Portfolio Holdings as of 02/04/2013 (& last three month returns)

Slow but Sturdy

QCOM – (Entered at $59) – 5%

GILD – (Entered at $55 Pre-split) – 5%

EBAY – (Entered at $51) – 5%

F – (Entered at $16 and doubled at $9) – 8%

NOV – (Entered at $66) – 6%

ROST – (Entered at $65 and doubled at $57) – 5%

HAL – (Entered at $30, sold at $37 and added more at $35 later) – 5%

AAPL – (Entered at $350, sold 50% at $590, added more at $500 later) – 8%

FFIV – (Entered at $104) – 4%

HD – (Entered at $60) – 6%

Aggressive growth

LEN – (Entered at $36) – 4%

DHI – (Entered $22.8 (recent)) – 3%

WLK – (Entered at $75 & sold 50% $92 recently) – 3%

LNKD – (Entered at $95 and sold 50% at $124 recently) – 3%

CLR – (Entered at $75) – 4%

URI – (ENTERED AT $37.5) – 5%

CHUY – (Entered at $26.5 and doubled at $28.5) – 3%

FB – (Entered at $25.5, sold some at $32.5 but added more at $28.9 later) – 3%

CVLT – (Entered at $75.5) – 5%

DKS – (Entered at $50) – 4%

LVS – (Entered at $54) – 2%

Returns generated in two accounts (aggressive and long term (401K + stocks)) in last three months –

Returns

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Deja Vu!

Before we move forward let’s review the market

If you look at the half-hourly chart of S & P 500 for last few weeks you will observe a lot of indecision. This can stem from a market that is awaiting a jobs report or the one that has rallied almost 25% since October bottom but bumping into some bad data or a market that is just waiting for earnings to come out. This is a typical sideways movement that needs just one or two catalysts to either jump up or break down.

Till Friday morning, we were all hunky dory – raising toast to the best quarter since 1998.

But by now, you guys must have heard, read and pondered about the jobs report that came out on Friday morning. Entire market was expecting creation of 205000 jobs with lowest estimate being 193K but to everyone’s disappointment the number came in at 120000. This is exactly the catalyst that I mentioned above. Following is the S & P 500 futures –

Going Forward –

The question is where are we heading from here. Let’s look at the slightly bigger picture –

We will definitely get temporary support at 1375-1370. But that floor might not last long if Alcoa comes out with bad numbers on Tuesday after close. I personally expect the floor to crack on Monday itself. This market might turn into a sideways market or 5-7% correction if this is just one-off jobs miss and not a trend.

The real correction will start if –

  1. We get more of such job reports.
  2. The companies fail to meet Q1 numbers.
  3. Manufacturing margins start contracting.
  4. The inventories start piling up.
  5. Europe’s problem resurfaces.
  6. Israel goes after Iran.

All these events individually have the capability of turning a flat market in to an intermediate/full blown correction. A correction that can go beyond 12-15% – That’s spooky.

In terms of technicals if we fail to hold on to 1336, we are looking at lower lows and lower highs. This means that we are in correction. The breakouts will fail, the industrial sector & commodities will sink and we will stare at repeat of 2011.

Deja Vu!

There is a stark resemblance between job numbers & rally at the beginning of 2011 and the similar macro economic data points in 2012. All of them  fizzled out, making 2011 one of the worst trading year in last 20 years. In case 2012 tries to follow the suit of 2011, I suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term. The top traders have always said that it’s good to sit out when market goes sideways and hop in when the direction is confirmed.

This is the kind of summer where I would use the old adage -“Sell in Summer and go away”.

Question is why side ways and why not a full fledged correction?

Never underestimate the Printing Press. One off job report might not bring back QE3 from dead but few of such reports will definitely get Feds going.

 

 

 

 

 

 

Lastly what do we do with current portfolio?

Just as not all fingers are alike similarly different kinds of stock in a portfolio deserve different treatment.

  1. Reduce all the momo stocks such as LULU, ALLT, SCSS, TPX, HLF, ULTA, CLR, ALXN, etc to 1/3 of original position. A risk averse investor might sell all. The reason is the panic grips the owners of such stocks with higher multiples faster than does the rest of the market. Just a reminder, small cap stocks corrects more than larger cap stocks during a correction.
  2. Stick with oldies such as HAL, APA, STX, WDC, PG, COV,etc unless the fundamentals show a major shift such as margins contraction trend,etc. Some of them have already seen fair share of correction.
  3. To defend your portfolio you can buy long term US treasury bonds such as BLV, TLT, etc. They tend to be haven during such corrections.
  4. A very active trader might try putting in shorts such as SH, HDGE, RWM, etc.
  5. Keep an eye on the leaders of this bull and see how they perform during the correction. By leaders I mean – AAPL, ISRG, CMG, SCSS, ULTA, LULU, TSCO, FFIV, etc.
  6. Start running scans to look for stocks with excellent fundamentals that are holding up well. They might be the future leaders.
  7. Lastly add to your existing value positions or buy new ones (after fishing for course) after market has gone corrected by 10%. But remember an oversold market can become more oversold!
  8. Again, In case 2012 tries to follow the suit of 2011, I would suggest that please sit on the sidelines unless you are nimble (like really really nimble) or you are willing to take 15-20% loss or you want to buy stocks such as QCOM,APA, EMC, etc for long-term.

I believe that capital preserved is the capital created for future investment opportunities.

If you are really, really lost, I will talk more about correction, handling of stocks during corrections and going short later on in the week.

By the what do you think?

Thanks For participating!

Market and Porfolio

Stocks fell on Wednesday to finish with sizeable losses, but they managed to close off their session lows.

The Nasdaq lost 1.5%, while the S&P 500 shed 1% and ended under the 1400 level. The Dow Jones industrial average dropped 0.9%.  This will end NASDAQ’s 7 week winning streak.

The day’s news largely was on the negative side. The Institute for Supply Management’s service sector index fell 1.3 points in March to 56, indicating the sector continues to expand, but it was below forecasts. Payroll services provider ADP said private companies added 209,000 jobs last month, below expectations. And there were lingering worries over the latest Fed minutes, which came out Tuesday and indicated policymakers are not planning for additional economic stimulus measures.  Finally Spanish bond sale reminded that the PIIGS are still lurking around.

Now the question is – Whether SPX will break the 3 month trend line? This breach of support will be indicative of changing sentiment. And finally our good old 50 DMA will come into prominence. But these things do happen after such a run up. In fact we might see some more profit taking tomorrow based on the long weekend ahead, specially to ward off surprises by Euro and Friday’s  job data.

Now if you look around most of the leaders hung in today with minor correction on low volume to average volume. The leaders of this bull market seem healthy and in control. Some such as PCLN bucked the trend today. On equity side SNDK lost 7% after company cut its revenue forecast and trimmed it’s margin.

Portfolio Time –

The only company to be beaten up today was ALLT. It has been up more than 55% YTD, but 8 out of 11 analyst, who follow this name, maintain buy recommendation on it with average price target of $25. SXCI and  URI almost gave back their yesterday’s gains.

Declining crude is taking its toll on WLL, CLR and APA, though continental is clinging to the 50 DMA.

The earning’s change in latest quarter mentioned above is not correct. It seems that Telechart lags the fundamental data update by a month or so. I recently trimmed FFIV, sold all ALXN. I might close CLR and URI of the 50 DMA is broken comprehensively. I plan on taking some profit off ALLT and LNKD. The idea behind taking profit is to have enough cash in hand to a scoop new buys or make additional buys when stocks bounce of the 50 DMA, such as CRUS below.

Lastly during such times, when market is going sideways, keep an eye on Leaders. They will break before market craters. Thus acting as precursor to the impending correction. The leaders of this market are ULTA, SCSS, AAPL, PCLN, CMG, ISRG, TPX, STX, FFIV, EMC, VMW, RAX, etc.

Some good reads –

  • Employment up 209K (ADP)
  • ECB holds steady (MW)
  • Fed signals no need for more easing (BL)
  • Gold continues post-FOMC minutes fall (BL)
  • Copper falls as dollar rises (REU)
  • Brent slips toward $124 on Saudi supply (REU)
  • Sagging orders suggest eurozone in recession (FP)
  • Eurozone retail sales disappoint (REU)
  • German factory orders disappoint (BL)
  • Spanish yields reach 12-week high (BL)

Where do we go from here?

So ladies and gentlemen, after a scintillating 2012 Q1, where are we headed?

The stock market continues to be in a bull market. Every analyst from every bank is changing his/her year end target of S&P500. Some claim improving job market, some site housing market is turning around and some are just catching up. According to me don’t pay any heed to these people.  Just follow the market and it seems to be doing good -forecasting doesn’t help. In fact any kind of anticipation will bring ego and emotion in your trade.

 

But there are few things that concern me – lack of participation by public, oversold energy sector and the laggard Russel 2000.

The things that can impact the markets this week

Apr 02
ISM Index – Mar
Apr 02
Construction Spending – Feb
Apr 03
Auto Sales – Mar
Apr 03
Factory Orders – Feb
Apr 04
ADP Employment Change – Mar
Apr 06
Unemployment Rate – Mar

 

 

FaceOff – China data vs US data

And the winner is China PMI. The Dow ended lower for a third consecutive session dropping 78 points as concerns mount over China’s manufacturing index being down for the 5th month in a row.  The S&P 500 lost 10 points today and the NASDAQ lost 12 points. This was despite the fact that new jobless claims fell more than expected last week, while an index of leading economic indicators for February rose more than forecast.

China’s manufacturing activity shrank in March for the fifth straight month, while manufacturing in the 17-member euro zone contracted more than expected, led by declines in France and Germany. This took toll on sectors such as energy, materials and industrial.

But despite all this we are still in bull as long as we hang onto 1370 in S&P 500. This current mild weakness in the averages is not unexpected given the magnitude of the market move from October of last year.  It would not surprise me to see continued short term sideways action over the near term or even a drop of 2% points.

So if you look at charts above 1370 will act as pivot point. The reasons are – you have previous high support, 50 DMA and the trend line support. Moreover the breakouts did not disappoint today – look at LNKD, WDC, ALLT and GNC. Surprisingly LULU reversed even after not so weak guidance. LULU might have lost it’s momo status.

Good Reads. Tons of them today –

China & Eurozone factories shrink (REU)

Another day of Copper beating (BL)

Keystone XL – Again! (BL)

US Economy and Sentiment (BL)

Hunger Games (MW)

Oil lower amid talk of tapping reserves (FIN)

Gold in tandem with China as well! (REU)

Market Synopsis for the day

Stocks continued to grind higher. The Nasdaq rose 0.8%, the S&P 500 0.4% and the Dow Jones industrial average 0.1%, backing off earlier gains. The U.S. home builders’ confidence in the housing market held steady in March after five consecutive monthly gains, keeping sentiment at the highest level in nearly five years as the industry slowly regains its footing after a devastating bust.

But the day belonged to AAPL. Before open AAPL announced that it will reward it’s investors with 1.8% dividend yield, i.e 2.65$ quarterly. This is its first dividend since 1995 and plans for a three-year, $10 billion share buyback. As a result, the elated investors pushed the stock price to above 600$ for the first time. Goldman came out and raised it’s price target to 700$. Kudos to the most valued compnay. But this was not it. AAPL’s latest HD tablets that went on sale on Friday have already topped 3 million units in sales. No respite for AAPL owners!

Some good reads –

Apple opens its $98 billion cash pile (REU)

UPS to buy TNT for $6.85 billion (REU)

Least Volatile Market in two Decades (BL)

New Ipad Sales Tosp 3 Million (MW)

Home Builders are becoming bullish (MW)

Chinese Home Prices Drop (BL)

China Raises Gas Price by 7% (MW)

And Finally The Day Ahead