Monday, August 16, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 2

Year 4, Week 2 Major Position Changes

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

Cash: 72.7% (v 62.5% last week)
21 long bias: 23.2% (v 32.4% last week)
2 short bias: 4.1% (v 5.1% last week)

23 positions (vs 27 last week)

Weekly thoughts
A poor week with a nearly 4% loss in the S&P 500, and 5% loss in the NASDAQ.  Traders actually got what they were begging for with "QE Lite" but the pendulum swung from "I get more easy money from the Fed" to "why exactly is it necessary for the Fed to be continuing to hand out easy money?".  With the current Fed action, we are in a holding period where the Fed is keeping the balance sheet at status quo level - each time it shrinks naturally via maturation of current holdings, the Fed will step in and make new purchases to replace the old.  Hence "QE Lite".  Now the drumbeat begins for QE 2.0, and I'm sure we'll have a very similar circus to what we had the past few weeks.  It should frighten people that the Fed continues to go to novel (read: desperate) measures to prop up the system, but since most market participants can only look 2 feet ahead and only see trees rather than a forest, they are cheering it on (if not outright demanding it).

Aside from the Fed news, the big event of the week was Cisco guidance - while it was mixed, it was taken as negative. A lot of technical damage was done this week on the S&P 500 (I will use the simple moving average chart). The 200 day simple moving average (1115) was broken, then psychological support at a "big round number" (1100) and finally the 50 day simple moving average (1086).

The exponential chart is a lot simpler - almost all key moving averages are converging at S&P 1095-1100.

There is now actually a gap in the chart but to the upside, around 1088.50 - I was hoping it would be filled promptly Thursday morning, but instead the market only rallied back to the 1086 area, as the 50 day simple moving average provided headwind.   From here, downside targets are 1060, 1040, and then the old lows of 1010.  If and when we get to that latter number not only will we have reached the bottom end of the range of the Fibonacci area [Aug 4, 2010: Amazing Fibonacci] but created (at least temporarily) a "double bottom".  That is as good a place as any to put a stake in the ground on the long side, for at least a trade.   A break below that level would be incredibly troubling, as the 1010 to 1220 range will have finally been broken.  Until then, we remain in a wide range, with a lot of chop.

Both China and copper held in there last week, although China looked dangerous Thursday .. a rebound Friday held the Shanghai index above needed levels.  If one read's Bloomberg reports on why Chinese stocks rally most days, it is ironic how the Chinese are trained just like the Americans now.  Almost every story centers on "hopes for increased liquidity".  Speculators in all markets now apparently simply pray for central banks and governments to hand them money.

Can't say much about the bond market - it continues to scream bad things and/or deflation.  Nothing improved last week.

In currencies, the "safety trade" - while dominated by the yen, finally saw a reversal in the dollar; this is at a key level this week.  The Euro was plastered.... but talk about perfect technicals.  HAL9000 took it directly to the 200 day and then as the tea leaves would have it, the run was over.  So we're back again to 'risk on' & 'risk off'.... if the dollar continues to run... and bonds continue their freefall in yields, you have a risk off environment that should not be messed with.

Semiconductor action (a leading indicator) is also incredibly poor, but this is one oversold chart and I'd expect a bounce sooner rather than later.  While Cisco is not "semis" it should also bounce (dead cat) in some fashion this week, which will help NASDAQ.  That semi/Cisco bounce will be celebrated by the "Fast Money" crew, and analyzed to death as a harbinger of a "tide turning" by those who only know how to be long, but until proven otherwise it will be nothing but a technical correction of a very steep drop.

The economic calender does not help as we're in a quieter period that will be dominated by the morose housing market.  We are supposed to be in high season for housing but the number sound more like February than June, July.  On the docket:

Monday: Empire Mfg, NAHB Housing Survey (lesser reports)
Tuesday: Housing Starts, PPI, Industrial Production
Thursday: Leading Indicators, Philly Fed, Mr. "Deflation" James Bullard Speaks in the afternoon (preparing us for QE 2)

Most earnings reports this week focus on retail, and as both JCPenney and Kohl's (read: middle America) forecast "meh" late last week, this is fitting perfectly into our mosaic of focus on those who sell to foreigners, especially Asians, and fear those who are reliant on Americans (unless it is very low end or very high end).  The main hope for bulls this week is that expectations are low enough on either the housing market or retail stocks and/or James Bullard sings songs of QE2.  I don't see QE2 until post election to early 2011, but it will hang over the market like a stench until then.


For the portfolio I spent the week 'de-risking' for multiple reasons.  Early in the week it was simply to lock in profits and avoid the lemmings reaction to our Omnipresent monetary god Ben on Tuesday.  Later in the week it was due to technical conditions corroding.  That said, I am willing to step in and make sporadic buys of stocks that had the best of earnings and/or technical conditions (but have finally pulled back) so there was some buying.

On the long side:

  • The previous Friday I had bought Direxion Large Cap Bull 3x (BGU) as the S&P 500 bounced back over 1120, with a short term target of 1128 to be sold ahead of the Fed meeting.  This happened within 24 hours, and I exited Monday morning for a 2.25% gain.  TNA (my usual candidate) outperformed BGU by 2:1 in that short time frame, but since small caps are more American oriented and have been getting trashed of late, I went with BGU.
  • Spreadtrum Communication (SPRD) exposure was cut in half ahead of earnings - another reason was the stock was running into old highs so I thought there would be some resistance there.  Later in the week the company reported a stellar number, but after a 10%ish gap up, the stock was sold off all the way down to fill the gap.  I mostly just watched in awe, but was compelled to buy a small amount. 
  • Tuesday, I sold half of Netflix (NFLX) on a big deal with Epix to steam movies from 3 major studios.  The stock was approaching old highs, and despite the big selloff the next day and NFLX actually kept chugging upward for much of the week so this sale was 'wrong' from that perspective.
  • I sold 1/3rd of Acme Packet (APKT) as the stock was mentioned on CNBC *and* was approaching old highs - same exact situation as SPRD and NFLX in terms of running at highs reached a few weeks earlier.  I wanted to lock in some gains. 
  • Wednesday, I closed one of our oldest positions: Ultra Silver (AGQ) which has been range bound for months; further I had added other commodity positions in the interim, and some of those (i.e. agriculture) are far more in favor at this moment.
  • Thursday morning premarket as weekly jobless claims surged back towards 500K it looked like the market was going to have another very rough day so I sold quite a few things at the open.  Two of the four stocks in a commodity basket I created were closed - Freeport McMoran & Gold (FCX) and Walter Industries (WLT).  Monsanto (MON) was cut in half (the stock was actually up at the open!), and Rovi (ROVI) was cut by a third. 
  • Riverbed Technology (RVBD) filled its earnings gap in under a month, showing you cannot 'buy and hold' anymore as 'risk on', 'risk off' bipolar action steals almost all profits that are not taken quickly.   It did cause a limit order we placed at the gap to fill and let us restart the position.
  • I originally shorted the gap down Thursday with some index plays (BGU/TNA) but after some weird strength in commodity stocks, I decided to flip the switch, cover (for a loss), and go long.  Nothing but gut but was hoping for 6-7 points on the S&P 500.  I got about 5 which was good enough for half a day so I took my profits at S&P 1086.

On the short side:

  • Monday as we had our typical Monday melt up - I added a 2nd layer of short to the first half of the position I put on the previous week in Whirlpool (WHR), as the stock ran to the 20 day moving average (which has been its resistance for many weeks).  Wednesday, as the market suffered its big selloff I covered for a quick 5.5% gain.  At the time the S&P 500 was holding support at the 200 day exponential moving average which I thought might serve as an area of support, but it did not.

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