Bookkeeping: Cutting Illumina (ILMN) to be Safe

Submitted By Trader Mark
I only have one long position over 2% exposure in the po rtfolio, as I've been cutting long exposure left and right into this "ignore all news because Obama will save us" rally. As I said the past few days we are seeing speculative junk being run up instead of quality companies, and when that happens you are nearer to the end of the rally than the beginning as people have run out of good ideas and are now speculating on the most beaten down merchandise.

My only position over 2% is one I just added to this week, Illumina (ILMN) on a breakout. The stock is right at the support level we pointed out and I'm going to play this cautious and cut it back from a 3.2% stake to 1.1% in the $25.40s. The stock has held up relatively well all day but has now weakened and could break below support and close there. With a market that has run up on nothing but "hope" I don't want to take the risk here and wish to protect capital. If I'm wrong, I'll be happy to buy it back at a higher price if the market/chart strengthens.

I am sitting on a massive load of cash here and have been begun adding to short exposure - I wrote Monday I was looking to do this once the S&P closes below 920. Since these short ETFs are useless except when the market is in free fall - I am now only adding to them when a break of support is imminent - otherwise they are capital destruction machines. Short of a nonsense 3 PM rally that "break" of support (920) should happen today. I don't want to make big "allocation bets" either way heading into the knee jerk reaction day Friday so we're going to be wallowing in cash until we see where the market takes us. Any sense would say downward, but hope seems to dominate sense of late. I will however, begin to redeploy some of this cash into my favorite names once they falter - the ones the market has abandoned the past 3-4 days to run up daytrader favorites with no fundamental basis outside of 'thesis'.

Again, a break back below S&P 920 takes us to the S&P 850 to S&P 920 range. I'd expect some defense at S&P 900 but I don't see any catalyst to be pressing long here - the only thing bulls have had is "hey stocks ignore all bad news - whee!" We hung around for much of the ride (but we underperformed last week as the market partied and we began building cash stockpiles in earnest) but as we noted yesterday with the plain silly moves in commodity stocks, the cops were soon going to be called to the party. I expect a horrific earnings season ahead and unlike the bulls who see unicorns, butterflies, and fairies by summer, I don't think corporate America will agree - we'll start hearing many doses of reality in the coming weeks from the companies themselves. The unemployment ranks rising, strip malls emptying, and state budgets faltering should also be a reminder to those who believe things are turning around by Independence Day.

I believe this market has discounted a poor first quarter of 2009. What is has not discounted is the severity and duration of this slowdown, and the limpness of the coming "recovery". [Dec 15: The "Recovery"]

Long Illumina in fund; no personal position

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