Monday, September 27, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 8

Year 4, Week 8 Major Position Changes

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

Cash: 63.7% (v 73.8% last week)
22 long bias: 25.9% (v 17.1% last week)
7 short bias: 10.4% (v 9.1% last week)  [Note: Long bond and volatility positions considered 'short']

29 positions (vs 26 last week)

Weekly thought
Last week followed a pattern often seen since March 2009... key resistance levels that could not be broken via trading during normal hours were bested in a premarket surge.  There was no particular reason for last Monday's premarket jump other than "destiny", and that's just what we do 8 out of 10 Mondays.  Bears lost their backstop at S&P 1131 as the drumbeat for QE2 blared through the cathedral of speculators.  Bernanke delivered Tuesday, with almost clear intent to deliver the good ship monetary easing November 3rd.  The last two Fed meetings marked the top of those respective moves and it appeared that might happen again, and by Thursday the S&P had cracked 1131 setting up a more typical (historically) "break out then fake out" that would trap bulls.  Instead, bears were "Teppered" Friday morning by the new stock market mantra of "you can't lose" - whatever happens, stocks must go up.  This morning the headlines of national publications such as USA Today declare a rising stock market as the best form of stimulus... lo and behold, words central bankers have been whispering to anyone who listens.  Somewhere Bernanke is dressed in robe, in a plush recliner, scratching the cat in his lap and whispering "Excellent".

  • ....former Federal Reserve chief Alan Greenspan has suggested a different form of economic stimulus: an old-fashioned stock rally with legs that makes investors feel richer and CEOs more confident. In a recent speech, Greenspan said the "most effective" stimulus is rising stock prices — not more government spending.
  • Many Wall Street experts agree. "The stock market is a barometer of how people feel," says Quincy Krosby, market strategist at Prudential Financial. "Higher stock prices inspire confidence and help ignite spending."
  • Retail investors have pulled cash out of stock funds all three weeks in September, extending a streak of net outflows to 20 weeks

[click to enlarge]

For anyone keeping track with just a few days to go, this is the best September for the S&P 500 since 1939.  This is the best month, regardless of designation, in a decade - even better than the bounce of March 2009 lows - even better then the move in late 2002 or early 2003 off the 2000-2002 bear market.  Hence anyone playing probabilities of a pullback assuming normal action, has been trounced.

Eventually this market will fall or else Netflix will have a greater market valuation then Exxon Mobil - but if history is any guide very few will be positioned for it, and almost all who will be will have suffered serious damages waiting for their moment of victory.  Until further notice the level broken Thursday but quickly regained premarket Friday, S&P 1131, is the floor.  Two gaps beckon - S&P 1090, and S&P 1110 and generally these fill on indexes within 6-14 weeks.  We are roughly 1 month from the first gap but the movement up from said gap has been much more extreme than normal due to the above mentioned performance metrics.  Reverse engineering some Fibonacci levels, the level the S&P 500 needs to reach (using S&P 1040 as the floor) for 1090 to be filled as each of the 3 retracement levels is as follows:

61.8%: S&P 1170
50%: S&P 1140
38.2%: S&P 1120

Obviously 2 of those choices have been left null and void, so if one expects a Fibonacci pullback to come into play the only option remaining is the 61.8% and that would require the S&P 500 to run to 1170.  Which would put it very close to May 2010 highs, creating a nice 'double top' pattern.  Un

Until the psychology that the Fed can micro manage the stock market to exactly where it wants it go to via threats, primary dealer actions using POMO money, or other actions in concert with the PPT changes - this is where we are.  Neutral observers remain amazed this market can rally for much of the past year and a half with a tidal wave of net outflows from the retail investor - hence, unless Economics 101 has been defeated "someone" is buying.  With bears smarting from the hurt Bernanke put on them during QE1 and the epic run in stocks between March 2009 and April 2010, recency bias dominates.


Last week was the second in a row economic news mattered not at all to the market.  All eyes were on QE and all other news was either ignored, or bought.  Even CDS on European debt exploding out is "no problem" because of course the ECB is the backstop to Europe as the Fed is backstop to the U.S. - can you imagine a world without central bankers inflating bubbles than needing to print fiat money like mad to offset the damage they have created?   Either way it's a light week with almost nothing to move the market - we had a similar week not too far back and I said during weeks like that there is little emotion and hence the market almost always now drifts up without news on pathetic volume.  Hence, until Thursday evening (Friday premarket) only secondary type of data points exist.

The only big day is Thursday overnight, and Friday morning where the globe releases manufacturing data.  Europe has been slowing but it has been ignored.

Tuesday: Case-Shiller House Prices (9 AM), Consumer Confidence (10 AM)
Thursday: Third revision of Q2 GDP & weekly jobless claims (8:30 AM), Chicago PMI (9:45 AM)
(Thursday night) - China PMI data
Friday: Personal Income & Outlays (8:30 AM), Consumer Sentiment (9:55 AM), ISM Manufacturing & Construction Spending (10 AM)



Running any form of hedged portfolio in this sort of environment is an exercise in frustration.  Especially when the moves are so atypical.   Performance has been stagnant the past 2 weeks as I've incorrectly been looking for even the mildest of pullbacks... none to be found.  The one positive is unlike late spring 2009 (especially May) when I "fought the law Fed and the law Fed won", the portfolio is simply suffering from lack of participation rather than outright serious losses.  Back then, some great gains in the first 2 months of the 2009 as the market imploded, were almost completely erased by May as "the market just had to go down!" ... but did not.  I would only be proven correct in July 2009 but by that point the Fed had cowered me and taken many of my sheckles.  Hence, this time around I am more in a cat and mouse game - throwing a short out here or there, to have it snatched away by my friendly central banker but keeping losses limited.   On the long side of the portfolio it remains nearly impossible to find new entries as all our favorite names have now become the market's favorite names and there is no shame now running stocks up 18 out of 20 sessions, or stocks pulling 15%+ away from even the 20 day moving average.  "I Want my" has now become applicable to a bevy of stocks.

For the portfolio I kept throwing out some short bait that was hammered.  Being under exposed long, the continuous -3, -4% type of losses on shorts keep eating away at gains from the long side and we remain in quicksand.  I have the right stocks in the portfolio as many of our names are the biggest stars of this move, but obviously in retrospect they were liquidated too early.   I did an an insurance to the downside component this past week with a small (1%ish) SPY put position and if the market makes another 25 or so S&P points I'll add another, and keep doing it every 20-25 points because while hard to believe now - the market can go down.

On the long side:

  • Monday, half of F5 Networks (FFIV) was sold
  • Wednesday, the majority of the remaining Rovi (ROVI) was sold after a big surge due to Apple partnership.  A limit order to purchase shares at the 'gap' from which it surged will be the plan to rebuy shares. 
  • Thursday after the market bounced hard for reasons no one could find after dropping on bad european levels, I went long some SPY calls.  The market reversed back down within hours, through S&P 1131, causing frustration and losses
  • Las Vegas Sands (LVS) was noted as a chart with a multi week base building; when the stock jumped outside of its range, the position size was increased materially (+3%).
  • Friday, because I appeared to be the last man on Earth not buying stocks I added to Thoratec (THOR), VMWare (VMW), Spreadtrum Communications (SPRD), and Riverved Technology (RVBD)
  • A new position was created in "shapewear" name Maidenform Brainds (MFB)

On the short side:

  • Wednesday, Best Buy (BBY) was shorted as it kissed the 200 day moving average for 3 straight sessions.  This was covered the next day for a 2% loss as the stock broke over resistance.
  • Thursday, "good" existing home sales (the numbers were awful) rallied the market after bad european news led to a rarity - a premarket downdraft.  Index shorts (TNA/BGUwere shorted just below S&P 1130, but the market bounced for no particular reason during the day causing a forced cover.  Then late in the day the market plunged but our position was already gone.
  • A longer term 'insurance policy' was bought with a modest SPY put position - Dec 110 puts, hoping for a fill of S&P 1090 sometime in the next 3 months. 
  • Intuitive Surgical (ISRG) and Whirpool (WHR) were shorted. (reason: stocks nearing resistance)
  • Plantronics (PLT) was shorted as the stock was at a make it or break it level - a double top or not.  In this case - not.  The stock was covered the next day for a 2.5% loss. 
  • Friday, the 'best' short of the past few weeks - NASDAQ OMX (NDAX) finally broke over resistance, causing a 4% loss as we were stopped out.  The stock failed to rally with the market for weeks but finally succumbed in the "David Tepper" rally. 

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