Thursday, August 26, 2010

Updated Position (hedge y money)

I'm largely taking it easy still as August wanes, and I continue expect an important low is approaching. But while I want to have a solid line long once that occurs, I have no faith (thank god!) and no set scenario on how it should look.

I know pornography when I see it, but accounts remain largely hedged in the meantime. Lewd, Disgusting gains should then follow.

Total Position: Currently 1.43-to-1 net-long, 76% invested

Currently Long (according to size): EWS-Singapore (7.1%); OIL (7%);
CRM (6.6%); EWZ-Brazil (5.6%); CXO (4.8%); TRW (4.4%); ISLN (4.3%); RJI (4%); ULTA (4%); FFIV (3.7%)

Currently Short: TWM-long (Russell-2000 2x's-short, reduced Thursday, 19.1%); DISH (5%)
Note: Inverse ETF currently weighted @1.65 x's

Futures: out of 15% October Crude long
today, 74.63

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Friday, August 20, 2010

2011 - The 3rd Year of the Presidential Cycle

Hello September.

I love this time of year. Saliva flows freely as scumbag short-sellers feast on sandwiched fingers of investless widows. Followed then with the common seasonal September/October pivot, from dire-depths in the major indices to a triumphant year-end surge in leadership stocks. Such action pretty much floats my boat, year after year (after year).

I'm ancient, yes, and no match without my walker. But I'm at the point in my trading life where I know when to push, how much neck to put on the block, and then when to pull-back and let you guys make all the money instead.

If I can maintain a pulse, then generally I can make money this time of year.

But much about this year is unique. Not that short-sellers aren't printing money (much of the market has been an easy score for shorts lately), but I am not interested in pushing short into September; as I am too keen on preparing for the pivot on the other side instead; not wanting to get caught short if the September weakness is already waning. It's still early (at this writing), but I'm looking for (technical) signs of a bottom. I don't mind getting short some as a hedge (until pressure is confirmed as off), but the long-side set-up outweighs the opportunity for getting short, in my opinion and for several reasons.

Yes yes yes, the economy is a helpless animals now, staring into the headlights of an ensuing and irreversible mortal impact (which may be true for all I know). But several factors paint September as a month to scale-in long, only to get longer still as a bottom in September/October begins to confirm. In other words - to prepare to back-up the truck.

Here's a quick summary of my (ill)thinking:

Equity market remains in a trading range still, while bond yields have trended much further in their lower direction. In other words, stocks are no longer selling as much as yields are falling.

The VIX and VXN measures of volatility have cooled vs. previous declines.

Equity market have managed a trading range still as economic indicators have re-weakened. Stocks are behaving better than the economy, a formidable sign and generally a positive dynamic when interest rates are historically low. Add to that the uncertainty surrounding the Gulf of Mexico and the fact that the stock market showed lower-lows in February than now; before the worst disaster of man-made history (and one in which the economic impact, and an unknown amount of submerged oil will cause an unknown amount of future damage) is an incredible testament of resilience. I don't know about you, but when a bomb is dropped and the market refuses to trade to lower-lows, I am not interested in being short. Don't short a bar of soap just because it is under water. Short soap only if it is sinking. This is especially true when it seems everyone around you is keen on shorting, or else convinced that stocks are going lower.

New 52-week lows on the NYSE and Nasdaq remain negligible. While it is true that new highs are also muted, the lack of new lows further suggests that selling pressure is limited. Numbers of new highs being small is not yet concerning, since they should expand as an intermediate-term rally ensues.

Leadership stocks in general, continue to behave better than the broad indices (and much better than the current prevailing sentiment). Money is a lot less scared than people and I don't like following people (as money is the larger force). CRM (a leader within a leading group, the cloud-based computing/software space) is speaking volumes today. When a market is truly sick, stocks sell-off on news, positive or not. You wouldn't expect a move like CRM's in a sick environment...the environment is not so sick.

Sentiment, even among long-only professionals, remains very very skeptical on prospects for the economy and the stock market. While this guarantees nothing, it is consistent with sentiment which precedes a significant move higher in stocks. I love turning on Fast Money these days and finding nearly everyone is negative on the stock market's prospects (as their everyday DELL, HPQ and CSCO sloths are no longer working, while their MFE losers were sold just prior to being bought by Intel!).

The upcoming year of 2011 is historically the best of the 4-yr Presidential cycle. While we cannot count on next year out-performing, understand that the powers that be will be slow to perform anything deemed restrictive and at the same time they will be compelled to keep whatever they control stimulative. Priming the pump ahead of the election and then taking medicine only after the election is out of the way is the typical standard for our political system. Generally, over time, this has benefited the coming year of the Presidential cycle. Study the clear out-performance of 2007, 2003, 1999, 1995 and 1991 (the recent history of this cycle) and you will find an amazing knack for this year to out-shine others. But note also that 1987 was very much the opposite, demonstrating that no indicator should be taken as gospel and on its own.

Given that next year may see an upward bias with the Presidential cycle and that the lady who sold me my walker is talking about shorting stocks, I'm looking at the consistent pattern of Sep/Oct market lows leading to a healthy year-end as a means to get long for such a rally, and I'm avoiding being net-short at this time. Assuming the strategy is working, I'll look to pivot aggressively long-only as a bottoming formation is confirming (technically); no waiting for 2011 necessary in that case.

They will take me out on a stretcher, you are sure by now. I don't care though because I'll drop a scenario faster than I can say divorce (see below).

Cliff notes: Yes, there may indeed be some good selling pressure this September and/or October. It might even be dramatic. But too much of the investing public is looking lower already while much of the leadership is spanking higher. The set-up for an important low is more interesting to me now than being short, especially given 2011 is the third year of the Presidential election cycle. If selling becomes dramatic, I hope not to get caught - but I don't want to miss what may follow on the other side of the weakness (if it does get weaker).

I intend to be long-only and nearly fully invested post-Sep/Oct when (when and if) a bottom is confirming.

Okay, while the bullish thesis of these points interest me considerably and I'm excited about the set-up of a Set/Oct bottom leading to a multi-month rally, I am not glued to stick-drawn pictures of the future. If you refer back to this piece in 6 months I want neither credit, nor criticism for a fabulous or else flawed thesis. I want only to be more or less in-step with reality as it exists at that time. Foresight is nice, but getting attached to a scenario can be deadly (something not nice). This plan/set-up may work or not. My job is to push if it works and cut losses if not.

Once into September I'll look to post new lists of eligible longs, assuming I've not given up on getting aggressively long for Q4. And finally (I'm burying this one deep here, in case you wouldn't read down so far) I'm also interested to see if a bottom is confirmed out of mainland China. Buying Shanghai again, for a longer-term investment, makes sense to me in that case.

Beast out.

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...like fish in a barrel

Thursday, August 19, 2010

Updated Position (plus a test of leadership)

It's too late and I'm too far from completing my planned post, so I'll update positions and leave the rest for tomorrow.

I did end up hedging while I was away (shocker), which served fairly well; especially in allowing me to hold into most of my line long.

Tomorrow (Friday), take a note on the trading of CRM. This is an institutional darling and represents a leading stock within a leading group. It traded well following earnings Thursday night - if that holds true Friday it further indicates (to me) the market is only X far away from turning an important push higher. A breakdown in this group (and/or considerable other leadership) could portend a wicked September looming, while continued out-performance of leadership (something we've seen largely still) would suggest September weakness should be bought, not sold.

Something I don't talk enough about is how certain growth names represent a good measurement of hot money flow, which in turn represents a good measurement of money-flow in general. I'll be an idiot and say the next move in CRM will be consistent with move in the broader market; only the broader market will be following. Can this name trade up to and hold higher-highs, or not? CRM should be a tell on market direction; at least now on the heels of Thursday's earnings.

Chump out!

Total Position: Currently 2.33-to-1 net-long, 49% invested

Currently Long (according to size): EWS-Singapore (7.1%);
FFIV (6.6%); CRM (6%); EWZ-Brazil (5.8%); CXO (5.1%); CYT (4.6%); ISLN (3.9%)

Currently Short: TWM-long (Russell-2000 2x's-short, reduced Thursday, 10.2%)
Note: Inverse ETF currently weighted @1.65 x's

Futures: no current position

Follow Centrifugal to fade trades in real time. I can't see a thing from down here.

Saturday, August 07, 2010

Updated Position (sans hedge while off to the wild)


I will be remote this next week, updating trades and/or hedges via Twitter, but with no activity expected here. I won't comment on the market because that coffee has a way of chilling quickly once several trading sessions pile-up.

Total Position
: Currently 100% net-long, 52% invested

Currently Long (according to size): CRM(7.5%); EWS-Singapore (7.4%); EWZ-Brazil (5.9%); CXO (5.3%); OVTI (5.1%); TJX (5%); CYT (4.7%); VMW (4.1%); ISLN (4%);
IGTE (3.4%)

Currently Short: no current position

Futures: no current position

Follow Centrifugal to fade trades in real time.

Night Gallery (expedition)