As detailed last week [Like a Moth to a Flame = S&P 500 and 1490], after cracking 1490, we now reside in that floor of the house called 1440 through 1490. In December, the last time we fell to this level it was defended pretty strongly [S&P 1440 Will be Defended] with some buying so we shall see how it works out this time. My working assumption is a similar defense will be put up again.
Now the open question is does it hold up or do we break through? If you listen to all the economic news and believe (as I do) economic profit guidance in the coming January earnings period is going to disappoint the raging bulls (i.e. it's not a slowdown!), then we could be breaking through, if not this first time than over the coming weeks. Then the real test begins as we head to S&P 1400.
Most of the stocks I am most interested in are still holding up pretty strongly, so I am hoping they get knocked in the knees so I can add to these positions. Otherwise I am still holding with my 20% or so Ultrashort - I'd like to see some fear sap into the market - we still seem in denial stage. Normally when we get to a level like the S&P 1440 which has provided support in the past I'd lighten up on the short exposure but with my thesis that earnings guidance is going to really surprise some people (on the bad side) who still think this is a raging economy or one that will recover in a "few months", I am hesitant to do so this time around, especially with 70%+ long exposure. Hence this short exposure is my only insurance to offset the potential drop in my long positions...
So all in all this is a long way to write, I am not doing much. I want to see how the market handles S&P 1440. I would expect some bounce there, but if we fail we could set up for a stronger move down. This might takes a few days, or weeks.
As an aside, seed company Monsanto (MON) reports tomorrow - I have never bought this stock for the fund, because although I love the agriculture sector, Monsanto has always been very pricey and >40x earnings. I can get fertilizer stocks for sometimes half that multiple - and get double the growth of Monsanto. So the stock performance of the fertilizer names has been much higher than the relatively conservative and richly valued Monsanto. With that said, Monsanto is the type of stock every fund manager in America put on its book in late December to say "hey look at me, I'm smart - I held Monsanto all year!". So it should have a floor underneath it. Personally I am hoping for some kind of disappointment from the company so investors cut bait with the fertilizer companies (so I can buy at lower prices).
No position
