Monday, September 13, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 6

Year 4, Week 6 Major Position Changes

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

Cash: 66.7% (v 71.4% last week)
22 long bias: 19.4% (v 28.3% last week)
8 short bias: 13.9% (v 0.3% last week)  [Note: Long bond and volatility positions considered 'short']

30 positions (vs 26 last week)

Weekly thought
It has become something of a running joke on how Monday's and especially Monday mornings have been the bedrock of this rally from March 2009.   So many times we've woken up to S&P futures up 0.7%, 0.9%, 1.1% before the week begins ... without data in front of me I would not be surprised if 50% of the rally (in terms of points) from March 09 has been on Mondays, with half of that in premarket futures.  Much easier to get the stock market to where it 'needs to be' in the thin futures market.   This has become so predictable last Friday I wrote:

While this week was atypical we almost always start the week with a morning rally so we'll assume there is a gap up Monday and that should take us near S&P 1115... or it might happen this afternoon since everyone knows we surge Monday morning seemingly 90% of the Mondays since March 09. 

Lo and behold, S&P futures 1115 @ 6 AM Monday morning.  Like clockwork.

So we'll keep it simple this week since every asset on Earth is now a computerized derivative of the S&P 500.  We are looking at 2 levels as outlined last week... 1115 and 1130.   We've been in a nearly half year range of S&P 1040 to 1130 with only small exception.  So either we are nearing the top end of our range or we are going to break through this very lengthy consolidation period.

The index is not quite overbought yet despite being up every single day of September except last Tuesday.  However, the leading stocks are now extremely overbought, and as of Thursday-Friday of last week showing their first signs of fatigue.  So after "mark up" Monday morning I will be curious if they can keep running on fumes as many have risen 20-25% in under 2 weeks without relent.

The inverse of the S&P 500 at this point (per algorithmic rule) is the Treasury market.  Last week in the weekly summary we said we'd like to see the 10 year make a run at its 50 day moving average around 2.82%, which should coincide with the main bond ETF (TLT) filling a gap at 102.  After a headfake Tuesday (again the only losing day of the month) this ended up playing out.

And that's really all there is to a simplistic, 1st grade logic market where all assets are almost perfectly correlated.  No need to complicate it past that.


Last week was extremely quiet on the news front, as we have dead space ahead of earnings season and a vacuum of economic data.  This week, it picks up a bit but still not a bevy of the big name economic reports - the market most likely will key on Tuesday's Retail Sales, Wednesday's Industrial production, Thursday's Philly Fed, and perhaps Consumer Sentiment on Friday.  Thursday's weekly jobless claims now seem a moot point unless they rise over 500,000 or fall below 450,000... investors now seem very comfortable with recessionary job loss totals each week because "it's not getting worse".  The inflation data don't seem to matter much because whatever the figures - the Fed will be keeping rates at low levels forever and ever.  They promise.

Tuesday: Retail Sales (premarket), Business Inventories (10 AM) - retail sales might get a binary reaction in premarket
Wednesday:  Empire State manufacturing and Industrial Production (premarket) - the latter might influence the premarket
Thursday - Weekly claims, Producer Prices (premarket) and Philly Fed (10 AM)
Friday - Consumer Prices (premarket), Consumer Sentiment (9:55 AM)



I spent the week getting more hedged the higher the index went up.  Many of my leadership stocks are now extremely overbought but people keep piling into them chasing and chasing.  What one could not give away 2 weeks ago people now are stampeding on each other to buy - oh humans.  Speaking of binary outcomes we have one approaching - either the market is going to peter out and begin a new leg down as we approach S&P 1130, or off to the races we go on a new breakout.   Earnings season begins in about 3 weeks so that is going to be a catalyst as well as monthly employment data, ISM reports, and overseas manufacturing in about 2 weeks.  Between now and then, the computers are in complete control and we'll go where they want us to go.  One thing we are seeing is some relatively well known companies guide down - which is a new thing; thus far it's been ignored.

For the portfolio I put on some ancillary type hedges (volatility, and long bonds) so if the market breaks out to highs I won't be hurt as much as a direct bet against the S&P 500.  Now that we are in the top 10-15% of the 5-6 months range I've been adding individual equity shorts in weak charts.  However if the student body left takes us over S&P 1135ish I'd expect to have to cover a lot of merchandise, bring out my Kool Aid, an join the party.  It seems illogical that could happen without a rest first, since we've been straight up for nearly 2 weeks, but the low volume straight up rallies were the hallmark of March 09 - April 10 so we'll see if the computers (and the 'urgent buyer' in premarket) can pull it off again.

[Please note in portfolio view, my long volatility and long bond purchases are viewed as 'long' but in terms of market behavior I consider the 'shorts' or at least 'hedges']

On the long side:

  • Wednesday, I bought back decent sized exposure in the 2 auto suppliers as we had a typical 90% day, and these were the only 2 stocks in the portfolio down.  The sector was downgraded, so I got back some Magna International (MGA) and BorgWarner (BWA) that I had sold off for profits at higher levels. 
  • As gold retested old highs, I cut back Powershares DB Double Long Gold (DGP) to lock in profits. 
  • Thursday, I sold some modest sized index longs (TNA) as the S&P 500 rallied on the weekly jobless claims number and rallied to S&P 1110. 
  • Thursday, I took a sledge hammer to some names as they had reached extreme overbought levels - mostly these were 'the generals': Acme Packet (APKT), Netflix (NFLX), Tibco Software (TIBX), Riverbed Technology (RVBD), Cleveland Cliffs (CLF), and (AMZN)
  • I closed a position in Titanium Metals (TIE) which I had just started the previous week as it had not been participating in the rally 
  • Friday, I added back a very modest amount of Spreadtrum Communications (SPRD) as it finally fell to some minor support. 

On the short side:

  • Tuesday, I shorted Monsanto (MON) as it had broken support the previous week, and had rallied back into its support/resistance area of the 50 day moving average. 
  • Thursday, I shorted Texas Instruments (TXN) as the semiconductor group had been lagging.  I was fortunate in the stock narrowed guidance a few hours after I shorted, and I was able to take a quick 2.5% profit on half the position Friday. 
  • For some higher beta exposure, I shorted NASDAQ OMX (NDAQ) and Intuitive Surgical (ISRG)
  • I began positions in iPath S&P 500 VIX (VXX) and iShares Barclays 20+ Year Treasury Bond (TLT)

A special shout out for the 2nd year in a row to our friends in Indiana, for nothing else than being on our schedule.  Even in the worst of football seasons, we always have an almost guaranteed win against Notre Dame.   If only Purdue was this easy to beat...

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