Monday, July 20, 2009

Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 50

Year 2, Week 50 Major Position Changes

To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.

Cash: 70.2% (vs 74.1% last week)
24 long bias: 16.3% (vs 21.2% last week)
7 short bias: 13.4% (vs 4.7% last week)

31 positions (vs 33 last week)

Weekly thoughts
We like to talk about the changing nature of this market often, just from an anecdotal experience and what we see now versus 2-3 years ago, 5-6 years ago or 10+ years ago. One of the old adages that held true for all those periods but not anymore is "the market always falls faster than it rises". As this past week shows, in a computer driven environment where the hedge fund is the marginal buyer, up or down is no longer differentiated as before. The ups created by program trading seem to be as furious as the old downs caused by buyers strikes or panics. Effectively in 1 week, we eliminated all the downside of the previous 4. Anyone positioned short anticipating a breakdown below key support was treated to a rout. Thankfully, we were not such unlucky souls as we had been looking for a bounce (a day or two early in fact) and looking for a bounce with upside to S&P 910. That was almost reached by late Tuesday. The markets were up generally in the 7% range, vying with some of the early March rebounds off the lows ... and the NASDAQ (by a sliver) put in an 8th straight winning session.

I won't bother with the simple moving average chart this week because the index is clearly above all moving averages; the only intrigue lies in the exponential moving chart where we are just above resistance and broke above intraday both Thursday and Friday.

I will repeat the call for S&P 906ish to fill, and let's give it to the middle of next week for a 10 day window. I expect it will be some companies unexpeted bad earnings news that will create a gap down...

A very light week economically as the existing home sales are the only thing of interest to me. Folks, its June so expect "higher sales than May" (shocker) as June is one of the (if not the) busiest month of the year for home sales. As we've said repeatedly, watching the market rally on seasonal factors in housing such as "May is stronger than April", month after month is amazing. It also gives me caution for the fall because when the seasonal slowdown happens, will the "it's seasonal" apologists show up (the same ones who are nowhere in sight now)? or will we misread the data then as we are now. We need to be looking year over year - May 09 v 08, Aug 09 v 08, Feb 09 v 08... its a seasonal commodity. But for another month I expect it to be ignored and the "increase" we are sure to see will be treated with fireworks, unicorns, and butterflies.

Outside of that its going to be dominated with some Fed talk, some Obama speeches Wednesday on healthcare, and a flood of earnings reports. We already laid out the game plan, and it's been played out exactly as we characterized. Unlike the socialists overseas, the ability for American companies to shed workers like gnats is incredibly beneficial to stoking stock prices. Thankfully, the progress of CEOs to collect ever higher pay is not being retarded by Americans retaining jobs. I mean what sort of lousy economy would that be. ;) Anyhow, eventually someone will disappoint and as we move from multinational "we grow in China, but the US and Europe stinks" to more domestic facing companies in about 2 weeks, things might appear less rosy than they are now. Because the revenue shrinkage in those companies shall have no offset from Asian purchases.

The week end long / short allocations are a bit deceiving this week, as we made a 1 day stand on the short side Wednesday and were effectively stopped out of 80% of it within 1 session. I then threw on some shorts in the credit card companies in the closing moments Friday but in retrospect with earnings for each coming Thursday they will be peeled back off soon. Further, we took quite a bit of long exposure that had appreciated sharply in the past week, off the table to lock in gains. So we looked quite differently Wednesday morning than Friday afternoon.

Since everyone on the Street knows we'll all jump in like lemmings on a new high, we're all looking at each other and saying "you first". The very obvious head and shoulders formation would be broken then, and we can all laugh that we were about to fall off a cliff a week ago Friday or indeed Monday morning. Just our imagination. I am still looking for long exposure but am finding any resevoir of cheap companies with good charts quite low. After a good 5 weeks to get us back well ahead of the market for the year I don't see any need to press in any direction here since the potential for a headfake is strong. I also don't wish to build positions when some of these companies are set to report in the next 1-3 weeks, at which time I'd want to de-emphasize the position ahead of the typical knee jerk episode that follows every report nowadays.

So for the next short bit I am going to look to protect what we have and wait to see if a new leg up develops.

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