August 1, 2014

08-01-14 – Morningstar Report 08-01-14 – Transaction Record Since last time, I sold 2 Yahoo calls, was stopped out of XTN at the 50 day moving average, sold XLI in disgust, and redeployed that money into stocks with good technical set ups. The earnings in XLI have not been good.  The underlying holdings just weren’t doing well. GE, United Technologies, Boeing, Caterpillar, UPS, etc… all were disappointing.  Its odd because GDP growth came in at 4% for the 2nd quarter, a fantastic number.  Industrials should have benefited from that, but nope, it didn’t align.  Predictions aren’t enough, the execution is just as important. Anyway, this is a difficult market to execute in with ETF’s, so I redeployed into individual stocks. Twitter (TWTR), Whole Foods (WM), 21st Century Fox (FOX), Southern (SO), Citigroup (C), Yum Brands (YUM) and the utilities ETF. We have Twitter in an investment club I’m in, and I’ve been watching it there for a while.  I liked it, they have a Goldman Sachs guy as the CFO, and are moving to making the platform a money machine.  They were also reaching an inflection point to which favorable price action looked more probable than lower price action as it was crossing its 50 day moving average.  I was lucky with this one, as they reported excellent earnings the next day!  I like the overall prospects for Twitter.  However, I may switch out Twitter for Facebook if the timing …

July 23, 2014

07-23-14 – Transaction Record I was wrong about the direction of the market in light of the geopolitical unrest.  Corporate earnings are too strong.  The S&P hits new all time highs, so that signals that I am wrong, and as such, I covered a bit each day on the 21st, 22nd, and 23rd.  I went into the energy index, the S&P 500 index, the miners index (GDX), Yahoo (YHOO), Bristol Myers (BMY), and split the industrials into the transport index (XTN). The miners are about to make a golden cross so I am waiting for that.  The stop is set at the 200 day moving average of 25.70. I sold the consumer staples ETF (XLP) because the earnings for the underlying holdings have disappointed.   Only a few of the underlying companies reported an earnings beat.  The consumer economy is very weak.  I am hoping for a consumer rebound later this year. With the proceeds from selling XLP, I purchased some individual companies that I’ve been working with (or watching) in the trading account.  I do not believe in Yahoo as a company, but I do believe the Ali Baba IPO will be valued between 150 to 200 billion.  Yahoo owns 22% of that.  At a 200 billion valuation, Yahoo’s shares are valued at 44 billion.  The market cap is currently at 33.08 billion.  The dip down below 34 is unjustified, so I bought.  The stock has been a trading …

July 17, 2014

What a sad day, a plane was shot down that should not have been in a just world and a ground invasion of Gaza began.  Both these events aren’t really a big deal in terms of the markets.  They don’t really effect the earnings of companies here in the United States.  The risks of bad things happening are the same today as they were yesterday. But these sad events do effect the prices of stocks because the market is an organism with psychological tendencies that must be satisfied.  One being, that when negative geopolitical events grab the headlines, people get bearish.  Multiple compression occurs, people are hesitant to buy, they want to wait until the bad news is a memory. On today’s news, I sold 160 shares of the S&P index right at the close.  The S&P broke the mid channel support line.  I think it will hit the 50 day moving average of 1938.  There may be a chance that the index will touch the lower channel support of 1880.  The lower channel was tested on February 2-5 and April 11-14.  I believe this will happen again, hence my large sale.  I have a large cash position to deploy at that event.  I’m going to count on gravity being there.  My buying targets are 1938, 1920, 1900, and 1880, with 10K earmarked for each point.  If the tide turns and the news cycle moves on before the benchmarks are …

July 9, 2014

On Sunday I wrote that the S&P hit the 1980 mark and I rebalanced and expected the market to move sideways for a bit.  It certainly did, selling off on Monday & Tuesday before rebounding a bit today.  I should have converted the “beta” etf’s (VB, IBB) into their calmer counterparts (SPY, XLV), but I did not and lost a bit of ground the past 2 days.  I was stopped out of biotechs (IBB) at the start of Tuesday, and redeployed that into the S&P 500 index later that day.  I should get back into healthcare, but I’ll sit out of that for a bit since I was stopped out of biotech (i.e. my higher risk higher reward healthcare option I went into). VB (small caps) is close to being stopped out, and another ~1% drop will just do it. The same sell off in beta names happened in April – May when the S&P hit 1880, with small caps & biotech taking a beating.  At that time I maintained too large of a cash position, then lost ground to the index when it continued to run higher.  I didn’t want that to happen again, so when IBB was stopped out, right back in it went into the S&P index.  I’ll probably do the same with VB unless the sell off comes with market moving news. It is a bull market, maybe not a bull economy, but certainly still a bull …

July 6, 2014

Here’s an update of the portfolio & transactions: 07-06-14 – Morningstar Report 07-06-14 – Transaction Record Minus factoring in the cash positions, the performance has been excellent.  The picks have been good for the most part.  If we include the drag of cash positions, May and early June was a source of under performance.  In June, I added beta through small caps & biotech, and that equalized the month for me.  I hope to begin outperforming the index again as we start the 2nd half. So we hit the 1980 mark with an excellent non-farm payroll report. I think we’ll consolidate for a little while ahead of earnings.  Since the last blog post I sold materials and started rebalancing the portfolio.  I took the gains from materials, because that sector has had its run and the sector seems to be loosing steam.  I feel that the under performing sectors will “catch up” a bit in the 2nd half.  Energy is still my favorite sector. After the jobs report, there was a rotation into higher growth names and out of the dividend winners (liker utilities).  Not much has changed about my thesis as it is a bull market.  However, I think there will be more of a chase into growth names.  Also, the consumer economy is still weak.  I rotated into industrials and technology, because if there is a bull market with low consumer participation, those are the sectors that’ll benefit. …

June 15, 2014

To start off, I’ve decided to post my monthly model portfolio results and transaction record each time a change is made or monthly.  Most financial advisers don’t show their performance, which is cowardly and somewhat deceptive in my opinion.  Also note, that I maintain 2 portfolios, one that has much more trading activity and purchases in individual securities, and the one posted here.  I won’t post the active trading portfolio because that is much more complex in the options positions and other trades and short term technical justifications for them.  So some of what I say in this blog (such as what I say I’m doing with options) occurs in the trading portfolio that is not shown here.  Anyway, so here’s the model macro thesis portfolio: 06-15-14 – Morningstar Report 06-15-14 – Transaction Record The S&P pushed up to about 1950, then has traced back.  Over the past 2 weeks, I took on a bit more beta (i.e. higher risk / reward), expecting a “melt up” to at least 1980 in the S&P over the summer.  I rotated some of the healthcare position into biotechs and some of the S&P index position into the Russell small cap index.  Biotechs & small caps were “broken” earlier in the year, but the charts show signs of life and rotation back into them.  For example, Merck’s acquisition of Idenex (at 300% of the current stock price of IDIX) sent both stocks higher.  70% …

June 2, 2014

So the S&P hit 1900, then surged up to touch 1920 shortly afterwards.  As I recently said, that is the signal I was waiting for.  But the market made this move without harmony with macroeconomic data and retrograde to the tone of the bond market.  I’m wading in further, but doubling down on participating in the markets with defensive equities.  The “charts” say we should have another spurt higher since we’ve broken through resistance after a beautiful consolidation period.  This is still a bull market. As I’ve said in my previous posts, I’ve trimmed utilities since the gains have been gotten there.  I remain in energy as a long term secular play.  I still have healthcare and materials at the same position as I’ve had since the beginning of the year.  Now I’m converting a portion of the S&P weighted section of the portfolio into consumer staples.  I’m completely out of consumer discretionary besides what is held in the SPY ETF. Much of my initial start of the year thesis has worked well.  However, my thesis concerning consumer strength has been wrong.  I acknowledged this in my Q2 blog post, but I’ve soured even more.  I believe some consumer discretionary stocks will do well (Chipotle, Domino’s Pizza, i.e. eating out cheap), but the sector as a whole seems problematic, despite the tailwinds I envisioned at the year’s start.  Here are my thoughts on why I was wrong and the sector …

May 18, 2014

So the S&P pierced 1900 for a brief moment this past week, only to be beaten back down into the previous trading range.  There’s still plenty of tug-of-war happening with a lot of noise on both sides.  Its still all just noise. Most of the Q1 earnings are in and they are good.  464 companies out of the 500 in the S&P have reported and year over year earnings growth is up around 5.5%.  Exclude financials and they are a lot better than what was expected.  So corporate earnings are growing nicely (in aggregate). The P/E ratio is being reigned in which is good.  The Shiller is still very high, but the absolute & forward P/E ratios do not appear as extended compared to the Shiller. Also, the unemployment claims number came back very good, the best in years. Employment is improving nicely. I wouldn’t count of “correction” (i.e. a drop of at least 10%) based on that data.  The bull market is still intact, so it must be acknowledged and allocations must reflect that. But……. The paradox of rising yields and rising stock prices remains intact.  This “flight to safety” still coincides with more money going into the markets?  Like I said last time, keep an eye on this. Since my last post, a lot of pretty good data has come out. Pundits are now explaining this paradox away by saying there is a lack of quality debt to buy, …

May 3, 2014

What a strange situation?  Bond yields are decreasing (i.e. people are buying bonds) and the yield curve flattened, yet the stock market is flirting with all time highs.  The jobs report for April was excellent, a “blow out” number.  So something has to give, either bond yields keep decreasing and the stock market goes lower, or visa versa. What wins out, Russia Ukraine news, the excellent jobs number, the good corporate earnings, the slowing growth of the emerging markets, potentially suffocating sanctions on Russia, or whatever happens next?  I have no clue. I’ll stay put with my current positions and wait and see.  I think that the the stock market needs to breathe again.  Institutional investors have been moving towards lower P/E stocks and defensive positions for quite a while now.  And I tend to side with the bond market, and that is indicating that the stock market will go lower.  Its still a good U.S. economy, and I believe that GDP growth could accelerate towards 3% by years end, as has been predicted by some economists. For timing purposes, it feels like the market will be sideways (in a zigzag pattern of course) or a bit lower over the summer.  I’m not acting on that feeling because I’m maintaining my position, although  I did sell some short dated calls this past week though.  Might as well earn a little premium, because I don’t think the stock market will shoot …

April 27, 2014

The stock market took a tumble towards the end of last week.  Before then, the stock market had gained 5 straight days.  The drop was attributed to geopolitical pressure from the Russia – Ukraine situation and the sabre rattling of Putin and Russia.  It reminded me of the news back in 2012: Why gas prices will remain high. Russia needs high gas prices.  One way to do this is create geopolitical uncertainty.  It reminds me of many quotes on the subject: War against a foreign country only happens when the moneyed classes think they are going to profit from it. – George Orwell Russia does not want outright war, but the threat of war and with it, destabilization of the region, is what Russia desires.  There are other reasons, such as national pride and ego related rationales, but oil prices seem true. I’m curious to see how the sanctions that the U.S. and the E.U. will be, and if it will offset the oil price increases. That said, I reiterate what I said in my previous post that I like the energy sector.  Utilities are nearing a 6 year high, so I’ll be rotating a little bit out of utilities, which have been great for me this year, and into energy.  I’ll probably rotate about 35% out of utilities and into energy, and take the rest of the money from the SPY index fund, in order to transfer an additional 15% of the …

April 19, 2014

Corporate earnings have been coming in, and they are good! This fits the 2014 thesis that corporate earnings will help to normalize the overextended market (the denominator in the P/E index increases, therefore the index number decreases). However, earnings alone cannot reign in the overextended market, but the economy is improving, and corporate earnings are growing. After analyzing the recent volatility, biotech & technology in general have broken support levels, corresponding with a rotation into energy. The energy sector is very attractive, with price levels around where they were in 2008. Comparatively, most other sectors are well above their 2008 levels. If the rotation out of technology and into energy is real, energy should see a very good run up. The sectors I am favoring are Energy, Utilities, Healthcare, Materials, and Consumer Discretionary (as the economy improves). I see the most long term potential in Energy. The other 3 are there because I believe in regression to the mean as a mathematical and universal truth of nature. However, it doesn’t mean that regression will happen right now. The stock market is strong, the economy is growing, and we could see a the market rise to a Shiller P/E around 44 like where it was during the dot-com bubble in the late 90’s. These stocks will allow continued participation if market prices keep increasing, while providing the excellent downside protection if regression is to occur. But in summation, I like energy!

2014 – Q2

For Q2, 2014, I maintain my thesis that corrective force will be applied, causing lower stock prices, because the valuations are extended.  In my 2014 Q1 outlook, I stressed utilities (i.e. the “Ma Bell suite” with a tip of the cap to the energy sector), certain consumer discretionary stocks, the healthcare sector, and the fairly valued materials.  The year to date results as of March 24, 2014 are as follows: S&P 500 = 1.45% S&P 500 Utilities Index = 7.59% S&P 500 Consumer Discretionary Index = -1.36% S&P 500 Healthcare Index = 5.59% S&P 500 Materials Index = 3.10% The 3 best sectors were the Utilities, Healthcare, and Materials Sectors.  I was incorrect about consumer discretionary sector.  However, I maintain that sector has favorable tailwinds.  For example, it appears that the Affordable Care Act’s subsidies will infuse about 40 billion into the economy.  Lower income people will have more discretionary income. Employment is improving. The economy is growing and this is still a bull market.  However, the timing is dangerous.  The technical indicators worry me and the “sell in April / May and go away” motto seems to be looming.  I would choose consumer discretionary stocks that have good growth, but not extremely extended valuations.  For example, Whole Foods over Amazon.  I like them both, but Whole Foods (or even Chipotle or Dominos Pizza) is a better consumer discretionary pick than the high flying Amazon or Starbucks with extremely high …

2014 – Q1

Macro Analysis This should be a neutral to slightly good year for stocks, albeit with corrective force applied and structural hesitancy.  2014 starts the year with a Schiller PE of ~25.  Much higher than the historic mean of 16.5.  Also, total market cap / GDP is ~116%, which is overvalued considered “fairly valued” is 75-90%.  Corporate profits are strong and seem to be increasing.  The “recovery” is real.  However, profits are not supportive of valuations.  The valuations are currently being stilted by the unusually low interest rates associated with “quantitative easing” (QE), which will slowly be unwound by new Fed Chair Janet Yellen.  This unwinding will undoubtedly have an effect.  For these valuations to hold, “growth” must equal the rise in interest rates that will occur with the unwinding of QE.  These competing forces will cancel one another out, leading to a relatively neutral year.  Earnings will increase, the price will stay the same, the ratio will stabilize and revert to the mean, gradually.  I also believe that the mean will increase.  Since the 1980’s, the mean appears to be closer to 21 than the historic mean of 16.5.  Without significant policy & cultural change, I believe that the regression to the mean will be a regression towards 21, not 16.5.  This supports a belief that this may be a slightly good year for stocks.  Another cap on explosive growth is the strength of the U.S. dollar, which usually is …