Sunday, June 20, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 3, Week 46

Year 3, Week 46 Major Position Changes

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

Cash:70.8% (v 84.8% last week)
16 long bias: 16.8% (v 13.1% last week) 
8 short bias: 12.5% (v 2.1% last week) [Includes 1 'long dollar' position]

24 positions (vs 20 last week)

Weekly thoughts
The market posted a second consecutive up week, jumping in what appears to be the next iteration of a low volume, "V shaped" melt up that used to be so atypical but now is a hallmark of almost all rallies.  Coming into the week a break over the 200 day simple moving average @ 1108 was the key.  We had "premarket magic" both Monday and Tuesday last week with the S&P 500 up 0.8% before the market opened; Monday's entire move was reversed down - which technically is a bearish signal, but anyone who followed that rule was trounced Tuesday morning as the same 0.8% move faced participants in premarket.  I thought it would be too cute to reverse down 2 days in a row as I wrote midday Tuesday, and said we'd close at the highs of the day - and lo and behold not only did premarket magic help make market participants forget Monday's ugly close but it set the market up for a break through S&P 1108, and up to 1115 as a last hour rush to get any exposure on enveloped the market.  Fear! Greed! Fear! Greed! Wax on! Wax off! Risk on! Risk off!  Student body left! Student body right!  At that point resistance became support and 1108 held steady for the next 3 days and really was not tested much at all.

The market can consolidate large moves (such as the one off S&P 1040 the past 2 weeks) either via time or price.  Last week it was time, as Wed-Thu-Fri the market sat in a small range of about 12 S&P points (1108-1120).  This was a bullish sign.  1120 is the 50 day (exponential) moving average and proved to be a headwind all 3 days as the intraday highs hit that level in each.  But looking at premarket action as I type this Sunday evening it appears we have another bought of premarket magic coming Monday which will take care of that resistance - easy as she goes.  Once more I ask the powers that be to simply open the market for premarket magic and forgo this waste of time we go through each day between 9:30 AM and 4 PM EST.  Premarket is where it's at!

With 1120 bested tomorrow morning, the next level to cater to is 1140 which is the 50 day simple moving average.  From there we have 3 scenarios as I outlined in [Nice Bounce Today]  Whatever the thought process coming into this previous week it has to change now that we are over the 200 day moving average rather than under it.  At the minimum one had to go neutral on the market, pending the next move.  With quarter end mark up fast approaching and all the games long only funds play going into June 30th, bears should be cautious.  As I opined for much of latter 2009 - anytime there is lack of data, or human emotion this market seems on automatic pilot to go sideways or upward on little volume.  We are back at it - heck, even bad economic news of the past 2 weeks has been ignored.

The Euro bounced smartly as well, mostly early in the week - through the first resistance of $1.2250; now it sits at highs from 3 weeks ago just under $1.24.    If that breaks the real test begins at $1.26.

Does this week's economic news matter right now?  I am not sure - all bad news has been wiped away since the monthly Friday labor data at beginning of month.  That was forgotten in 2 days - a bad government retail data point the following Friday was ignored within 45 minutes as was poor housing data this past week.  So the market is telling us right now: we are going to be going up whatever the news flow.  And if we cannot do it in regular hours we will do it in premarket.

Just for kicks let us see what the week ahead has on the docket:

Tuesday - Existing Home Sales; this is an important number unlike New Home Sales which represent less than 10% of transactions.  Based on the market reaction the past few weeks, we are back to a scenario where good news will be celebrated and bad news will be forgotten within minutes. 

Wednesday - New Home Sales; not important to me but the market still cares.   More important for the speculator class is the FOMC Meeting when The Godfather of Easy Money, will grant us easy money for as far as the eye can see.  When the 'pundits' told us in 2009 that fed funds rates would start increased in 2010, I said not so fast mister(s)!  The economy is addicted to easy money and it won't be until early 2011 that they consider raising rates.  Well at this point not only is that call looking great but I might of been too conservative!! Maybe all of 2011 will be easy money and no rate raises until 2012!  Even though the economy is "recovering strongly".  (you can have your cake and eat it too, a great economic recovery but not so great we can raise rates)

Thursday - The always volatile Durable Goods where we lemmings will react too strongly to a figure which shifts and shakes dramatically from month to month.

Friday - the 94rd 3rd revision of Q1 GDP (zzz) and consumer sentiment.


For the portfolio, as the market inched closer to the 200 day moving average I moved out of cash and expanded my short book.  Once over the 200 day, I expanded my long book but with so many names 'extended' after a violent surge off the 1040 level, it was hard to chase into the names I wanted.   That said, once S&P 1108 was cleared I played the late Tuesday rally with index positions (SPY Calls, TNA etf) for a tidy 7 points in just over an hour and then repeated that off a bounce of 1108 Thursday afternoon and into Friday morning anticipating a move to 1120 where I took profits.  And the short book net-net was flattish which is good all things considering (a market up 2.5-3% for the week).  I said I'd re-engage long index plays over 1123 which appears will be "accomplished" in premarket Monday.  From there it's "all clear" until 1140 and I'll keep moving my mental stop losses up...from 1108 to 1120 in that case.  The market has effectively been up for 2 weeks straight with no real relent so you'd think we consolidate down in price a bit but again - we've only seen resting spots via time, not price.  So I suppose "chase almost anything that moves" it will be as "risk on!".  Since we were still below 1120 I have some shorts on but with tight stops - I expect these to be liquidated at 2-2.5% losses as we melt up and as my stop losses are hit; that will make the portfolio more "net long" as each triggers.   As long as S&P 1108 (now up to 1110) holds (the 200 day ma) one must again focus on the long side in terms of weight.

On the long side:
  • Tuesday, I added to First Trust Reverse Natural Gas (FCG) - in retrospect after holding this ETF for a few weeks I would have been better served simply jumping into one of the better know large cap natural gas stocks.  My call on natural gas was very prescient but my choice of instrument has has underperformed.
  • Wednesday, I added a 2% allocation back to F5 Networks (FFIV).
  • Wednesday, I closed ETFS Physical Palladium (PALL) - it has become a hedge fund play thing that trades no different than an "Ultra Long" S&P 500 instrument.  When risk is "on" everyone piles in, when risk is "off" everyone piles out.  I can get the same effect buying TNA ETF.
  • I restarted a 2.1% position in Sandisk (SNDK) which had a "Barron's bump" Monday, but I liked the chart in the intermediate term.  First time we are back in this name since 07.
  • I restarted a 2% position in NetLogic Microsystems (NETL) as the networking space - shunned just 2 weeks ago - is now the favorite.  A handful of names I follow are up 20% in an instant, so I went with a name that was in an earlier stage of breaking out hoping we can still catch some waves.
  • I added another 1.1% allocation to Powershares DB Double Gold (DGP) as the commodity broke out to a new yearly high.
On the short side:
  • Monday the premarket magic hit and I wanted to get short as the S&P 500 headed to the 200 day moving average creating some hedges in case there was a rejection.  I shorted Hartford Financial Services (HIG) and Netease (NTES).
  • Ryanair Holdings (RYAAY) which had been shorted the previous week right at its 200 day moving average, crossed above so my stop loss of 2% hit.
  • Three additional limit short orders hit: Energizer Holdings (ENR), Pitney Bowes (PBI), and Green Mountain Roasters (GMCR).
  • Tuesday morning after seeing a "FAST MONEY" clip where Joe Terranova said coffee was rising so the "logical" way to play was to buy Green Mountain Roasters - which made little sense to me - I decided to cover first thing in the morning since this sort of 'logic' by masses of people is not what I wanted to get in front.  My shorts were simply technical in nature - any fundamental cheerleading, however tenuous in logic - was not part of the game plan.  We got out with a 2% loss, the stock actually surged some 7%ish that day.
  • Late Tuesday, I shorted Celanese (CE). This was covered for a quick 5% gain Thursday morning.  When the stock bounced Friday, I reshorted it and we'll see if I can get lucky twice.
  • Wednesday, I shorted Discover Financial Services (DFS).

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