Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 24

Submitted By Trader Mark
Year 2, Week 24 Major Position Changes
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Please note - this is the last week I'll be using Marketocracy.com as my tracking tool; hence the "weekly change" between this week and next week will be a lot sharper than usual as effectively we are moving from 1 portfolio to another. Further, I'll have less positions overall.

Fund positions of 1.0% or greater can be found each week in the right margin of the blog, under the label cloud and recent comments areas; I highlight weekly the larger position changes.

Being a long only fund, via Marketocracy rules, the only hedges to the downside I have are cash or buying short ETFs. I cannot short individual equities.

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

Cash (2 positions [SHV/BIL] + cash): 53.5% (vs 53.5% last week)
31 long bias: 43.1% (vs 36.5% last week)
7 short bias: 3.4% (vs 10.0% last week)

40 positions (vs 37 last week)
Additions: Monsanto (MON), American Science & Engineering (ASEI), NCI (NCIT)

Removals: N/A

Top 10 positions = 27.2% of fund (vs 23.1% last week)
20 of the 40 positions are at least 1% of the fund's overall holdings (50%)

Weekly thoughts
The stock market completed a quite substantial sell off over a 7 day period; falling from an intraday high of 940 on the S&P to 820 (-12.7%) After pulling in our reigns a week ago Tuesday when the commodity stocks went ballistic [Jan 6: Back to the Future - Commodities Rule Again] (the day the S&P hit its high) I became more constructive on the market late Wednesday [Jan 14: The Mood is Kind of Foul; I'm Kinda Sorta Short Term Bullish] opining I'd like to see a selloff the next morning to test S&P 820 (as the S&P was near 840) and then we could be prone to a shorter term bounce. This indeed did play out on the 15th (Thursday) exactly as forecast.... however, the follow through Friday left me unimpressed. We did regain the all important S&P 850 level but it seems uninspired to me.

I want to make plays during "fat pitches" - the fat pitch a week ago Tuesday was the bulls had gotten excessive with their "return of global growth" nonsense and it was time to get cautious and pull our chips back; the fat pitch late last week was "wow we're down 12%+ in a straight shot - very rarely do we not at least get a cursory bounce". That doesn't mean we will be correct swinging at said fat pitches, but the odds are far more in our favor. Right now I don't see a fat pitch - bulls will point to a "successful retest" of S&P 820 and the fact our government is moving to take all bad assets off the shoulders of our banks so we don't have to ever worry about them again - bears will say we rolled over on our breakout over S&P 920, and there is no great news (ex-Obama hope) to come for a long time. In the near term we'll see which direction the market goes - the 50 day moving average on the S&P has now fallen to 890 which is where I'd expect any near term rallies to face trouble.

As the past two weeks have shown, the market takes away much quicker than it gives. We spent all of December and the first week of January (through Jan 6th) making a rally attempt, and then in 7 days lost all of it. It remains the ultimate trading environment but a useless place to "invest"; also quite possibly the most technical driven market I can recall. As for fundamentals, it's the same song I repeat each week - they are poor, getting worse and will disappoint people to the downside. I don't know when the next big swoon will be as the realization of no 2nd half 2009 recovery washes over people - but it feels like Russian Roulette to be in this market on the long side - you can keep clicking the trigger but eventually the bullet will come. The danger with the S&P 820 level above is once that breaks, there really is no support until we get back to late November lows which is a 8.5% (from 820) and 12% from where we sit today. And we only have 4%ish upside before we hit resistance....

This week a mountain of earnings hit us, and I continue to expect a lot of blowups as earning estimates are far too hopeful and guidance will be sheared. On the plus side we are running out of major banks/financials to nationalize - Citigroup only has 3 bucks more to go, and Bank of America 7. Can't go lower than 0. As we suck up bad assets, the real losses in the financials won't be evident in the companies anymore - they will be sitting on the Treasury balance sheet so we can take the pain in a quiet way that doesn't roil the markets. It's actually quite sinister but this is the future - oh yes the "Bad Bank of the U.S.A." (funded by whom? you guessed it) will also be taking the losses.

Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp., in consultation with the incoming Obama administration, are discussing a plan to create a government bank that would buy up the bad investments and loans that are behind the huge losses that U.S. banks continue to report, say government officials

So just like that, years of bad loans will disappear into the ether - to be hidden in some government back office - and we can go back to "business as usual".

The strategy continues to sit in high levels of cash even at our most "bullish", try to generate some gains in the strongest names, and when the market rallies rebuild short positions. I am actually hoping for some rally here in the "worst of" names so I can begin building a cadre of individual short positions. Areas of strength this week were 'adult re-education' and a lot of beaten down healthcare stocks. Speaking of, we had made Illumina (ILMN) our largest position on the 5th as a 3.5% position, but when the stock broke down below support 48 hours later we cut back exposure to be safe. As I said, many beaten down healthcare stocks took off this week and Illumina was one of them ....

... that happens, when you choose conservatism you sometimes give up profit making opportunities. But, when even stocks you are cutting back are running like that - it's still a good thing in my eye; right stock - wrong timing.

And away we go, another week in a year we will ping pong from hope to reality. Washington D.C. continues to be more important than New York City.

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