Year 3, Week 37 Major Position Changes
Cash: 65.5% (v 62.2% last week)
18 long bias: 27.4% (v 33.5% last week)
3 short bias: 7.1% (v 4.3% last week) [Includes 1 'long dollar' position, and 1 option position]
21 positions (vs 21 last week)
Finally something to keep us awake and shake complacency a tad. After another low volume, every day up week, markets started Friday by selling (lightly) off on good earnings news. At that time it meant little because the market had been up 6 days in a row, and 9 out of 10. But then mid morning a new event - the Goldman Sachs fiasco - hit and a real bout of selling occurred. Once more this seems to confirm the pattern we have seen of late... when there is no human emotion involved the market only melts up (or consolidates sideways) on low volume. When humans are actually engaged, volume jumps, and that is the only way we can sell off. It doesn't seem to fit the smell test but this is the market we are handed and have to deal with.
For the first time in 2 months the S&P 500 broke the 6 day moving average but again it took fraud charges against the most powerful firm on the planet for even that to happen. What happens from here is a question we obviously do not have the answer for, but on one hand no real technical damage was done Friday. The market needed a breather and even bulls are hoping for a 3-5% pullback to help create some semblance of normalcy and allow better entry points. On the other hand, with the market straight up for 2 months, and many stocks gaining 30-50%+ in that time a lot of charts have huge air pockets in them. Which means when the market does correct (in a real sense, not -1.3%) it most likely will be very swift. In reality the Goldman news really should affect only the financial sector, but if the market shall be allowed to correct - it will be the catalyst for a wider net to be cast. We'll see how it goes, and adjust. As stated last week are about 10% away from a gap fill of S&P 1078...
This will be the 2nd week of earnings season, and it will remain dominated by the huge multinationals who are enjoying the times of their lives as they have cut costs to the bones, sourced much of their labor to foreign countries, and are receiving huge benefits from government's the world over stimulating their economies. I would expect beat after beat after beat - the only question is how does the market react. As stated above, Bank of America (BAC), Google (GOOG), and General Electric (GE) were the first name to actually sell after beats, so this is the type of things we'd want to see to continue to believe a correction can actually happen. This week when Apple (AAPL) surprises to the upside (as they have done for 123 of the last 123 quarters) on Tuesday I want to see how the market reacts... IBM is another key one to watch.
As for economic data, I am not sure if the market even pays attention anymore. We are going to see 500K+ type of job growth these next 2 months as the flood of census workers move in and everyone can pop champagne, since apparently we'll be the only ones not surprised. As for any other bad data it has been explained away by Easter the past 2 weeks. The excuse the next few weeks? European volcanic ash. i.e. Weekly jobless claims were higher than expected because US businesses decided not to hire due to European volcanic ash. Count on some excuse of similar ilk.
It's actually a very quiet week on the economic front, until Thursday - which as stated above we already have the excuse for any worse than expected weekly jobless claims. Producer Price Index hits Thursday which is going to be a report I begin to watch closely as steel and oil prices have to begin to hurt profit margins - I don't know if it will show up in official government reporting but I am sure if you ask those who actually need raw materials in their business if there is inflation they will give a different story than Ben will. Thankfully labor cost increases are negligible since Americans are desperate to hold onto any steady work (private sector only - public sector is recession proof). Existing Home Sales are also released on Thursday and we are going to be surprised that sales are improving during spring.... as they do every year. Friday is the volatile durable goods report, and the less important new home sales. (existing homes makes up 90% of transactions) As long as the government keeps extending unemployment benefits, Americans keep strategically defaulting, and the government hires census workers - there appears to be no cares in the world.
For the portfolio - it is difficult to really play at this point since the market is straight up, without pause and buying almost anything is chasing. I did attempt a few stocks that were laggards the past few weeks but with mixed success. It is a market where it is better to chase a retail stock that is at PE ratio 48 and up 60% in 60 days than chasing a laggard. On the long side, I sold almost all of our hotel chain Wyndham Worldwide (WYN) - one of our few consumer discretionary stocks - simply to lock in profits after a very nice run. I closed a position (sold the the 2nd half) in Massey Energy (MEE), as the stock looked to be pressured by government scrutiny - instead I rolled that money into a more speculative Chinese equivalent L&L Energy (LLEN). Took partial profits (25 to 33% of the positions) in 3 names - Quality Systems (QSII), Triquint Semiconductor (TQNT) and NetLogic MicroSystems (NETL), simply to have some discipline. I restarted Discover Financial (DFS) on the idea that many more Americans can now pay their credit card bills since they no longer have to borrow with a house payment. Restarted Rackspace Hosting (RAX) on what appeared to be a breakout - a big move out of a base, on huge volume. I closed Diamond Offshore Drilling (DO) as it has been a major laggard and did not breakout as we had hoped.
On the short side, after being slapped by the market week after week for attempting any shorts, all I did was put on some SPY puts Friday in reaction to Goldman Sachs news... just for some hedging purposes... not a big position.