Monday, October 25, 2010

Bookkeeping: Weekly Changes to Fund Positions Year 4, Week 12

Year 4, Week 12 Major Position Changes

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

Cash: 69.2% (v 64.9% last week)
18 long bias: 26.3% (v 29.8% last week)
4 short bias: 4.5% (v 5.3% last week)  [Note: Long dollar positions considered 'short']

22 positions (vs 24 last week)

Weekly thoughts
Not much to add to the weekly summaries for much of the past month.  The market goes up; the dollar goes down.  The rare times the dollar goes up - the market goes down.  Intraday, you can almost chart these inverse 1:1.

I continue to point to the 13 day moving average as support on the S&P 500 - this was only tested last week Tuesday after some adverse reactions to tech stock earnings.  Otherwise the frantic "I can't lose because Bernanke has it all backstopped" mantra moves almost without relent.

The dollar did finally break over the 5 day moving average, but was shut down promptly at the 20 day - so for now, it was just a short term "too crowded" release of a valve.

QE2 & POMO dominate the daily and intermediate trading.  And of course each Monday morning starts off with a bang.  Since March 2009 whenever the market stalled at key technical levels, you can almost count with laser precision the 'mark up' rally in premarket Monday morning to cause the "charts to improve" technically in the thinly traded premarket - almost as if the market is being guided by an 'invisible hand' whenever market participants cannot do the work on their own.  And since most of the daily volume is now computerized, the when the Pied Piper moves futures to a 'breakout level' all the computers follow.   And so we will have yet again this Monday as surely the key resistance of S&P 1184/1185 which was troublesome last week will be washed out in a premarket surge.

At this point the market just seems destined to rally into the elections and Fed confirmation of QE2.  The only question is will we get to S&P 1220 (yearly highs) by that time next week. Never have so many well known memes all at once continue to 'surprise', 'astonish', and 'shock' the market.  I repeat often that historically when EVERYONE knows something it ceases to work - but not in this market.  POMO days keep working, any speech by any Fed official hinting at QE2 works, Monday morning nonsense - everyone knows these things, yet they never get discounted.

Multinational earnings always start off the earnings season and as they have been for much of the past year, they have been in the perfect place in the global economy - massaging labor costs down, utilizing government or Asian led strength for revenue, and rolling along.  Domestic companies are not quite as in good shape but in the fairy tale economy where unemployment benefits, food stamps, millions of households living 'rent free' in strategic defaults, and many others getting historic refinanced rates - the flood of cheap money, and government transfers elevates the domestic spender.  The saver continues to be used as a source of funds as a great wealth transfer from saver to debtor continues unabated and shall for what appears years to come.


The economic news has not mattered in perhaps 6 weeks - good news is good news and bad news is good too because it means QE.  These reports have become a sideshow by a market dominated by worship of the manipulation of the Federal Reserve.

Monday - Existing Home Sales (10 AM) people used to care about this but now just chant and clap for QE2.
Tuesday - Case Shiller (9 AM), Consumer Confidence (10 AM) doesn't matter what home prices are, or if confidence levels remain at levels seen in recession, we have QE2.
Wednesday - Durable Goods (8:30 AM) New Home Sales (10 AM) if durable goods are strong, we cheer - if they come in light it doesn't matter, we have QE2.
Thursday - Weekly Jobless Claims (8:30 AM) maybe last week's will be revised up again by 20,000 and then we can cheer when they drop 20,000 week over week, but it's all moot, because we have QE2.
Friday - first pass of 3rd Q GDP (8:30 AM), Chicago PMI (9:45 AM), Consumer Sentiment (9:55 AM) traditionally GDP figures were always good for bulls, if they are bad you say "backwards looking", if they are good of course you buy in earnest.  This time around it doesn't matter because we have QE2.

POMO days - Tuesday and Thursday of this week; bears basically give up the ghost on these days as the 10: 15 AM surge punishes them.

As for earnings, another big week for multinationals but more of the names are 'inside baseball' versus the retail names last week i.e. Apple, Amazon, GE, banks.  Curiously, there have been quite a few days where the individual companies reporting react pretty badly to their earnings, but unlike other quarters where that dragged down the entire market now they are being ignored.  I assume the worship of QE2 is behind that.



The dollar rallied last Tuesday as shorts were caught too fat and happy, and the ship tipped over.  A surprise Chinese rate hike and Geithner talk about the dollar were the reasons, but the market also sold off based on adverse reactions to some key tech stock reports - and of course as the market falls, the dollar must rally.  This lasted all of a day and a half before the selloff in fiat currency began anew... and with that the market ran up.  That really is the only thing anyone looks at anymore - the whole market has become a currency trade.  All economic data last week was essentially ignored.

The portfolio made some progress last week mostly due to a few stocks making positive returns off earnings; Riverbed Technology (RVBD) was the star of the week.  Other than that I continued to stay light on the short side and mostly use cash or the U.S. dollar as a hedge.  The short side remains toxic for the intermediate term - most short trades need to be entered and exited in very quick fashion to lock in gain, or the market takes it away very quickly.   Until the 13 day moving average can be broken on a closing basis the approach will remain the same.  While monotonous and complacent, this is the market we have.

On the long side:

  • Wednesday, despite a lot of lower quality small cap Chinese stocks rallying hard the past few weeks - China Automotive Systems (CAAS) failed on a breakout of the previous week so was sold for a 7% loss. 
  • Playing a bounce off the 13 day moving average, and a "POMO" day - I bought some SPY calls in the low 1070 area hoping for a move to 1080 (10 points) - this came within hours of purchase Wednesday so I sold half around 1080 and half around 1085; 15% gain on the former, 25% on the latter, 20% average.  I tried again Thursday as the market broke over resistance of S&P 1185 but this time it was a trap, and the market reversed ... actually a quite common tactic of late in the market.  I sold for flat to losses.  
  • Thursday, I sold out of Trina Solar (TSL) for a 17% loss as the solar sector topped just as I bought in.
  • Half of Baidu (BIDU) was sold going into earnings; after the earnings were benign, I bought those shares back at about a 5% premium Friday morning. 
  • I had the last part of some old SPY 117 calls that I sold off Thursday as the market was acting shoddy; these were about a 17% gain, but were 33% earlier in the day and could have been sold the next day for 30% so not the best timing. 
  • Closed out CB Richard Ellis (CBG) as this was a technical based trade - a stock breaking out of a long base, but it failed to continue the breakout.
  • Friday, took 30% out of Riverbed Technology (RVBD) as it was up some 15% off of earnings; to replace the exposure in the portfolio Acme Packet (APKT) was restarted as I felt Acme and F5 Networks might get some "halo" effect from Riverbed even though they do completely different things. 
  • Restarted a position in mining equipment producer Bucyrus (BUCY) on a pullback to support after a disappointing earnings report.  
  • Threw a position in Atheros Communications (ATHR) on the docket, just ahead of earnings simply as a small speculation on a beaten down stock. 

On the short side:

  • Monday, took a 1.4% loss on iShares Barclays 20+ Year Treasury Bond (TLT) as the consensus is that the Fed will be targeting shorter term duration paper (3-5-7 years) with most of their buying.  TLT broke key supports, so was sold.  The 10 year yield seemed to bottom in the 2.4% area, so this might be a big change of direction trade - we'll see.
  • Shorted Prudential Financial (PRU) as it rallied to the top end of a narrow range; and covered Friday for a 2% gain - this is 'slow money' and any victory on the short side during this move is a win. 
  • Replaced a long term insurance play, Dec SPY puts with Jan SPY puts.  Took a 60%ish loss on the 1% exposure on the Dec puts as the market has rallied non stop since they were put on at S&P 1120-1130.

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