Sunday, June 29, 2008

Bookkeeping: Weekly Changes to Fund Positions Week 47

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Week 47 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: 20.2% (vs 24.0% last week)
53 long bias: 64.6% (vs 54.7% last week)
9 short bias: 15.2% (vs 21.3% last week)

62 positions (vs 60 last week)
Additions: Encore Acquisition (EAC), A-Power Energy Generation Systems (APWR)
Removals: N/A

Top 10 positions = 23.7% of fund (vs 28.3% last week)
42 of the 62 positions are at least 1% of the fund's overall holdings (67%)

Major changes and weekly thoughts
It's been a very rough 2 weeks and a very rough June for the markets. Directionally, we stand at a make or break point, with the major indexes at January/March 2008 lows. We've now had 5 substantial selloffs since summer 2007, and the question is, will this selloff mimic the more conventional selloffs, or be more of a January 2008 event where huge drops were simply followed by further losses. No one has the answer, so we'll assess as we go - but January 2008 was a bit of an outlier event in the severity of the selloff without any bounce so probability says we go with a more typical sell off which would indicate some near term bounce in the offing. I've increased long exposure to the largest in quite a few weeks with that in mind. However, if these support levels from earlier in the year fail, we have to throw that thinking out the door and be flexible and ready to increase short exposure, and try to limit the damage.

Even if we do bounce the question is who bounces the most? Will be we get a rotational/short covering type of rally where the 'worst of breed' jumps the most? Or will people simply keep clinging to the same (tired) groups who are unrelenting in their move up. I don't have any idea and this is a tricky period so instead of guessing I've spread out my dollars into many different positions in various parts of the market (sectors) not knowing what the hedge fund computers will decide are the flavor of the day - old favorites or beaten down sludge. I could make a case for either. With that said, I've moved our short exposure from the typical "junk sectors" (retail/financial/real estate) more into favored sons and general indexes. If oil continues it's relentless move up, all bets are off. One mainstream indicator I do like to see and makes me a bit bullish is a lot of stock market news on the national evening news programs - by the time things hit Main Street we are generally ready for a bounce. That said, these are not normal times, and we have to be open for anything. People ask about a crash... well these do happen but it is hard to build a model around them since they are so infrequent - and it seems doubtful one could happen when so many people are now talking about it. Generally things (positive or negative) happen when the least amount of people are expecting it.

We have a short week ahead of us, with a lot of real money heading to the Hamptons early so we could have some volatile sessions ahead. Key above all else for market mood will be Thursday's unemployment report, which we ignore since it is so useless, but the market clings to like a blankie as incredibly important. Just walk around and see parking lots emptying, retail outlets struggling, auto/airline pummeled, housing in multi year depression and tell me in the face of that unemployment has risen by a measly half a percent. All based on the "export economy" (most of which we've outsourced the past 20 years), government jobs and healthcare jobs? Right. But since there is religious like zealotry to the government's numbers by the NYC traders we have to realize it moves markets. Since last month was such a big jump upward (5.0% to 5.5%) in the unemployment rate I would not be surprised to see if fall backwards to a lower rate as "adjustments" are made for "seasonal workers" and then we can clap like seals and drive the market back up as we head into our BBQ weekend. Last week was extremely tiring, at least on this end, so the short week will be appreciated to recharge from what has been a miserable month where every ounce of energy is expanded to try to lose "less" than average - and consider that a victory.

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 of the blog under archives.

Some of the larger changes (chronologically) to the fund below:
  1. Monday we did little waiting for more fear to encroach on the market.
  2. Tuesday, we added a touch of Baidu.com (BIDU) as it fell to $305; the stock immediately bounces but faltered as the week wore on and the market degraded. One look at the Google (GOOG) chart and I feel very ominous about tech in general. I'd like to buy Baidu.com in scale at lower prices as indicated in the post.
  3. Also bought some Apple (AAPL) ahead of Research in Motion (RIMM) earnings as the safer way to play an earnings bounce - of course that bounce never came. Much like Baidu.com I'd like to add Apple in scale lower. This was a relatively incremental buy to replace some shares I had let go higher.
  4. Wednesday (and Tuesday) I was cutting WuXi Pharmatech (WX) after a huge 2 day spike. But the chart is holding up very well and if this market holds up this one could run and I might need to rebuy my stake. $19.50 is the 50 day moving average which it appears to be holding and a move to the mid $23s would seem in order if the general markets firm. We like to see such strength in the face of a horrid market.
  5. We added a 4th natural gas stake in Encore Acquisition (EAC) - aside from the kicker of a management willing to sell itself out, the stock is cheaper than the other 3 we have owned in this space. Our purchase was in the $70s and the stock was up nearly 10% from that point for the week.
  6. After I cut back some of our "global growth" stories, I was horrified to find homebuilder DR Horton (DHI) as the top long holding - thankfully the stock got some "rotational" love and we had a nice 2 day spike, into which I sold a portion as the stock ran into resistance - within 24 hours the stock had dropped 10%, so lo and behold we got those shares back.
  7. After our favorite uncle Ben refused to give the middle class a break by even making a cursory attempt to stop inflation (that does not exist in the US) and defend the dollar - we had to reverse our earlier call for a rotational move and get a bit more constructive on the same old commodity groups that continue to levitate. We lowered our exposure to the Ultrashorts in Oil-Gas and Basic Materials and lightened up some metals stocks that were approaching resistance, while adding a bit to agriculture commodities, fertilizer, and oil. By Friday this looked like a good move at least in the near term. I guess if there is no inflation, there is no reason to attempt to fight it. Thanks again Ben.
  8. Thursday morning, Perfect World (PWRD) was showing inordinate strength in a terrible market - holding up key resistance levels - I bought some but voiced doubts it could retain it's standing in such a bad market since nowhere in Perfect or World are the terms natural, gas, oil, coal, or fertilizer. This did show to be the case later in the day and we quickly reversed course. I'll be happy to add exposure on either strength ( a move over $26) or weakness (a move to lower $20s). We are in no man's land in the $25.
  9. Into the thick of Thursday's tremendous sell off I did begin layering in some buys, mostly in stocks I've cut back severely (0.5% or smaller stakes) on previous run ups.
  10. I did cut Ultrashort Financial (SKF) back to almost nil Thursday - we've had tremendous gains in this name and at some point this trade will reverse, if for nothing else than short covering and we'll want to steer clear of it. Financials have years of rough patch ahead of them (think technology in fall/winter 2000 - it was just getting started into its nuclear winter), but there will be vicious rallies along the way. If we do get an "Armageddon" sell off I am sure this instrument will appreciate but frankly so will just about any short instrument so we moved short exposure from this name to others.
  11. We did a few smaller transactions Friday morning. Almost added 2 solar names, but just am very antsy about this sector in which retail investors panic and drive the names 10% down in a heartbeat. But might be missing some quick upside as these stocks reverse on a dime and scream upward as well.
  12. We did add to the Atwood Oceanics (ATW) Friday on strength, after mentioning it earlier in the week.
  13. Last, we started a new position in Chinese energy play A-Power Energy Generation Systems (APWR), after a sizeable pullback in the past week, along with adding a bit to American Superconductor (AMSC). Much like the solar stocks I expect tremendous volatility in these names, as they are mostly the playground of the retail investor.
The above do not include the majority of my trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.

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