Bookkeeping: Weekly Changes to Fund Positions Year 2, Week 3

Year 2, Week 3 Major Position Changes
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 (1 position + cash): 33.7% (vs 15.4% last week)
60 long bias: 51.8% (vs 67.0% last week)
9 short bias: 14.5% (vs 17.6% last week)
69 positions (vs 67 last week)
Additions: ShengdaTech (SDTH), iShares Short Treasury Bond (SHV), BJ's Wholesale Club (BJ), Amylin Pharmaceuticals (AMLN)
Removals: Canadian Solar (CSIQ), Cabot Oil & Gas (COG)
Top 10 positions = 23.8% of fund (vs 31.0% last week)
27 of the 69 positions are at least 1% of the fund's overall holdings (39%)
Major changes and weekly thoughts
Past week - a lot of churning to get nowhere. It continues to be a traders market, not an investors market. The week ahead? Why should anything change. I could make both a bullish (bounce off S&P 1260 level, mini double bottom?) or bearish case (resistance ahead at 50 day moving average of 1300, we failed there just a week ago) for the charts. No need to predict the future - just let it play out. My larger problem is the amount of risk required to generate gains is not consumerate - i.e. we're hoping for $4 in Apple (AAPL) or $7 in Mastercard (MA), meanwhile risking a lot of downside if the stocks begin to breakdown. Just not worth it to me, and I continue to play defensive. The way we are positioned the only thing that would hurt us severely is a big rally in the markets and by "hurt" I simply mean we will lag. We continue to hold no overweighted position (our typical 4-5-6% type of stakes at the top of the portfolio) nor our typical bevy of positions at >1% of allocation. This reflects the total random nature of the market at this time, and for positions to be out of favor for 2 days and then back into favor for 3 days, before reversing once again a week later.
The credit market continues to be awful and the equity market continues to ignore it. The past few times this condition arose, the equity market had a severe selloff in due time. So I find this to be a risk. However, the knee jerk reaction after government interventions (of the Treasury or Federal Reserve type) has been upward as "free market capitalists" weep with joy that the "Big Brother" is here to tidy up their excess with the sheep's money. I simply see a lot of "churning" that is getting us nowhere, and the danger to me is what lays ahead at the end of the churning. The danger of being heavily involved in this market right now is to be caught with pants down when the "ignorance" of what the credit markets is screaming is finally acknowledged by the stock guys. That turned out very poorly for those heavily skewed long in previous iterations so impatience is the most dangerous thing I see here. But we must acknowledge the "relief" rally potential when our government comes in and bails us out. With our own money. Just like it was a "seminal event" that "obviously must be the low point, and it's safe to buy financials, and in fact all stocks" - during the Bear Stearns fiasco.... we'll be assured of the same this time. Meanwhile another small bank went under this weekend. And so we'll see more and more. I continue to have Washington Mutual (WM) on death watch - the biggest Savings & Loan in America, but they will point to that as yet ANOTHER seminal event that clearly marks the bottom. We have so many seminal events in recent past, soon to be future, and distant future - how exciting. All of them of course will be a buying opportunity pundits assure me. Wake me up from this national (international) nightmare when banking executives start buying stock hand over fist in their own companies because of the "incredible values" the pundits keep screaming at me abound.
Equity market: "Everything is fine... really. 8th inning of the credit mess. Yes we said 8th inning last fall and last winter... oh yeh, last spring too - but we really
Bond market: (see below)
mean it this time. PLus no one calls us out for our bad calls of the past so we can sit here and show up every 2 months saying "8th inning" and we're applauded. Also, must I remind you with gas dropping 40 cents, the consumer will be back too? Nevermind the food costs, healthcare costs, upcoming winter heating costs - that is all backwards looking - the future is bright (I gotta wear shades!) ... our computers say when gas falls 40 cents we must buy stocks, so this is our playbook and woe any sucker who doubts us. "

• Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.
• ``It's like an ongoing nightmare and no one is sure when we're going to wake up,'' said Thomson, a money manager in Glasgow at Resolution, which oversees $46 billion in bonds. ``Things are going to get worse before they get better.''
• In a replay of the last four months of 2007, interest-rate derivatives imply that banks are becoming more hesitant to lend on speculation credit losses will increase as the global economic slowdown deepens.
• The premium banks charge for lending short-term cash may approach the record levels set last year, based on trading in the forward markets, where financial instruments are sold for future delivery. Back then, concern about the health of the banking system led investors to shun all but the safest government debt.
• ``These problems going into year-end are likely to be worse this time round because of the amount banks have to refinance in December,'' Thomson said, citing a figure of $88 billion. ``The suspicion is that banks are still hiding losses. The banking system relies on trust and at the minute there quite simply isn't any.''
• Banks are charging each other a premium of 77 basis points over what traders predict the Federal Reserve's daily effective federal funds rate will average over the next three months to lend cash. The spread is up from about 24 basis points in January, and may widen to 85 basis points, or 0.85 percentage point, by mid-December, prices in the forwards market show.
• Former Fed Chairman Alan Greenspan said in June that this spread, which is the difference between the three-month London interbank offered rate for dollars and the overnight indexed swap rate, should serve as a measure for telling when markets have returned to normal. A narrowing to 25 basis points in the so-called Libor-OIS spread would be viewed as a positive, he said. Forward markets signal that won't happen until sometime after June 2010. (8th inning? try 3rd) The premium averaged 11 basis points, or 0.11 percentage point, in the 10 years prior to August 2007.
• ``The problem is much more systemic than was widely anticipated a year ago,'' said Michael Darda, chief economist for MKM Partners LLC in Greenwich, Connecticut. ``Not only bank balance sheets but home balance sheets are under pressure due to falling house prices.''

1. Monday, investors seemed none too pleased with Perfect World's (PWRD) earnings although I thought they came in fine. The stock had been trading below the 50 and 200 day moving averages pre-earnings and quickly broke down. Simply sticking to a policy of cutting back on stocks across the board as they break down, I cut back on this name due to the technical condition. It won't work every time but in about 75-80% cases the past 2 weeks this has saved us from further losses. The stock bounced back some later in the week but remains below key technical levels - in fact the stock has a very nice setup for a short at this point with any easy out stop loss over $26.50, or a buck higher.
2. ShengdaTech (SDTH) appears to be a quite promising chinese small cap stock; however as it sits on the naked shorting list and is under the radar of Wall Street it might sit in purgatory a while. We're hoping that a business update later in the month or September will provide some fuel for the fire but I'm afraid unless clearly spelled out i.e. "by doing these operations we plan to see an increase in 2009 earning by .XX cents" people won't notice and whomever is naked shorting it will just have a field day. So we started a position here, but won't go heavy in exposure because many small caps sit in this type of position - naked shorted away - because no one at the SEC will enforce rules on their own books. I continue to be amazed that the exchanges literally have lists available of stocks on the naked shorting list but nothing is done about it.
3. We cut EZCorp (EZPW) back as it also broke down below its 50 day moving average - this stock was pole axed last week for stepping away from an acquisition which was supposed to add 1 cent of EPS to the quarter and year. Quite a harsh reaction. On the positive side it is still holding its 200 day moving average and if we can see a bounce back over this resistance (50 day) we'll add back our position. It is sort of in no man's land for now.
4. We cut Flowserve (FLS) exposure as it rallied into resistance early this week; it did break through this resistance as it is now grouped with "commodities" since it has heavy exposure overseas but stalled out later in the week. The chart could go either way from this point and for now, we are simply in wait and see. Fundamentally this remains an interesting story but the stock might as well be called Flowserve Energy for the way it trades of late.
   
5. Solar stocks continued to outperform and a good earnings result by Trina Solar (TSL) was hidden, once more, by large currency losses - but ReneSola (SOL) had no such issues.
   
6. Tuesday we added a new position but it is only here because in the current vehicle we're using we receive no income from cash holdings - so we're using iShares Short Treasury Bond (SHV) for part of our cash. In our allocations I am considering it cash, even though it's officially a bond fund.
7. Cummins Engine (CMI) broke through technical support Tuesday, so we cut it back. Simple enough - we're not asking questions or trying to figure out - the money flow is dictating everything in this market and fundamentals tossed to the side. Or the market is predicting quite a doomsday scenario for the rest of the world, while of course also predicting the US will rebound. Kool Aid.
8. We cut back Buckle (BKE) ahead of earnings - this turned out to be solid as the stock dropped on, once again, what I consider stellar earnings. After the stock was dropped post earnings, we did add a bit back - to take advantage of the roaring consumer as the economy turns upward "in 6 months". Or at least to have some exposure to this side of the market when traders insist their thesis about recovery is correct (even though they've been predicting this for over a year now)
9. Mastercard (MA) hit its 20 day moving average and appeared to be pushed back - we didn't wait around to find out and just assumed the worst and cut back. The stock seemed stymied at $245 and even it gets past that it has resistance looming about $10 bucks higher. So the risk/reward is just not that great on the long side right now.
10. BJ's Wholesale Club (BJ) is a name I should of bought a long while back since I had the thesis down. The stock reported a stellar earnings, and as reward was taken out and hammered. The culprit appears to be fears of margin compression due to inflation. If that's a good reason to sell this stock, than every stock should be taken out and shot. Why this comes as a "surprise" to the Street is beyond me; no wait - it's not... everyone still appears to be under the belief that inflation is benign, controlled, and on the way down. Why would we believe that? The government reports understate the numbers. We added on the post earnings selloff.
11. We usually don't delve into individual biotechnology stocks, and we're taking a bit of a risk here with the purchase of Amylin Pharmaceuticals (AMLN) after the release of some negative data. But they have a potential blockbuster application coming in 2009 for their insulin drug (1x a week dosage) and the stock has been hammered so we established a position.
12. Sometimes the trading in solar is completely random and mostly driven by sentiment. Wednesday, we closed Canadian Solar (CSIQ) and not hours later was this name mentioned on the mid day "Fast Money" show (CNBC show that usually airs post market closing but not the past 2 weeks with Olympic coverage) and the lemmings ran into the name, driving it up. Bad timing but we had a very small position so even the "lemming push" would not of affected performance one way or the other. While I continue to like solar as a space, for now I'm focusing on other names. The stock rallied to the 50 day moving average, and on first pass was turned right back. But again - this is sentiment driven and any of these stocks can be up 20% in a week or down 20% in a week.
13. We moved some of our solar exposure around after some large moves in 3 of our 4 remaining names - we cut back on the 3 outperformers and moved some of that money into the 1 laggard. Long time readers will know the name of said laggard whose name we try not repeat too often. Our laggard has peaked its head right over the 50 day moving average but stalled out Friday - meanwhile 2 other stocks in the sector that had been lagging (relatively) jumped 15%. Typical.
14. Thursday, after a bunch of stocks had rallied to just over resistance levels we bought an incremental basket of global growth/commodity stocks on "breakouts" - but were punished for it the next day as Ben Bernanke assured us he had the inflation issue under control and because of that he hinted he will give the Wall Street crowd their crack - that is low rates for a long time. Because that never causes bubbles. Nope. At this point in the market I just don't want to bother unless a clear trend is established so I cut back much of this exposure Friday as my inkling that these stocks will now be treated as nothing more than technical trades might be happening - they rally to resistance, and you should sell them. Buy them back when they get slaughtered and keep repeating. Same thing that worked for banks now appears to be the play in global growth. I could be wrong here, but again - we want to find multi week/month moves and these are such rarities right now unless you are buying airlines or such.
    
15. Friday, we added to our A-Power Energy Generation (APWR) position ahead of earnings Monday. Once more another small cap Chinese stock with what I see as a lot of potential but some "hanky panky" trading (25% down in 5.5 hours only to recover it all in 1 hour - earlier this month?) Again, a great value but until enough traders jump into this name in unison it appears destined to just sit in purgatory. Perhaps 2009 this sort of story will be rewarded.
16. We closed our position in Cabot Oil & Gas (COG) because we we move to the new world where the rest of the globe contracts but the US, alone, blooms - apparently no one will need oil or gas. Or so the situation the stocks now reflect. I've continued to toss global growth/commodity names to the wayside the past few weeks hoping "sacrificing" some of these will cause a "well now you sold it, so it will rally like the old days" but aside from dead cat, oversold bounces there is nothing here yet. These trade akin retailers, banks, and home stocks for most of the past year.

The above do not include the majority of my trades in my Ultrashorts which I am trading quite often as the market ebbs and flows.