Monday, May 17, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 41

Year 3, Week 41 Major Position Changes

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

Cash: 75.0% (v 85.9% last week)
20 long bias: 18.2% (v 10.7% last week)
4 short bias: 6.8% (v 3.4% last week) [Includes 1 'long dollar' position; 1 option position]

24 positions (vs 17 last week)

Weekly thoughts
An interesting week just completed... the markets were actually well into the green for the week but almost all of it came in the 4% premarket gap Monday morning. Meaning anyone who was a buyer after 9:31 AM, in a general sense, became a loser by the end of the week. Further complicating things was after months upon months upon quarters upon quarters of obliterating any resistance in its way, major indexes actually acted as they did pre 2007 and the light volume rally faded and was rejected once it ran into headwinds on the charts. So will the old rules matter again? Or was the return to the old rules momentarily the actual headfake?

I am showing the simple moving averages rather than the normal exponential we use, since it has become more weighty the last week or so.

S&P 500


Russell 2000

Similar stories in all 3, but let's focus on the S&P 500. Action late last week - with a break below the key level of January 2010 highs (S&P 1150), along with the multiple rejections at the 50 day moving average cast a more darker shadow on the market. S&P 1130 seemed to be some sort of support level late in the week but right now the index is in no man's land; it can very easily rise or fall 20 points and it won't matter much in terms of instructing us. Movement around S&P 1150+ or below 1100 will give us more interesting data, so we're facing another of these white noise areas. If technical resistance does begin to matter again - and it was not just a 1 week fluke - aggressive shorting on any bounce would be the obvious play, with targets of retests of either Friday's normal low or Thursday's 'flash crash' lows. It remains a no go to build intermediate term positions at this point.

Obviously the situation in Europe continues to dominate... talk about an oversold chart (and generally the most crowded hedge fund trade on the planet)

Eventually so many people are going to be on the same side of the boat it will tilt...even if the reasons for being on that side of boat are correct. The irony here is the weakness in the Euro should actually help exporters as their goods become cheaper for foreigners to buy; a benefit American companies have been enjoying for years as the dollar "Euro'd". But with a global arms race of fiat currency debasement, the ugly dollar is getting some stiff competition.

The Chinese stock market continues its freefall; on the way up everyone points to the green shoots of this "indicator" but on the way down I guess it doesn't matter. Until it does.


Earnings season is effectively finished other than drips and drabs from here until early July. Economic news has been mostly ignored the past 3 weeks or so as headline risk from Europe dominates everything. One day I expect to be repeating the same words, simply replacing "Europe" with "Japan".... then at some point, I'll be replacing "Japan" with "UK"... and then the fecal matter truly hits the wall when I replace "UK" with "US". But knowing when any of this matters is the constant challenge in the decade ahead.

We have a light week ahead on the economic calendar with the majority of the news that matters inflation related. Of course, inflation has been 'adjusted away' in America via various government practices in reporting, and even if inflation came in at 25% I expect Ben to keep rates at zilch for an extended period of time. That said, the globe is combating sectors of deflation with inflation. Crude oil has fallen off a cliff here with prices all the way back to February 2010 levels - down 17% in a short period of time, so that helps stave off inflation worries. Steel, chemicals, plastics, and the like continue up.

Monday - Empire State Mfg, not that important
Tuesday - Housing Starts, Producer Price Index; the latter report is the one I've started to look closely at again similar to 2007 when margins became squeezed by the relentless rise in commodities.
Wednesday - Consumer Price Index; this has become one of the most "adjusted" figures in America ... to the point of near uselessness.
Thursday - Conference Board Leading Indicators, Philly Fed - not major reports.


For the portfolio, I've made a concerted effort to diversify sectors since there were many weeks during the last run up my tech centric portfolio sat morbidly quiet. So we're adding a little industrial, a little more consumer discretionary, a little REIT, a little financial - but not in large quantities since the overall market is so unsettled. And with 'student body left' trading that has now dominated the market for 3 years, individual stories don't mean much if the market is working against you. That said, it was a busy weak of repositioning.

On the long side:
  • Monday, I began a position in ETFS Physical Palladium (PALL) since it had pulled back nicely to support.
  • I restarted a position in Intercontinental Exchange (ICE) as the stock looked ready to breakout. Might rescind this one soon.
  • Began a stake in auto supplier BorgWarner (BWA) as the stock filled a gap created by an excellent earnings report. I flipped a coin among quite a few names in the sector, this one is basically a proxy for the group.
  • I closed Discover Financial (DFS) and replaced it with Capital One Financial (COF) which at the time had a better chart formation; obviously very similar companies.
  • Wednesday, I bought some Wyndham Worldwide (WYN) and Riverbed Technology (RVBD) as they crossed back over their 50 day moving averages.
  • I started REIT SL Green (SLG) - very similar idea to BorgWarner; a good chart in a hot sector... the specific name has little meaning to me.
  • I started Tibco Software (TIBX) on a nice breakout - the very next day the stock exploded on volume but then sold off Friday with the market. While a "technology" name, it is software so a bit different from our normal fare.
  • Friday, I sold 20% of Ultra Silver (AGQ) simply as a function of locking in some profit in one of the hottest instruments in the land.
  • I cut back in Wyndham Worldwide (WYN) [which had just been increased Wednesday] as it fell right back below the 50 day moving average; likewise Quality Systems (QSII). I took 0.3-0.5% back from any number of other positions as well as the market broke 1150 on the S&P 500 and a break over 1174 (needed to get more comfortable with long exposure) faded.

On the short side (please note I consider 'long dollar' short since this has been a 'safety trade' for the markets in times of worry)
  • Monday, I sold 45% of Powershares DB US Dollar Bullish (UUP) which I have not touched for months. Of course with the Euro in freefall this continues upward but I am now worried of a 'snapback' action at some point as the moves are getting extreme. Could be tomorrow or could be in 3 months, who knows.
  • Friday, as S&P 1150 broke I threw on some short TNA ETF along with buying some puts later in the session. 2/3rds of the puts were sold same day for decent profit.

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