration as potential long term holdings.
Jeffrey Mishlove is a registered commodity trading advisor and is author of Jeffrey Mishlove’s Handbook for Contestants in CNBC’s 2007 Million Dollar Portfolio Challenge. He is the creator of www.forecastingsystems.com.
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