Bookkeeping: Weekly Changes to Fund Positions Week 16

Week 16 Major Position Changes

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 2.7% (vs 0.0% last week)
51 long bias: 91.3% (vs 93.0% last week)
5 short bias: 6.0% (vs 7.0% last week)

56 positions (vs 56 last week)
Additions: Gafisa (GFA), Ultrashort Xinghau 25 China (FXP), LDK Solar (LDK)
Removals: GlobalSantaFe (GSF), Fluor (FLR), iShares Singapore (EWS)

Top 10 positions = 36.2% of fund (vs 34.9% last week)
46 of the 56 positions are at least 1% of the fund's overall holdings (82.1%)

Major changes and weekly thoughts
Not much to add this week from previous week's thoughts; we continue to go down on the same news each day. The indexes have now all hit 'correction' phase of 10% levels. From here things can either devolve into a very dark hole or some stand can be made. S&P 1440 continues to be a critical level, in fact we ended there Friday. Go forward, until the technical picture improves and S&P clears back over 1490 the battle plan is to remain cautious and taking (some profits) on swings up, and increasing hedges on upswings - and doing the reverse at the lower end of the range. Unfortunately the lower end of the range keeps dropping, and this pattern of lower lows is troubling. Until that changes it is hard to signal a new trend. On the mildly good news front news channels and finance websites have gone from giddy outlook a month ago to talking about nothing but troubled home owner, and credit crunch - issues I was bringing up in August/September but the market could care less about since Fed was all powerful and would save us. That is the tricky part of the market - you can be correct intellectually but wrong "stock price" wise - as the market continued to rise week after week in the face of ALL the same issues it is now suffering from. As I always say - it does not matter, until it does.

If we can break through this 1440 level and put in some sort of oversold rally I'd love to see a move to 1490 on the S&P. We did that on that huge rally a week ago Tuesday but the entire move came in 1 and a half days so aside from active trading it is very hard to take advantage of those type of moves. For now I will continue to raise cash (I try to limit myself to maximum 20% cash and 15% short ETF to respect the 'rules' of a typical mutual fund) - but this is an area I will probably try to go to. And from there (until proven otherwise) we should assume downward movement. Eventually this assumption will be wrong, but until the trend breaks, one simply follows it. Again from a contrary point of view, it seems most people are now giving up so at times the best rallies are made from those type of conditions, but one must still brace for potential of retest of August lows. If *those* lows are indeed broken than it will be an ugly time indeed. This has been an awful month and one would expect some bounce though even if we are in longer term downtrend. Perhaps some nice retail sales (or "not as bad" as everyone expects) will provide some near term sentiment change. We do have the prospect of Dec 11th Fed meeting coming soon, and as I have been stating despite the jawboning of "we care about inflation" - the risks to the financial system are too great and greasing the financial engine of the US is the Fed's main concern. Unfortunately a complete and utter lack of trust in what the financial companies are telling us is the mood of the day and will be a problem for many more quarters. But that does not mean you cannot have counter rallies.

We did finally begin to see some worries about international growth slowdown for the first time this week - still whispers though. I did add some short ETF positions of late to begin taking advantage of a theme I see playing out in first half 2008, and I also sold 2 countries out of the portfolio - Hong Kong and Singapore. While these markets are also near term oversold, I am hoping for some nice bounce to build these short ETF positions into more significant parts of the portfolio heading into next year.

In terms of the fund I continue to build on those stocks with the best combination of fundamentals and strong(er) technicals - it is all relative at this point. Those stocks lose "less" than others. For a mostly long portfolio - that's unfortunately the 'winning' strategy. Since the fund began it's been a weird era - two periods where EVERYTHING was sold down heavily, one period (late August/mid September) where EVERYTHING went up, and then a nice 5 week period in later September through mid October where stocks actually went up based on fundamentals. This is the time the fund really outperformed, when stock selection mattered. But of the 16 weeks of fund life, 11 weeks have been marked by either indiscriminate selling or buying - neither of which is easy for a stock picker to outperform. I hope we soon return to an era where the companies performing are rewarded and those not, punished. Instead of everyone up or everyone down.

Below are the fund changes this week - the specific rationale for each of these major moves is explained in the weekly posts which can be accessed in the left margin under archives.

Some of the larger changes (chronologically) to the fund below:

1. Monday I did not do many large transactions, just some smaller ones adjusting allocations - selling down some short ETFs and adding in small splashes into existing positions - such as the fertilizer names as they pulled back to support. I did add a starter position in one new name, Brazilian home builder Gafisa (GFA) near $36 which was its 20 day moving average and noted $33 was the next level of support (50 day moving average), and a logical place for the stock to fall through, which it indeed did by Friday.
2. Tuesday, after a great earnings report from Blue Coat Systems (BCSI), I cut back the position a bit (200 shares) simply because the market is so weak, and 18% stock appreciation is not to be ignored in this sort of market. I am very bullish on this name and await the technical position to improve, at which time I will happily add more.
3. I locked in some shorter term gains on both Research in Motion (RIMM) and Google (GOOG) - Google actually looked very strong the rest of the weak. These are not major positions, and the trades are shorter term in nature since these names have been punished so heavily of late, this created some nice buying opportunities. So I took the opportunity to lock in profits but in general these names held up quite well all week, and I still believe when the market finds its feet they will be a group to lead it up.
4. I started a new smaller position in the very volatile UltraShort Xinghau 25 China (FXP) - with a few hours I was down 5%, but the next morning I was up 10% on this hedge. I plan to hold this hedge in varying amounts going forward, but it will probably be more of a 2008 play than 2007 in my opinion.
5. I closed my position in iShares Singapore (EWS) - this is simply a play on the weakening of emerging markets in 2008 finally coming to fruition. I continue to like Singapore for the long run as it is emerging as the financial capital of emerging Asia, but it could face some headwinds in the year to come. The index is probably due for a near term bounce as its very oversold but this move was made with the longer term in mind.
6. I added to my smaller position in Suntech Power (STP) in the lower $60s and to Foster Wheeler (FWLT) late on Tuesday as the stock was dropped to $130; I am finding some of these prices on the back of tremendous earnings momentum quite overdone but it's hard to argue with Mr. Market. A year from now these prices will seem like steals.
7. Wednesday, I added to my smaller Agco (AG) position in the face of tremendous earnings from Deere (DE). Agco has held up very well in the face of this market selloff.
8. After Trina Solar (TSL) imploded post earnings, I added shares in the 2 emerging leaders in the sector, Suntech Power (STP) and First Solar (FSLR) - although I am overweight in the former. I also added as a more speculative play the seemingly washed out LDK Solar (LDK) which has its own set of issues, but should be clearing out any skeletons in the closet by early/mid December. I had sold LDK Solar last around $40, so an opportunity buy back 25% lower near $30 was now available. I also added to 2 Indian positions which I had sold down quite a bit in their rallies a few weeks ago, ICICI Bank (IBN) and Sterlite Industries (SLT); my Indian exposure was quite low of late as I sold down my positions into the last explosive rally - last I added more CF Industries (CF) one of my three fertilizer stocks, trading at about 12x 2008 estimates!
9. Friday, for 'bookkeeping' purposes due to a merger expected to close next week I closed out deep sea driller GlobalSantaFe (GSF), and also closed infrastructure name Fluor (FLR) - I've added a lot of infrastructure exposure in this selloff, but in this environment are going to stick with those that reported the most steller recent earnings since this is where the bulls seem to flock to each quarter.
10. Throughout the week I did lower some of my energy services exposure - the charts all look very similar - stocks that broke down below their 50 day moving averages and now are drifting back up to reach those levels, but have yet to break through. From a short term perspective the way I approach this is to sell down these positions until they prove themselves able to rise above these 'resistance' levels and hold them. This doesn't mean I have any change in their fundamentals but if in the near term the market finds a group in disfavor I don't want a large amount of money sitting in these names, simply idle or worse falling. Most of my cutting was in National Oilwell Varco (NOV) and FMC Technologies (FTI). I find both undervalued and once the market warms up to them I will return to larger allocations to these names.

The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows - I continue to focus on Russell 2000, Financials, and Retailers; although I continue to believe these are overdue for a rally. I also have added some emerging market exposure of late.