Monday, February 8, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 27

Year 3, Week 26 Major Position Changes

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

Cash: 83.5% (v 64.8% last week)
20 long bias: 7.8% (v 12.7% last week)
7 short bias: 8.7% (v 22.5% last week) [Includes 3 option positions, and 2 'long dollar' positions, 1 option related]

27 positions (vs 28 last week)

Weekly thoughts
It's been quite the volatile few weeks.  A week ago at this time we entered the week short term oversold expecting a bounce "soon", and it was delivered premarket Monday (right on schedule).  Most of the day's gains were concentrated in a small period of time, as they were Tuesday.  Volume was limp, but the market gained 2.5%.  That was all erased Thursday.  Friday started off slowly but after some initial confusion over labor data, the market fell off a cliff, and amazingly to our intermediate target of the 200 day moving average, in quick fashion.  A last hour bounce - most likely a combination of buyers loading in on first test of a key moving average, shorts gorging on their first real win in a few quarters, and "weekend risk" (i.e. moral hazard run amuck) by someone in Europe or the IMF in regards to Greece, saved the week - limiting losses.   While the volatility allows many more opportunities for gains (or losses) versus what was experienced in November and December 2009 when markets seemed comatose, the fact remains many individual stocks have completely broken down on their charts, and for the first time in a long time the major indexes have made new lower highs... and lower lows.

A quick review of the S&P 500 chart; the NASDAQ and Russell 2000 closely mirror this:

[click to enlarge]

We could see a textbook bounce off that green 200 day moving average which is barely visible at the bottom right of said chart. It's very rare to see support lines broken on the first attempt, which we saw in various instances the past 2 weeks.  It took repeated attempts to break 1100, and then 1085.   While some of the notes in the chart might make little sense to those who don't use technicals, the reality is aside from very short term oriented traders (minutes, hours, days) one does not want to get bullish until the 20, and 50 day moving averages are cleared - as represented by the orange arrow & text in above chart.  Just as one does not want to get bearish until the 200 day moving average is broken - as represented by green arrow & text.  From a fundamental standpoint that is probably the opposite of what you have been taught i.e. buy low, sell high.  It can be best be explained by strength begets strength and vice versa.  As key technical moving averages are regained more confidance returns; and if key technical moving averages are broken, institutional money will head for the hills.

At S&P 1066, we have about 35 points to upside and 20 points downisde in what I enjoy calling a "white noise area".  (I use this term alot)  To me, it simply signifies a spot that really means nothing other than a lot of huffing, puffing, and over analyzing by those who try to read something in every point movement in the markets.   Broadly speaking we have a 55 point range in the S&P 500 which is fine for daytraders to play with, but movements in that area really tell us little.  That factor, combined with a light economic news front & a marked slowing in large companies reporting will mean we might be in more of a drifting mode for the next bit.  Perhaps news overseas will matter more, than anything domestic.

On the economic news front, it's very quiet - a few reports that normally don't move the market one iota Wednesday, followed by Retail Sales Friday, and a Consumer Sentiment report Friday.  As for earnings, we now are nearing the back third of earnings season but frankly this season has been dominated by either political news or economic developments in Europe or Asia - specifically China.  For our purposes a few more of our companies should start reporting as we move away from the mega cap, and large caps and into the mid caps and smaller caps, especially foreign types.

Portfolio wise - it was a topsy turvey week for ourselves as well.  We came into the week with a bevy of unrealized gains from the large selloff a week ago Friday, but the premarket, and first 30 minute melt up stole many of them away & we finished with a rotten Monday.  After another concentrated surge Tuesday we cleared our index positions to have a fresh start and clear mind - which helped us pivot Wednesday and Thursday.  During the selloff Thursday all 4 of our major long positions hit stop losses, as they all broke the 50 day moving average.  They were 4 of the 5 remaining holdouts that had not yet hit that level; the 5th (Wyndham Worldwide) we had already sold off our positions at nice profit earlier, and were waiting for it to fall to this level so we could buy back our stake.   Long story short we are very heavy in cash as (a) the easy part of the sell off is done with (b) the major indexes are firmly in white noise area where there is a 50/50 probability of going up or down in any session and (c) just about our entire portfolio has broken key support levels.  Obviously the names we let go of exposure last Thursday would be the first candidates to bounce back over their broken support and give us a sensible entry point to rejoin their previous position size.  And if the market begins to whirlpool back down, we can jump right back out of these with clearly defined stop losses.  I'm also looking at a few new names  - especially interested in the small group of stocks that were able to keep above both the 50 and 200 day moving averages in this hailstorm.  Until proven otherwise we like the action in the dollar, as both a profitable long and a proxy low beta short position against the market.

While intermediate term it seems correct to still be a bear, due to technicals - the news event risk always seems to lie with bulls since desperate governments and world financial bodies are happy to intervene in short sightened nature rather than letting the rightful outcomes happen to the irresponsible of the world.

And with that said, we'll see if we have yet another Magical Monday... now up 17 of the last 19 Mondays. [Mondays Continue to be Wonderful]

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