Swing Trading Strategies & Stock Picks Since 2003

Year 2, Week 25 Major Position Changes
Please note - this is the first week I am using Investopedia.com as my tracking portfolio so I excluded the week over week comparisons since they do not make sense (apples to oranges). I will resume it next week.
I highlight weekly the larger position changes.
To see historic weekly fund changes click here OR the label at the bottom of this entry entitled 'fund positions'.
Cash: 76.3% (vs XX.X% last week)
26 long bias: 15.6% (vs XX.X% last week)
8 short bias: 8.1% (vs XX.X% last week)
34 positions (vs XX last week)
Additions: ITT Education (ESI) - short, iShares Barclays 20+ Year Treasury Bond (TLT) - short

Removals: Ultrashort Lehman 20+ Year Treasury (TBT)

Weekly thoughts
It is hard to measure the word "ever" as used by CNBC because sometimes it is used as a measure of "post World War II" and sometimes not, but as we theorized (and according to CNBC) January 2009 has been the worst January "ever" [Jan 23: January 2009 v January 2008 on the S&P 500] Which puts... even a bear... in a quandary. As I look at many individual charts I see many stocks nowhere near any moving average. I am a believer in reversion to the mean and "rubber band action" - when stocks fall so far away from the center they will "snap" back for a period, even if they are eventually to continue their direction...i.e. nothing in a straight line. At the peak of the carnage this past fall the S&P 500 was at an all time 37% away from its 200 day moving average. 25%+ would be considered "historically bad" in a normal era. Today, the 200 day is way up there at S&P 1140 or 27%, courtesy of the hammer the market has taken for the past 2.5 weeks. So unless we're going to have another "once in a lifetime" carnage events circa Sep-Nov 2008 you'd expect at least some rebound to at least work off part of this oversold condition. But on the other hand - these are not normal times.
Another possibility as I rethink 2008 conditions was what we experienced a few times which I called the "rotational" correction. That is, the market would churn but different groups would take the pain on a rotational basis - first would fall would be financials, retailers, housing - then a few weeks later would be industrial and technology and then finally at the tail end of a correction would be the "Generals" (which at the time were commodities). And while the Generals were hit; ironically financials and retailers and housing would rebound smartly - causing one who counts on fundamentals to bang their head against the wall. The reason I think this *could* be a probability is many of the stocks I own at the top of the portfolio and have as "want to add" status are stalling. These have been the generals and when the market does throw in these intraday rallies the traders are jumping into beaten down financials and commodities.
Here are a handful of stocks with very similar condition - pulling back from recent highs and now trading in a narrower, sideways range. The bull could say these are consolidating recent moves waiting for the next breakout; the bear could say these are weakening. Whatever the "bias", I am seeing this same look in many charts of "leaders". And these are turning more into 50/50 setups - they could turn bad very quickly or just be 'resting' before the next run up. We won't know until we come back and look in a few weeks. If the market were anywhere near stable I'd be buying these charts as I love strong charts that are pulling back to support - but in this type of market you can get your fingers chopped off in short order as the vast majority of stocks are moving 'en masse' with the indexes.

Contrast this to a chart like this, which is probably the only name we own which I'm seeing a chart who is acting relentless in strength - I want to be adding to stocks acting like this.

So it is hard to have much conviction right now - I like the cadre of stocks we own but the worry is a "melt down" effect where even the best merchandise is trashed. So far we've had a most orderly correction where the worst stocks have been beaten, and the best stocks so far unscathed. Therefore we have benefited since we're weighted in the leadership stocks. But there were times in 2008 when leadership was pummeled and we suffered with the rest. In the short run I almost want to be leaning to the most beaten down "worst of" stocks, although my time frame (intermediate) does not position me in those type of stocks. But for 1-3 day "flipping" type of action I could see the potential for some snap back rallies in those groups instead of what we own.
Let's take a look at the S&P 500 as a whole
We turned bearish at the right time [Jan 6: Back to the Future - Commodites Rule Again] and we've effectively hedged away this entire latest downturn. I've called S&P 820 to 850 range 1. Range 2 was the very immense S&P 850 to 920 that we hung out in from late November to early January. What has been surprising to me, and what I've gotten wrong this week is how strong a psychological level (big round number) has been - S&P 800. Effectively we've bounced off that level 3 times this past week. There is no "technical" reason for it to happen - it's just the human condition that round numbers mean something - so it's caught us off guard that it's been as strong as it has. Each rebound has taken the general index away from "danger Will Robinson" area back into range 1. S&P 820 has been an amazing magnet [Jan 22: Like a Moth to a Flame - S&P 820]
So now we look to risk/reward - the 50 day moving average has now fallen to S&P 880... ironically that is halfway in between the top and bottom (850 to 920) of the area we hung out in late Nov-early Jan. I'd assume, unless "Super Bad Bank" gets the "bottom is in" talk going again - this would be a near term ceiling. That's about 6% up. Downside we have the S&P 750 level or just under 10%. No great bull market shall emerge without a retest of the old lows so even the most ardent bulls must await 750 to hit at some point. So frankly in a roundabout way, I have very little conviction either way here - I assumed once S&P 800 was breached people would give up - instead an underlying bid (PPT?) was sitting there buying all day. The index is not terribly oversold but some of the worst stocks are completely pulverized... so I could envision a scenario where they rise, adding to animal spirits blah blah blah. The way we are positioned the only way we are going to take a lot of pain is a huge rally of 10%+ which we will miss out on; but I consider that a low probability event... and by "hurt" I mean we give up profit opportunity - not lose money.
Two charts of interest this week have been Research in Motion (RIMM) and Morgan Stanley (MS) - the former has been strong for a while now; not sure what "changed" from the fear and pestilence that followed the stock the past few months... while the latter has been leading the market. When Morgan strengthens or adds on 2-3% intraday it seems the market follows in tow.
Why all this talk of technicals? We are focusing on them because (a) the fundamentals are a complete disaster and shall remain so for a long time and (b) the past 8-10 weeks have been the most technical driven market I can remember seeing. With the fundamentals so poor and useless as a guidepost I do believe institutional money is simply relying on technicals as well - hence its self reinforcing. I do like the fundamentals of what we own, by and large (although we have a few positions that we own for nothing more than "thesis") - but the worry is simply the "throw kitchen sink away" selling as we saw multiple times in 2008. This correction, as ugly it has been in a short period of time - has not been hitting the kitchen sink (the Generals). It doesn't "have to", but to ignore the probability is a bad thought process.
Let's talk about fundamentals for a bit. Washington D.C. will continue to dominate NYC. A "super bad bank" shall be thrown upon the American people as the "solution" and the "free marketers" of Wall Street will cheer in jubilation as they have done for every government interference for the past 15 months - of course the other 83 government interventions have not done squat (other than drive the market up, and squeeze shorts for a few hours, days, or weeks)... but dear reader *THIS NEXT* solution, of course - is the one that will work! In government we trust.
On the economic front, a lot of home sales data will emerge early in the week. Bulls will tell you "that's backwards looking! Look ahead to the future of 4% mortgage rates - ignore the data." We have a Fed meeting but hey, nowhere to go on rates - maybe they'll update us on what banks they are supporting or what garbage they have put on the balance sheet. Nah. Gross Domestic Product (GDP) comes out Friday - another government report which is woefully inaccurate and subject to countless revisions. It will be horrific but see the housing numbers above - we'll be told "it's backwards looking, ignore it - we have a bad 1st quarter 2009 and then we can look forward to the government stimulus pushing us to a 2nd half recovery". So why they even bother to put the report on CNBC is beyond me, since it's nothing we have to "worry" about with the era of cute leprechauns, unicorns, butterflies, four leaf clovers, and 2nd half recoveries commencing on July 1, 2009.
This is a huge week for earnings and specific to fund test results for SequenomSQNM) will be out this week which should push this stock one way or the other in large magnitude. Being a cynic, and seeing how strong the stock has been I'd assume the numbers are good, but we shall see. We only have a 1.4% stake - my hope was sometime during this correction if would of weakened materially and I could of bought it and then sold it right ahead of the news (since I don't want to take the "news risk") but the darn thing never weakened to allow me to employ my strategy. So the position is small enough that I'm just going to sit in it, and if something goes awry with the test results, we'll take some hit. It's not a 4-6% position so its a manageable risk.
Technology was relatively strong last week, gold might be breaking out [Could Be the Real Breakout in Gold], and oil looks to have formed a double bottom - supply/demand? Nah oil is about speculation baby. Supply/demand is for your daddy's commodities market. As for everything else - I really am hoping to see some of the "worst of breed" stocks rebound so I can (keep repeating myself) start to build up the short side of the book with positions I dislike for fundamental reasons rather than short term technical trades.
The larger weekly changes to the fund below:

1. It was a quiet week in terms of transactions; after Jacobs Engineering (JEC) fell through support (5o day moving average = $43) early this week, I cut it back to a 0.6% stake. The name took a hit Wednesday on news Suncor (SU) was culling back capital plans. And then really was hammered Thursday to the tune of -15%. Until the stock regains $43 the chart actually signals a short set up, not a long one. (stop out north of $43 of course) This should be an important week for infrastructure because many names have lost the Obama glow the past 7-12 days.
2. Thursday, I cut back Potash (POT) to a holding position of 0.1% after earnings/guidance the market shrugged off. Frankly, this is part of the "commodities" complex and as goes oil/Baltic Dry index - so goes everything within 6 degrees of global growth. I said I'd rebuy the stock if it either fell to $66 or regained a level above its resistance $73/$74). It looks like it might be the latter as the stock finished the week with a flourish because as you know oil = potash. I might get this position size back Monday since I have so little "global growth" exposure and if oil strengthens next week, this whole group will be a daytraders delight.
   
3. I shorted ITT Education (ESI) post earnings as the stock is nowhere near any support level - so far the trade is working but if the market enjoys a happy time I will be stopped out with a manageable loss. This is a purely sentiment/technical trade as I await stocks I really am bearish on for fundamental reasons to rise to a level I feel risk/reward is more in my favor to initiate shorts. ESI is a purely contrarian trade as re-education stocks are the current market darling.
   
4. I added a tiny starter position in iShares Barclays 20+ Year Treasury Bond (TLT) SHORT - I would like to see this name pop some before adding more as it's fallen quite quickly in a short amount of time.