Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 21

Year 2, Week 21 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 (2 positions [SHV/BIL] + cash): 55.0% (vs 52.0% last week)
30 long bias: 35.0% (vs 37.0% last week)
7 short bias: 10.0% (vs 11.0% last week)

39 positions (vs 40 last week)
Additions: N/A

Removals: Baidu.com (BIDU)

Top 10 positions = 20.9% of fund (vs 23.5% last week)
23 of the 39 positions are at least 1% of the fund's overall holdings (59%)

Weekly thoughts
In last week's summary we opined...

Unfortunately, in the past 5-7 days I am starting to read about Santa Claus rallies EVERYWHERE, and on Wall Street rarely does what everyone assume to happen actually happen. So my thesis from early in the month makes me me nervous from "everyone is expecting it" in the past week; so perhaps we either end the rally "now", we rally way past Christmas (straight to inaguaration?), or we do nothing but stagnate. It just seems too convenient for what is now EVERYONE looking for a Santa Claus rally, to actually have one.

As usual, Wall Street does not do what everyone expects.... talk about stagnating. I must be getting old because in previous lives I'd say what a boring market. Last week I was thankful it was so quiet. I'd love to see a very boring market where good stocks separate from bad, and "student body" trading (everything must be bought! sell everything!) ends - but I doubt a new trend is here.

Now if I were a cynic, I'd still cling to my year end "mark up" theory - that is hedge funds using the last few days to push the market up to make their books look a lot better than they are. But since I am so (ahem) idealistic - could it really happen? We've been stuck in this range of S&P 850 to S&P 920 that we've been harping on most of the past month. S&P 870 has been a technical level we sometimes break during the day but by (ahem) "magic" we almost always seem to regain it by the end of a day - amazing how that happens. So within a range of 850 to 920 we're at the lower end and a nice 3 days push of 5% on the S&P would take us to the top of the range - have us close at/near the high of the past two months, we can talk about "great strength to close the year", "January small cap effect", "mustard seeds", "the government will take away most of our ills" and "President Elect Midas is coming". But only a cynic would believe the market could be manipulated like that and clearly we don't see abhorrent behavior like this in the casino. It would be much too obvious....

Whatever happens between now and Dec 31st, we'll let the hedge funds (what's left of them) determine. As I look through the first few months of 2009 this is the pattern we shall see - remember we are pointing to Jan 8th (retail sales) and Jan 9th (employment report) as interesting days a week from now; and earnings season quickly approaches:

• earnings warning preannouncement
  
• earnings warning preannouncement
• Congress is back! The nanny state will save us with stimulus
  
• earnings warning preannouncement
• earnings warning preannouncement
• horrific retail numbers
  
• awful employment report
• bad earnings by multinationals - that darn US dollar is killing us
• bad earnings by multinationals - we're pulling guidance since we have no visibility
• states begin to realize its a new year and their budgets are due in 6 months; panic ensues as many realize "hey we're no different than California"
  
• bad earnings
• Federal Reserve announced 12,312th 4 letter acronym to save credit system
  
• bad earnings
• occassional "we expected horrific earnings but instead got awful earnings" - time to drive that stock up 40%
• other bad economic reports than most people just say "is all priced in"
• bad earnings
• another 2 companies that have no right to become bank holding company become so
• bad earnings
  
• the best speech in the history of mankind on Jan 20th, from which all people worldwide will forget all ills, and be inspired (to buy stock) and shop/buy homes, be merry - watch the heavens part and gold reigns down (or at least US dollars).... for 48 hours...
• .... reality returns when people see despite said oratory all the same bills remain
  
• earning warnings
• earning warnings
• FedEx pulls sponsorship from Washington Redskins football stadium - the Federal Reserve comes in to backstop, and how convenient - they only need to change a few letters. Meet FedReserve Field.
  
• The New York Yankees sign the entire Florida Marlins franchise with Federal Reserve backstop. The New York Yankees are now deemed too big to fail, are granted bank holding status and unlimited access to the discount window. At which point they use leverage (with high 5 from Tim Geithner - "now that's risk taking like the old days"!) and lend the Florida Marlins to the Fed in return for US Treasuries which they immediately sell to buy the Boston Red Sox.
  
• Congress has come to some agreement! No those darn Republicans are preaching fiscal restraint - as in $1 Trillion is too much; let's be restrained with $700 Billion
• more pulled guidance
• talk of stupendous housing relief that will fix everything; the no down, no appraisal; no interest loan starts to be leaked to the Wall Street Journal. Since there is no securitization market, the Federal Reserve will buy these "risk free" assets.
  
• more bad news
• Car companies start to wallow back up to the bar for Round Deuce of the bailout
• California is in panic mode on budget
• Stimulus passes and market rejoices, all people worldwide rejoice and forget all ills as backhoes across the country are filled with diesel and former accountants get their first pair of steel toe shoes! The Baltic Dry Index surges 1.2473% at which point Cramer repeats "I told you China had bottomed! DryShips - BUY BUY BUY" Good news and cheer fills the country... for 48 hours...
• more bad news
  
• rinse, wash, repeat - keep repeating "it's all priced in" and "I will ignore all bad news because the nanny state will replace private enterprise and it will all be better in 6 months"

So you get the drift - it's bad news all around except for the "hope phases" and it will all be sentiment and "Washington D.C." driven which unfortunately is what we've been dealing with for a long time and is very tiring. It is one thing to say "it's all priced in" for weeks on end, but can a market really make a sustained move on "we ignore all bad news because a new day is here - that speech Jan 20th should be worth 10% on the S&P" for months on end? I find it doubtful. We'll see this pattern throughout 2009 - we're just waiting for the end game when the US government becomes partner with each underwater homeowner and erases contract law (that's part of the U.S.A.R.) and forgives principal on mortgage loan upon loan across the country. Sending an excellent message to those who actually played by the rules and didn't partake in this real estate Ponzi scheme. Literally we are going to make everything in America, outside the Federal Reserve balance sheet and US dollar, "risk free" to encourage speculation. No one loses (but the grand kids) - please speculate (and shop). Then the "free marketers" on Wall Street can drive the market up in child like glee as the tax payer subsidizes them. One can only wonder how a country weaned onto a system where the government backstops all risk will be weaned off? But that's a crisis for another year. We only deal with the fire on the couch we are sitting on.

As we await this most wonderful of times that shall visit us - let's visit the technicals in the market - we actually have a very easy set up in that we can be pushing chips back on the long side on a close north of S&P 920 - a very obvious line in the sand to the north, and below 850 and especially 820 push chips in on the short side. In between we just call this white noise and fun for daytraders. There are some interesting things going on in individual names but no meaningful moves.

This week we cut back on 3 thesis as the stocks retraced some of the previous moves - these were housing thesis, infrastructure thesis, and China thesis. As always, when a stock/ETF comes back to support and threatens to break through you can play aggressive and buy more (with a tight stop loss) or cut back and only add back when you see the bounce in place. So if we see these support levels hold, we'll jump back in... so let's take a quick look at the charts

Proxy for infrastructure thesis - still solid hope here

Proxy for housing thesis - getting iffy

Proxy for China thesis - if we draw support lines with ball point pen, it looks worrisome; if we draw with crayon we can still see the case for rebound.

So as if we said above, this market puts on a patented move from 872 to 920 to finish the year in a flurry, certainly the hedgies would love to run up all these thesis - and we could see rebounds. We are obviously taking the cautious route (cutting back on danger of support being broken) but flexibility is a key and movement around key support levels like this is very tricky. One day you can break below, and your rules tell you to cut back in case of a much larger move down, but the next day you can regain that support and you have to jump back in. So far, we have yet to see the rebound that would draw us back in but all are on the radar. In an actual fund, a break below these support levels and you'd actually want to short - although there are easier targets out there in clear downtrend for shorting purposes. But the greater point is, these are 50/50 charts - it can break either way and I suspect the general market will have more to do with it than individual stories.

Meanwhile, we are waiting patiently for a sustained pullback to add to positions or add to portfolio the best charts - to wit...(is it whit or wit?)

Contrast to names that are showing very poor action, and frankly are shorts on a rebound until proven otherwise (stop losses at the red lines)


So once more, we are currently running only "half" our strategy since in the current simulation we are locked into short ETFs (with their flaws), as opposed to individual stocks, as our hedging. In the real world, I'd be running in a more long-short book hitting individual equities on the short side, the latter 4 are the type of charts we want to focus on - but something like Apple has been so weak I'd expect at least a cursory bounce soon (which is to be shorted until it can break back above the pretty red line).

I plan to cut out much of this short ETF exposure Monday not because I don't want short exposure, but because in a sideways market these instruments are death by a thousand cuts. Unless I can figure out another way to short from the "long side" we just will have to hold them during the major swoons (and miss out on the first leg of any such swoons) and cash will have to be our hedge. When the market does fall these ETFs can double in 4 days but the paper cuts in between are bleeding us out.

Other than that, we're in a holding pattern, with little economic data and another shortened week, and the cynic in me says "they" try to mark this market up to create good cheer by the 31st ... but I will repeat we continue to go sideways, each and every week we do so, creates an even larger move that eventually comes from sideway churning. The longer said churn remains below key resistance areas the more we point to the conclusion of the churning to be "down". I'm not the best technical analyst out there but I dominated preschool when it came to shapes - and you can see one whopping "triangle" forming in that chart of the S&P 500. Bulls need S&P 920 to be cleared and held - the quicker the better. All non Obama facts would point to a downward move in due time. But Obama (sentiment) > market (for now)