Saturday, December 15, 2007

Bookkeeping: Weekly Changes to Fund Positions Week 19

Week 19 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: 24.2% (vs 29.7% last week)
54 long bias: 56.5% (vs 62.9% last week)
5 short bias: 19.3% (vs 7.4% last week)

59 positions (vs 57 last week)
Additions: Illumina (ILMN), MedcoHealth Solutions (MHS)
Removals: N/A

Top 10 positions = 30.9% of fund (vs 23.8% last week)
39 of the 59 positions are at least 1% of the fund's overall holdings (66.1%)

Major changes and weekly thoughts
In general this was a relatively quiet week; as the markets trended above most indexes early in the week I was looking (reluctantly) for some buys. Most of the names I liked had made some major moves already, and other names I like were still stuck below key technical levels in their charts, so I was hard pressed to find any ideas. So I mostly stuck with my large cash position (near 30% entering the week), and bid my time, making some small trims and buys. After the hysteria that was Tuesday post 2:15 PM, most of my moves entailed asset allocation adding in 2 large chunks some short exposure, first a 5% switch from cash to Ultrashort positions after the 25/25 cut, and then another 5% after the major averages technical support levels were broken. Most of the rest of the week was status quo, keeping cash high along with short exposure.

Going forward key support levels on the S&P are 1440 and 1405. We went through this just a few weeks ago. But every time a new 'intervention' is announced, the market rallies for a few days/weeks, everyone gets giddy that the federal government, which solves nearly nothing, figured out a way to stop potential recession, inflation, housing bust, credit crunch, in 1 fell swoop. So we go up when people drink the kool aid, and drop once they face reality. I keep watching LIBOR Rates (the rates banks use to lend to each other) and even with the new initiatives by world banks, they remain stubbornly high. Monday will be the first auction - I expect since these are anonymous auctions and no bank has to show their face and say "look we stink, we need this money, we are strapped for capital" all $20 billion will be voraciously gobbled up. CNBC will trumpet the bottom is in, it was a success and time to rally to all time highs. And so it will repeat. And I expect future auctions to get bigger and bigger, feeding the drug addict. Each one will be heralded as a success, CNBC will cheer, and the bottom will be in and we should rally to all time highs. So betting against the market will need to be a cautious maneuver because kool aid is this decade's crack. Unfortunately, until banks become a lot more transparent and/or a lot of time passes and people get confidence that there are not more land mines sitting on balance sheet (I am not talking weeks or months, I am talking quarters) - that's when we will see true confidence return (although I cannot imagine LIBOR rates going even higher from here?). If this were the only issue that was one thing, but a world economy where major western powers are potentially heading for "a major slowdown" combined with inflation is a whole different layer of complexity. So here and there along the way, the banks and homebuilders will rally - the calls for the bottom is in will ring out - stocks in these sectors will rally 20% as shorts furiously cover and cheers will ring out. And then we will continue down. Until enough crack is put into the patient to inflate it back to life, or it collapses under its own weight. With a political season fast approaching in the US I expect many more "plans" to be coming from both Treasury and Fed - all of which will get people giddy and happy. If one believes interventions can save the economy, I suppose one should be happy and very optimistic. Just not what I see from this end, but it's not what I see what matters - it's all about perception. When perception is that the government can fix all our ills, we go up. When reality hits, we go down. Timing it all (mood swings) is the trick. And so we go, I expect for a few quarters.

I will get a lot more bullish when a lot of expectations are taken out of earnings estimates for 2008 and a lot more people get to the point where they are down on 2008 prospects. At this point, very few are calling for downturn, and most of them joined the bandwagon in the past 2 weeks. Eternal optimism reigns. When I see persistent pessimism (or materially lower stock prices) I will get back on the bullish bandwagon full bore.

Some of the major investment banks report this week and they will probably dominate the show along with Research in Motion (RIMM).

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, in my quest to find anything to buy in case the Fed bowed to public pressure for huge cuts, I added to Shaw Group (SGR) as the stock broke above a key technical level, the 50 day moving average. This level was violated later in the week (Thursday), so I actually cut my position right back down, and actually exited the week with a smaller position than I entered the week. Why the stock is so weak with such a great backlog is beyond me; I don't view it much differently than a Foster Wheeler (FWLT) or Jacobs Engineering (JEC), but the market is not treating it well, hence I don't have much room for a major position in the fund until the market begins to like the stock more.
  2. Tuesday I was away from the computer most of the day, but as stated above made some allocation adjustments to the short (hedging) side in the afternoon post Fed.
  3. I sold down some Solarfun Holdings (SOLF) after a quick spike from my purchase last week. Just locking in some profits.
  4. I was buying some National Oilwell Varco (NOV) in the middle of the week as the stock strengthened in some terrible action. I missed out on the deep sea oil drillers so instead I bought this stock which was making a technical 'breakout' after lifting up and through its 50 day moving average. This stock is still dirt cheap in my opinion and the recent weakness has been strange action to me. NOV is back up to a top 10 position with 2.1% of the portfolio.
  5. On Thursday, even though I still like Ciena (CIEN) I cut my 0.9% position in half after 'ok' guidance and a SIV exposure confession. This is a tough environment to hold networking stocks. I think Ciena lowballed its guidance but no one cares about that now. Until the stock begins acting better technically I won't be raising exposure (unless it tanks to $30ish) or so.
  6. Friday, I added 2 healthcare names to provide some more diversity into the portfolio - MedcoHealth Solutions (MHS) and Illumina (ILMN). The former is a 'defensive' recession type of play, and the 'latter' is a growth stock that finally retreated back to support in its chart after a big move. The charts of many defensive stocks i.e. Altria (MO), Coke (KO), Procter & Gamble (PG) are doing very well, but most of these have relatively benign growth - while MedcoHealth is not exactly a high flier itself, it does have some growth component to it. Last, while higher inflation might hurt consumption of some items sold by the names above, drugs are necessities so I don't see people cutting back on those.
  7. I trimmed back fertilizer stock CF Industries (CF) as the name broke through $100, and made a 25% gain in just a few weeks.
So again, relatively quiet week in individual names. I am hoping to see either the market break down to a panic level (and stronger stocks on my buy list break down to their 50 day moving averages), or see the market return back to a good technical position before I make large outlays of purchases. With my Ultrashorts I do plan to cut back in the S&P 1440s as I expect a good fight to be put up there by the bulls, but anywhere between S&P 1405 and 1490 is just random white noise trading. Until amore long term trend is created either up or down, I will maintain a similar stance in varying degree to what I have now, as I expect choppy trading as reality fights interventions.

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