Bookkeeping: Weekly Changes to Fund Positions Week 35

Week 35 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: 14.0% (vs 27.4% last week)
56 long bias: 75.6% (vs 48.5% last week)
7 short bias: 10.4% (vs 24.1% last week)

63 positions (vs 62 last week)
Additions: Ultrashort Consumer Services (SCC), Lennar (LEN)
Removals: Google (GOOG)

Top 10 positions = 36.2% of fund (vs 35.8% last week)
37 of the 63 positions are at least 1% of the fund's overall holdings (59%)

Major changes and weekly thoughts
The markets started the week celebrating a $19 billion write off by UBS, and a sizeable dilution by Lehman Brothers to it's shareholders... in the "forward looking" mechanism of the Street, these are "past issues", and the latter especially showed that there was interest in buying stakes in the investment banks at the right price. You can't really blame people, because now these investment banks have the same access to the Federal Reserve balance sheet as commercial banks, with almost none of the same regulation. Nirvana. The market continues to hold steady the rest of the week, celebrating the weekly unemployment figures increasing past 400K for the first time, as well as a worst than expected jobs number (which is still massively understating the situation), along with a 0.3% increase in unemployment. All great things to this market, because that's the "past" and we need to look forward 6 months when everything will be "better". I forgot to mention 142,000 of this month's jobs were by the birth/death model [Jan 27: Monthly Jobs Report & Birth/Death Model] - meaning if the government weren't totally guessing at how many "new businesses" are being created (in a contracting economy), job losses would in March would of been 220K instead of 80K. But when you can plug any number you want into the employment report, you can create any magic figure you'd like. Anyhow, the bottom line as investors is bad news is now being shrugged off, so we have to remain temporarily bullish.

I entered the week very cautious with my highest combination of cash/short exposure since inception last August and it cost me on Tuesday as the market went ballistic on the above mentioned "great news". Since we were able to make a new high, I decided to reverse course and cut back short exposure/cash and move materially into long positions - adding nearly 30% long exposure as the week went by. In this topsy turvy environment where hope means more than fundamentals I am relying more than usual on technicals. Looking at the broad index (S&P 500) we broke above a key "moving average", the 50 day, for the first time in 2008, on Tuesday. Further for the first time in 6 months we made a higher high than the previous high (from last week). So 2 bullish technical conditions.



On individual stocks, as I've said all week, I'm seeing bullish setups for the first time in a long time in many names. Simply said, these are stocks that have been under their major moving averages but broke above during the week - when this happens I generally am going to always be adding exposure, no questions asked. I am showcasing 3 charts below, from unrelated sectors, who all show the exact same technical condition.







These are 3 names; there were probably 20 names in the fund which showed similar setups this week. Which showcases to me, that once the market showed any signs of stabilization, many names in the fund were the type of stocks people were flooding into. Compare this to a lot of retailers, financials, and homebuilders which despite frantic moves in the first few days of the week are still below key moving averages.

Now where from here? I continue to remain cautious due to the economic backdrop. For the overall S&P 500, I do not want to see 1350 broken. That does not mean the index even needs to make a substantial move up, simply treading water is fine by me. If the market somehow breaks through its 200 day moving average of 1440, well then we just have to clap our hands and be impressed - and turn into full blown bulls. Somehow I find this improbable but then again some of the actions we've seen by "outside" forces have been improbable as well.

For individual charts, it is very simple - if this is just a fake out I will be culling back positions I bought this week as they fail, and fall back below the moving average they broke above this week. It is actually quite simple and frankly I have a list of 30 stocks in the portfolio all in almost the exact same position. So depending on the market action these all could be "holds" for a while longer, or quickly cut back (even if I need to take small losses across the board). Because by cutting once they break down below a moving average you (generally - not always) save yourself from a substantial drop. Now again, this is a lot of technical trading mumbo jumbo - nothing to do with fundamentals. But I like all the stocks I hold (save for perhaps the homebuilders) on fundamentals - it's just a matter of moving with the market. The fundamentals have really meant almost nothing since late last fall for many stocks. So until we re-enter a true sustained bull market, the technicals will dominate.

I do plan to cut back on my 2 solar names this week, as they have quickly gone to a 10%+ exposure, and I have some very nice short term gains. This does not mean they are not in inning 3-4 of a larger move, but I've already benefited from a substantial move and I'll let someone else take the risk of buying these stocks up 30-40% from their lows. I still like these names for the longer run, but again - this market... especially entering earnings season in which I believe many domestic based companies (not the type we own!) will be cutting guidance for 2008 is not one I want to be too giddy about. Remember how wrong analysts have been just in the past 3 months [Mar 31: Classic Example of Analysts Overexuberance] So I'll be pruning positions when I have nice gains, potentially leaving additional gains on the table but I remain very conservative for the time being.

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. I had a topsy turvy week with top position Mosaic (MOS) - I was building it early in the week, and took it up to 6% - but since my general plan is to cut exposure ahead of earnings, I went conservative and dropped it to near 1% of the fund before the Friday's earnings - nothing to do with the fundamentals, but the worry about the "reaction" to earnings which are always so unpredictable. Of course Mosaic came through as always, and the stock ran - I ended up adding about half of my position back (3%ish exposure) Friday. I'll be adding the next time there is a raid on these stocks but with the market (for now) benign we might have more upside in the near term, so I was willing to pay up to get part of my position back (same story for Potash but in smaller scale). These moves cost about 0.6-0.7% of fund performance, but this is the price of "insurance".
   
2. Tuesday, I locked in a very nice short term gain in iShares Signapore ETF (EWS)
3. Baidu.com (BIDU) is actually a great case example of how technicals dominated my short term thinking this week; on Tuesday the stock made a nice move up and was approaching a serious resistance point - so I cut back my exposure but said I'd be willing to buy back either on a break above this key resistance or a pullback. Well we promptly got a move up over this moving average within 24 hours so I added back my exposure plus more... now again, I could just as easily be selling off this exposure if the charts break down next week - when we cross up/down through key technical levels I will change course overnight if necessary.
4. I continued adding to Huron Consulting (HURN) on Tuesday as the stock was showing some good strength (+10%) since the selloff last week on its earning warning. I did take a bit off the table later in the week, to lock in some gains.
5. As we broke to a more positive condition on the S&P500 I added a 2nd homebuilder (plugging nose) - with Lennar (LEN). My strategy with these are, I need something when 90% of my portfolio is being trashed during the "commodities are dead" periods, so I am using these homebuilders... I only have a 3% exposure with my 2 names, so I'll add them when they dip and sell them when they pop. Frankly, I don't think the home market is coming back for a few years, but as long as people continue to insist it's coming back in "6 months", the stocks will have some strength.
6. I made a series of buys late Tuesday on the technical strength of the indexes - the "Ben is my friend" trade.
7. Wednesday, long time portfolio dog, Trina Solar (TSL) finally broke above a key technical moving average in the mid $30s so I added very quickly in scale. I would love to see a mid $40s print in this name, but anything north of $40 would be constructive.
8. I was adding to Apple (AAPL) in drips and drabs throughout the week.
9. I added to my other consultant, FTI Consulting (FCN) on a pullback - the strength in this stock has been very impressive, but we finally got some profit taking so I began adding - the stock is still very pricey so unless it falls quite a bit more I won't be adding much from here.
10. Late Wednesday, I added to LDK Solar (LDK) on the "Hey you Forgot about me" trade - the chart looked identical to Trina Solar the day before so it was a bit of a hunch; I only took the position to 1.2% of the fund, but the company announced a nice deal afterhours and stock popped the next day where I added a lot more.
11. I sold down Zhongpin (HOGS) as it approached resistance - this was an identical move as to why I sold Baidu.com, but unlike Baidu.com Zhongpin reversed course and fell once it hit resistance. I'll look for a move above (or a pullback) to be adding more.
12. Thursday I added to my entire coal basket, as the stocks charts (once again - I'm a broken record) began to turn positive. This proved extremely fruitful the next day, as Massey Energy (MEE) broke off a 20%+ type of move; so I took some profits in that name specifically. The other names also looked very good Friday.
    
13. I had been adding to Core Laboratories (CLB) in drips and drabs as the stock began to show signs of life; Thursday, I added to my other oil services name National Oilwell Varco (NOV) as once again... the chart turned positive.
14. I closed Google (GOOG), simply because it was not participating to the same degree a lot of other names in the portfolio were. This does not mean it won't rally next week but in terms of relative strength at the time, it was not showing it. Instead I was focused on adding to Baidu.com and Apple this week.
15. I began a stake on Ultrashort Consumer Services (SCC) as jobless claims broke 400K for the first time, which is essentially a retail short (although McDonald's is among the top 10 holdings). This is an imperfect tool for what I want to do... I cannot short individual names - but I think the consumer is in a lot of trouble and we are just in inning 1/2 of what is coming as the spiral of job contraction, lack of house ATM, emptying of 401k balances, filling up of credit card balances, and the cruelest tax of all (inflation) conspire to batter the middle class. The top 10% will go on about their merry way... but those are not the people filling up Kohl's, Target, JcPenney on a weekly basis. So this instrument actually has one of my favorite retailers in this environment, Walmart (WMT), as it's top holding, and McDonald (MCD) #2, so it's not exactly what I want, but it's all I have available to me to bet against the consumer. If the retailers bounce upward on this Kool Aid rally, I will add to this position materially - I expect a lot of store closings, reduced guidance, and in fact PULLED guidance from retailers and restaurants in the next 2 earnings periods as they feel the brunt of the consumer led recession.
16. Friday, I spent the day simply looking at chart formations like the 3 above and adding a smaller long layer into many names that turned bullish. Again, I'll reverse these buys on a moment's notice if the charts begin to break down. The market mood remains hope/government interventions vs reality - each week one or the other can win, but I am quite confidant they will ping pong back and forth, so when we move back to reality - I'll be quick to acquiant myself with cash/more short exposure.

The above do not include the trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.