Wednesday, June 23, 2010

Bookkeeping: Getting More Defensive

With the S&P 500 now firmly back below the 200 day moving averages (both of them) I am going to get back to a more defensive stance and let go of some recent purchases.  If things don't turn around quickly, this is increasingly now looking like a failed breakout and if so we are not only headed to S&P 1040 but I doubt it will hold this time around.  Bulls have some work to do.

I heard an amazing statistic on Fast Money yesterday showing you "risk on" "risk off", "student body left" "student body right" trading that is dominating this bipolar market - which has no memory from day to day.  Since late April we've had fourteen! 90% days (that is when 90% of stocks are all trading in 1 direction)... 9 episodes to the downside, and 5 to the upside.   That's nuts.


I began an exploratory position of 0.6% exposure in L&L Energy (LLEN) on the 'breakout' - but as I noted, if the market turns sours these Chinese small caps get whipped, cheap on fundamentals or not.  While we don't have a closing price below the 50 day moving average, the stock has fallen there intraday so I am just going to kick it to the curb and will reassess if the S&P 500 can get back over 1110.  This stock could still rebound but not the type of company I want to hold with the overall market in precarious position.  I took a fast 11% loss on this one but with a smallish exposure.

Similarly NetLogic Microsystems (NETL) "broke out" when everyone put "risk on" and jumped right back into all networking stocks.  Which they had abandoned a few weeks earlier when "risk off" was the play.  I bought when it cleared the 50 day moving average but that did not last long - not even a week.  Now the breakout is looking like a fake out, as the student body has ran to the left and now back to the right.  I am selling this for a 6.5% loss.

I've been quite disappointed in the ETF for natural gas stocks - as noted earlier in the past week I would have been better served simply buying one of the leading mid to large cap natural gas companies rather than this ETF.  Either way in this monolithic trading environment with "risk off" since Monday afternoon, natural gas is now back in the dog house after being in the catbird seat.  I am going to close the First Trust ISE Revere Natural Gas (FCG) position as it appears the 'natural gas thesis' is potentially already over after a 2 week stint.  This will be a 7% loss.

This is a very difficult environment because the overall market is dictating the movement of individual stocks more than ever.  The bevy of 90% days is showing us this... and if you have been following along the past month or two you see these 90% up days followed a session or two after a 90% down day... that's just impossible to game, and only a good environment for daytrader types. 

I will look for more candidates to cull later in the day if the market does not bounce on the promise of free money for our lifetimes by Ben Bernanke this afternoon, since the market now has be more concerned.  It we jump back over S&P 1120 I can change my mind.  I am peeved that almost my entire short book was stopped out on that Monday morning spike gap up because much of my hedging was taken away in that 3-4 hour burst, from which we've now reversed 40+ S&P points in just 48 hours.

No positions


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