Where the Portfolio Stands

I've done a lot of small trimming on many positions, a snip there, a snip here

Going to a more neutral stance
Cash is up to 15%
Short exposure now up to 13.4% (which is as close to as high as I take it)

It is a very simple road map - we have come a huge way in a short time and now face the important technical resistance I mentioned yesterday. If we burst through that S&P 1480-1490 area that would be extremely bullish. If not, we retrace down. But we face a lot of resistance over head. I'd be very impressed if we just slice right through it....



Surprised? No never surprised - you never know what is going on behind the scenes ;) But it would be an impressive, counter intuitive move.

It seems way too convenient to have an exact 10% correction and then go up 10% from there to make all the bad go away just like that. We already have bounced nearly 5% in just 2 sessions. Maybe it continues, but again it seems JUST too convenient.

Further, yesterday some of the worst (or most beaten) stocks rose the most - I did not see great moves out of the true leaders like Apple or Google (as I mentioned yesterday). So how much was simply over eager shorts needing to cover versus real buying is the question. Remember, Tuesday we had a huge move in the indexes but many stocks were down, breadth stunk. Yesterday was a true rally day where a lot of stocks participated but nothing goes straight up, or down.

From a macro point of view the issues we have won't be going away anytime soon. I do believe the US is going to recession. I do believe earnings estimates are far too high for 2008 for most companies. I do believe we have future rife with homebuilders going bankrupt, and a few banks if not bankrupt going to need major bailouts or outside investors. A lot more bad news on the way. That does not mean the market can't make tremendous moves upward from time to time. Nothing has changed from Monday other than fear went to greed yesterday. The Fed's earlier cuts did nothing. The next cut will do nothing, other than make speculators giddy. The American consumer is still in major dire straits I am afraid to say.

But at times the economy and the market disassociate as we saw for about 6 weeks in mid August to late September. But the macro background (to me) is very poor. Until proven otherwise I will follow my game plan to draw down long positions into these rallies and increase shorts. Certainly I could be wrong, as calling market movements is 1000x harder than calling individual stock movements in my book. Perhaps the crack that is Fed cuts is enough to move the market to all time highs. It just seems difficult for one to grasp all time highs in the face of the very serious issues our country faces. The only offset to that is the huge amounts of money being created in this world needs to go somewhere, so in theory it could support the market at far higher levels than the economic outlook would deem reasonable. So as always, many cross currents.

I myself, remain cautious. And remain understanding that for weeks at a time all bad economic news can be ignored and the market can easily put a 10-15% move that makes no 'economic' sense. My (more) neutral stance, while potentially limiting gains to the upside, is the best course of action until we either drop back down to lower levels or move back to higher levels which would indicate a true return of market confidence. Will adjust as we go from here. If we do move back up, you will see a huge scramble of institutions rushing in as they face performance anxiety again so one must be nimble and open to anything.

While these huge swings up sound good, they are actually very hard to 'outperform'. Stock picking is generally favored in relatively calm environments, not when the indexes are swinging +300, and -300 day to day. Hence it is very difficult to outperform in such extreme conditions. Which since mid July has been the order of the day save for 5-6 weeks in early Sep - mid October. I wish we could have more of those 'calm' time frames where actual stock selection is rewarded rather than a decision of how much exposure to cash you should or should not have.... where everything goes up or nothing goes up, regardless of fundamentals.