Comments: Week 43 was all in all quite a boring week as a lot of people seemed to sit on their hands, or go to the Hamptons - or maybe they were sitting on their hands in the Hamptons - they sure were not trading. Volume was light in the markets, but the indexes made up about half the losses from last week. A lot of technical analysis on both the indexes and individual stocks did not work this week (stocks broke key levels, I cut - and then they reversed on a dime the very next day), for whatever reason. Specific to the indexes, we've seen a few very strange things - where rules that have worked for many years ceased to work the past 6-8 months - most prominent in my mind is how the market technically broke a triple bottom on the Monday after the Bear Stearns bailout yet refused to break down... persistent buying by some strange force below key support levels constantly brought the market back from the brink that day - wouldn't have been these guys would it? Nah. I only bring this up, because as we ended last week, the S&P 500 broke a key support level (see chart below, a close below that red line was a red alert), and was "supposed to" (by rules we all know and love) break - but in this new era of managed markets I guess technical rules don't apply. ;) I'm still playing by the old rules, I suppose. So we got the light volume bounce this week, and a bunch of happy bulls. That red line last Friday, with a close below the 50 day moving average "historically" has meant more bad times ahead - but not in this era I guess.
Not much to add here on the fundamental or individual stock point of view - economic news stinks, but it's "better than expected", inflation is tame (don't mind those 20% price increases by producers), the monthly unemployment report next Friday will be "better than expected" no matter what the number is, and the vaunted 2nd half recovery is only a month away now, and away we go. It's all good. Coal stocks continue to make me look like a genius... or a fool everytime I sell part of them off expecting the grim reaper to show up and create a real correction. Every sale has been mocked by the coal gods. Most of the positions that did well this week were minor stakes - i.e. Mastercard (MA) - which was able to rally 10% in 1 day solely by saying "we are going to grow by double digits next year". This is a surprise? The Kool Aid is strong with this one. Love this company, hate this valuation - so we've cut it back quite severely.
We entered the week conservatively positioned, and since I was obeying technical rules I've been using for 10 years (that no longer apply it appears) I had a heavy short exposure and large cash - since the market decided to reverse course led by (ahem) banks, retailers and the like, we dragged along like gum on shoe this week. Since we are now in the middle of a range, south of the 200 day moving average (1430 and falling) and north of the 50 day moving average (1380 and rising), it is sort of no man's land here at S&P 1400. Further, I don't know what to apply new cash to at this moment - stocks that have run up 50% in the past 6 weeks and just continue up and up and up (and up)? Or jewels in the beaten down sectors that CNBC will tout as "must buys" and "the bottom is in, this time we promise" the minute crude drops to $122 since the "consumer is back", and "inflation is defeated". Frankly, I don't want to buy either - lots of risk either way - the good stuff is WAY overdue to correct, and the bad stuff is going up on dreams of fantasy of a 2nd half rebound. I *want* to buy technology because that is an area where I could see the hedge funds throwing boat loads of money to if they sell off commodities, BUT aside from the names I own (which again have had huge runs since the March lows) we'd be trading down to a lot of 2nd and 3rd tier stuff which is now the sexy flavor of the week. Very little with true secular growth so we're out of luck there too. So in summary - hard to find much to buy at prices I want to pay. So we'll continue to lag in the near term if the market works its way up. We did make a few buys here and there but only when a handful of stocks broke to a key support level. I did cut some short exposure later in the week, since we are in this "no man's land" and could go either up or down - it is a very tight trading range for now.
As an aside, since some people have asked about this - I am beginning to track month to month performance (i.e. writing down the NAV at the end of each month). We ended April with a NAV of $11.63, and with today being the last day of May we ended at $12.24 which is a 5.2% gain. That compares to the S&P 500's 1.1% gain. Hopefully this month's performance puts us back as the #1 fund in our category of mid cap growth names (I'm sure many of my peers got whacked last week while we did were stable, since they are 100% long), we'll know in about 10 days when the data updates.
However for the week, it was not as joyous (gum on shoe) - as the Ultrashorts conspired against us again, pushing Rising Tide Growth to a 0.5% loss. The S&P 500 gained 1.8% and the Russell 1000 came through with a gain of 1.9%. Can't win every week.
As always if interested in pledging an investment when fund is ready to launch please attach a comment here, or send me an email (need your state please). I'll have an update on pledges in 2 weeks.
Price of Rising Tide Growth: $12.242
Lifetime Performance to date (vs Aug 3, 2007): +22.42%
Comparable S&P 500: 1,400.4 (-4.42%)
Comparable Russell 1000: 768.3 (-3.51%)
Fund return vs S&P 500: +26.8%
Fund return vs Russell 1000: +25.9%
Last week's results here.
Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of April 2008.
Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2
To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.
Please click here: fund performance for previous updates
7 comments:
Hi Mark,
Great posts this week as usual.
Just wanted to comment on your statement that technical analysis didn't work well this week. I would have to disagree. For example on SPX you're using the 50 day EMA, but if you used SMA the index actually made a perfect bounce. Also, we were short-term oversold after last week (not sure if you use stochastics) so that was another signal indicating a possible bounce. Stochastics also would have indicated that MOS and those other commods were oversold on the day you sold them.
While I agree that a close below the 50-day MA is often a sell signal, I think that sometimes you have to ignore this signal when it happens in strongly trending stocks (or at least wait to see how the stock reacts). For example MOS has closed below its 50-day on several occasions during its rise. Those have always represented the best buying opps, not the time to be selling. This seems to be a trick that the MMs use to shake out the weak hands in the strong stocks they want to accumulate.
Just a few thoughts. Have a great weekend!
Good point on the simple vs exponential. I stick to EMA which has worked for me.
As for MOS etc I am not really yet to say thats a victory longer term dip buyers... we shall see. Still moping around, and the volume is less than impressive on the bounce. If it breaks back to the $130s, I'll concede. I do like the base MOS is making and think it will have a substantial rally at some point in the 2nd half.
My TA skills are rudimentary at best, but seem to serve the purpose most of the time. Especially with the correct stocks, picked on fundies.
Back to S&P, I am curious your take on the mid April closes; 3 days below the SIMPLE yet a "reversal" out of thin air ;) around 11th-15th
I am sure there is a technical explanation in retrospect but I am seeing a lot of stuff like that since last summer.
I agree the mid-April bounce caught many people off guard. At the time it certainly looked like we were heading lower, couldn't hold the 50-day, MACD turning over, stochastics hadn't reached fully oversold, etc.
My best explanation for this is that too many people were expecting the market to roll over... it was too obvious. There's the old saying "the market doesn't move because it wants to, it moves because it has to." When everybody moves to the sell side of the boat, suddenly when the selling dries up it doesn't take much to light off a HUGE short covering rally.
I think another reason we rallied in April-May is that things had become way too oversold in March. The market had gone down something like 6 months in a row, which is highly unusual. The percentage of stocks trading below key moving averages had reached an unsustainably oversold level in March. A rally was due.
Interestingly, we became long-term overbought earlier in May and based on this (and other factors i.e. failed to overtake 200-day) I wouldn't be surprised if 5/19 proves to be the top for this bear market rally. We'll know soon enough. If the market resumes its downtrend, I agree the commods may be vulnerable to a more severe breakdown. But if commods break down, not sure where we're going to see the sector leadership come from? I'm very interested to see.
I think the markets will not fall until money stops flowing out of treasuries into stocks. The 10yr note still has room to run toward yields of 4.5% so when it hits there I would expect to see the flight from quality trade (kool aid trade) stop and stocks have no reason to go higher, except for the 2nd half recovery.
Mark, if you feel (I agree btw) that inflation is really at say 7% not the 2.9% Bogus number then the 4%+ miscalculation detracts from growth right?
Would that mean the around 2% real growth in 2007 and 0.9% real growth for Q1 08 become -2% real growth and -3% real growth respectively?
So if we get "flat" gdp growth in Q2 08 setting up for the 2nd half recovery, and inflation is understated by 4% again then we have contracted 4% in real terms about. Is that right?
Good thing kool aid prices have stayed low...no inflation there :)
Sign of the times?
I was visited Washington, D.C. for Memorial Day to do some sightseeing and such. While I was going touring the Lincoln Memorial, White House, Washington Monument, etc....one thing that struck me immediately was the number of ASIAN and INDIAN tourists around. To put it in perspective, I would have to say that at least 70-75% of the tourists walking the sites and museums during Memorial Day weekend in D.C. were either from Asia or India. And in case you were wondering, I could tell they were tourists because many of the Indian women were literally wearing traditional Indian dress (saris) and the Asian folks were clearly not speaking English. I'm not sure if it was just a pure fluke and its always been this way during Memorial Day in D.C....or a sign of the times???
**one thing that struck me immediately was the number of ASIAN and INDIAN tourists around**
Yea, I noticed that. I see a lot more of all types of BRIC people touristing the world. They must be disgusted at airline travel quality in US, cause asian airlines are the best and the cheapest in the world.
Not sure if traditional garb or speaking a different language = non American. I live in a very ethno mixed area - and a lot of Indians here (women) wear traditional garb and almost every ethnic group speaks their own language when around their family. You go to a grocery store and you can hear about 6-7 languages in many spots. It might be due to the geography and heavy foreign influence in metro Detroit area and my part of town specifically but thats what I grew up in, in High Schools, in grocery stores, in libraries, lots of languages spoken.
That said, I do agree with the trend - hey America is a cheap tourist attraction now ;)
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