May 15, 2015

April was a brutal month.  I got hammered in some positions, Whole Foods, Chipotle, & the India ETF.  Most of the underperformance was a direct result of those 3 stocks, which admittedly, I should have sold.  The bleeding was slow, a few tenths of alpha each day, but it resulted in the S&P index gaining back quite a bit of ground on me.  At the end of April, the portfolio was up 2.81% and the S&P index was up 1.87%, for an alpha or 0.93%… a 1.72% under-performance during the month of April!  Ouch.

Catching up from the last blog post, there were 3 short term trades I had on, SanDisk, Lumber Liquidators, and Tyson Foods. SanDisk was good, about a 30% gain in 9 days through the options. Lumber Liquidators was a gain turned into a loss.  I should have sold ahead of earnings.  I still think they’ll bounce back, but the fact their insurers won’t defend them in lawsuits is concerning.  It became too painful for me to have any significant position in.  However, I still have a longer dated August call option position.  I’ll make small “bets” on it through options.  A year ago, Lumber Liquidators was at $81.42… about 300% higher than where it is now.  One news report and some chemicals in some of their floor products from China won’t be enough to kill the company.  Just like when the braking system issue occurred with Toyota a few years ago… this is a similar situation.  Yes, Lumber Liquidators is not Toyota and a significantly smaller company (236 billion company vs a company worth less than 1 billion), but the situation is similar and the if they overcome this bad press, its a great buy.  I believe people will forget about this in a few months, and that’s what I’m watching for.  Tyson Foods was a solid win, did exactly what I expected it to do, but my timing wasn’t perfect (the statement doesn’t show the entire position closed as that was done during the first week of May).

Since May 1st, things have improved based on the strength of Ali Baba (which I held via proxy through Yahoo), a Whole Foods put option going into earnings, and some a short term trade for the 20 year bond through TLT & TLT call options because it was set up for a technical bounce.  As of yesterday, the alpha was at 1.78%.  Still down from that start of April.  I’ve been trimming and exiting these loser positions.  These will show up on the YTD statement to the end of May.

I’m overweight international via the hedged & unhedged ETF’s, I’ve been building a position in internet security through Palo Alto Networks because an entry point presented itself, and am building larger positions in China through China Mobile, my continued position in Yahoo (as a proxy for Ali Baba), and a combination technical & China play with Baidu.  China has joined the inflation game, so I’ll go along.  A country like that run by  pure capitalists who are also technocrats can surely bump their economy when they decide to, and I believe they have decided to and will execute, which will show up in the prices of the large Chinese stocks I mentioned.

I think Baidu is quite a good trading vehicle right now.  The technical set up looks good, I believe there are upside macro tailwinds, and there seems to be some support establishing around $189.30.  In the short term, it looks tightly range bound, but a breakout above 194 is where I have my sights set.  I’ll continue to roll over any call options I have on Baidu as long as this support holds.  I’m looking for the stock to close the gap back to 205 before July 1st.  A breaking of the $189.30 support makes me bail on the option, but continue to hold the stock if the macro tailwinds remain and there is no fundamental change in the company.

I’m also still watching interest rates and trading that through TLT.  Like I said last month, I don’t believe the FED will raise interest rates, and now believe it won’t be until 2016.  Although as I am writing this, European bonds are selling off which is probably good for my European ETF positions, possibly good for the TLT because that inflow will come over here… or bad because the yield ratio will correlate.  Overall, I’m long TLT and short yield but will maintain small positions in that thesis.  I’ll have a position going into the FED announcement in June.

Overall, I have more in cash than I have for quite a while, and I’m taking small short term positions but otherwise don’t want to venture too far from my core positions.  The S&P doesn’t seem to want to run higher… it “feels” like the collective psychology of the stock market is waiting & yearning for a significant pull back in order to buy into the “easy money”.  This is how the chart looks to me for the year so far.  I have no clue which way we are heading… I think we’re going to 2160 or 2070… IF only I knew which!  I want to hold about 20-30% cash, work small technical positions, and wait a bit here.

Until next month!  Here’s the YTD statement through April and a snapshot of my current positions:

04-30-15 – Statement

05-15-15 – Portfolio Snapshot