JUNE MONTH END SUMMARY AND LOOKING AHEAD TO JULY
June Performance: +2.45% S&P 500 June Performance: +3.97% YTD Performance: +24.06% S&P 500 YTD Performance: +8.31% Portfolio highlights for June: - Went from a 70% cash position during the first week of the month to a 25% cash position by the close of the month. - Took a profit of 37% on AUTH position after initiating the position in early May. - Initiated a position in SPRT during the middle of the month. Position showing a gain of over 20% in just two weeks. - The largest portfolio position SYNC finished the month more or less flat. It is consolidating near all-time highs and looks poised for a strong month of July. - ATNY posted a gain of 15% for the month of June, mitigating a substantial portion of the current unrealized loss. Portfolio lowlights for June: - Once again managed to get whipsawed within what has turned into a frustrating range for GSIG. Initiated a position in the stock on June 19th with the hopes that the value in the name will be realized in the months ahead. If poor performance continues this would be the first position to be liquidated. A strong market backdrop in July should, at a minimum, allow GSIG to remain above 12, which is roughly the current cost basis. - A new research report was released on SPNS. The opportunity here is substantial based on the strong potential for increased spending on the IT needs in the insurance sector. There is also a value component and a restructuring component. All of this is detailed in the research report. Disappointingly, the position has suffered, showing a loss of roughly 8% currently. It is a very illiquid stock that is subject to excess volatility given the low float and tendency towards low volume/participation. SPNS is not a position that I would consider making into anything other than mid-sized given the liquidity constraints. Looking Ahead Going into July the current portfolio is roughly 75% invested, with a 25% cash allocation. A strong beginning to the month would turn my intermediate-term trend indicator bullish, taking equity allocation up to the maximum 100% allocation. I wouldn't mind and am, in fact, looking forward to increasing my equity allocation to 100%. I base this on a number of bullish drivers I see in the current market environment: 1. Seasonality/cycles - Since 1964, the 8 times an incumbent has run for re-election, the S&P has gained an average of 9.7% from Jun to Dec. We happen to be in a very bullish period for the markets from an election cycle standpoint. 2. QE/Liquidity - Fighting central bank intervention, whether European...
WELCOME TO THE FIRST DAY OF THE REST OF YOUR LIFE IN THE MARKETS
I'm right on the razor's edge here. Caught between the my technical framework that clearly states an important low took place in early June and a mechanical system which I have sworn the utmost loyalty to the point of servitude. The mechanical trend following/reversal system I have in place to determine my asset allocation points is about to switch back to bearish should tomorrow be extraordinarily weak. It will also switch to bearish if the remainder of this week simply drifts lower. I was afraid of this outcome when I moved from a 50% invested to 75% invested position last week. What this means for me - if it does manage to flip back to short-term bearish - is a move back to 50% invested and 50% cash. The more daunting matter at hand, however, is the fact that my long-term indicator could flip next week, taking me to 100% cash. It's a gut wrenching place to be for a hardened bull that is sitting on well researched positions that I know will be higher given time. But my asset allocation model comes first. It comes ahead of any technical analysis, trajectory points, price mirrors or correlation studies that I post here. It comes ahead of my feelings for a company. It comes ahead of earnings models. It comes ahead of companies with innovative products, a potential groundbreaking technological breakthrough, the cure for a small penis or the midnight munchies. The asset allocation model is my discipline and I stick to it. This hardened attitude comes from lessons learned in the past. I reference 2004-2005 often on this website, as it was those difficult years for my former hedge fund that made me into the trader/investor/money manager I am today. I can't put the blame for the back to back down years that caused the closure of my fund on any one thing in particular. It was a combination of things, ranging from hubris to a lack of respect for risk. One of the factors I consistently think of when that period comes to mind is a correlation study that I became obsessed with. And why I shouldn't I have been obsessed? That correlation study allowed me to nail the 2003 bottom and propelled my fund to #1 status later that year. I had that correlation study posted on my wall with different variations and outcomes. It literally took up an entire wall of my office marked in various colors to indicate potential scenarios. The correlation study became my go to backdrop when any scenario went against expectations. I didn't have a bail out switch. There was no mechanical...
4 CHARTS THAT WILL KEEP YOU IN PEACE AND NOT IN PIECES DURING THE WEEK AHEAD
click chart to enlarge
THE ANATOMY OF A COUNTERFEIT – STARRING SYNC
I see nothing in SYNC that signals a top. Quite the contrary, in fact. I don't care who the characters are involved with "pumping" the stock or whether every institutional reptilian analyst with a tail and a tie is downgrading the company. The final arbiter here is price. And price says that everything is fine. Everything else can take a bath in a hot bucket of steaming, vagrant piss. click chart to...
A PRICE MIRROR IN THE RUSSELL THAT IS POINTING TO A POWERFUL MOVE UP IN JULY
There is a tendency for generational trajectory points to cause "price mirrors" to appear when price meets the trajectory point over different time periods. The following chart of the Russell 2000 is an example of a price mirror taking place, comparing Q4 2011 and the current market: click chart to...
SEASONED ANTENNAE HAVE PERKED UP FOLLOWING A SINGEING OF MY NETHER REGION
During a bullish Twitter rant on Wednesday afternoon, I stated that the "pinning" action of the Dow Jones Industrial Average to the yellow generational trajectory had bullish ramifications into next week. I was expecting the pinning to continue, with the markets closing at the high end of my estimated range of 12,550 and 12,850 for the week. Little did I know at that time that I would be humbled at the feet of a fireball emanating from the anus of a monster that can only be described as half dragon and half bear. I will give a full detailed illustration of the technical ramifications, based on trajectory points, during my weekend review. However, I will say that there are two things in particular that have perked up the seasoned antennae that lie on my head: 1. There was an acceleration that took place today off of the generational trajectory in yellow. It was also a rather substantial expansion in the normal daily range. That is not something you want to see occur off a generational trajectory. More often than not it is a precursor to more weakness over the intermediate term. 2. Crude oil is using what should be generational support, via an extremely significant generational trajectory, as resistance instead of support. It has now accelerated off of what was supposed to be support in a very heavy and determined manner. In recent memory, a crude oil market that stinks has generally equaled an equity market that stinks, as it ushers in emerging market worries. The one positive I did see came from the VIX. It closed right at the trajectory from the 2008 highs. A further acceleration to the upside off of that trajectory will become another negative event for the market. Tomorrow will be then be important. I am not at all happy about this singeing of hairs in my nether region. Especially given the fact that I recently took my positioning up to 75% long. Although I am flat for the month performance wise, I have never been a fan of getting whipsawed as it wreaks havoc on mental equilibrium, requiring extra hours in the gym with a ferocious scowl on my face in order to balance myself mentally. I hope it doesn't come to that point, but I am fully prepared for appropriate action if need be. Individual portfolio names held up relatively well with the exception of one SYNC. I believe that SYNC is making a second counterfeit move below its primary trajectory. This will be outlined over the weekend. What I don't want to see is a low volume drift down in SYNC tomorrow. I would...
PORTFOLIO UPDATE: UNTOUCHABLE POSSE
During the trading day I tweeted the following: By now it should be obvious to all that I enjoyed merry-go-rounds growing up, attempting to duplicate the experience in adulthood through the financial markets. I speak, of course, about GSIG. I have been tossed around like a anorexic dwarf at a frat party since early 2011 in GSIG. It should be noted, however, that my original cost basis on the stock was somewhere in the $2 range when it was mired in bankruptcy, with its very existence as a functioning future entity in doubt. I've done well with the stock since 2010, but never expected for an 18 month trading range to develop as it has. Nevertheless, I wouldn't be taking the position if I didn't think that the range was going to breakout to the upside here soon. There is value in the name, which is why I keep taking shots at it going back and forth between making 5% and losing 5%. I will eventually catch this tiger by the tail and when I do, I sure as hell won't let go. The newest research report was posted to the website today, in case you missed it. SPNS is another position I have been accumulating as of late. Full details of the investment are in the research report. It is another small-cap play that is in the right place at the right time, while a majority of Wall Street looks into the myopic tunnel of flying large-cap turds that provide the liquidity and professional camaraderie necessary to facilitate their squirrel like minds and pebble sized testicles, overlooking opportunities for 300% plus gains in companies such as SPNS. Overpaid apes in suits and ties should be regarded with great suspicion not some of the time, but all of the time. My current exposure is now back to 75% equities and 25% cash. A comfortable posture for the time being. I am in the positive again this month, after avoiding the pitfalls of May, turning lemons into lemonade through a simple combination of stock picking and risk management. To be clear, the current portfolio consists of the following: SYNC, SPRT, SPNS, GSIG, ATNY A simple, pure and elegant portfolio if I've ever seen...
RESEARCH REPORT: SPNS CAUGHT IN A PERFECT STORM OF PROSPERITY
*6-19-12 - Since Friday I have been accumulating shares of SPNS for portfolios. It is a mid-sized position at an average price of 3.98. What follows are the compelling reasons behind the decision to invest in SPNS. *5-7-13 - SPNS sold for a 40% profit We begin with a very simple problem: The modern-day insurance industry is under increasing pressure to evolve into a more streamlined, efficient entity. The debt crisis that is slithering its way through developed economies has created an environment whereby financial companies (insurance included) are under increasing scrutiny. Frightened shareholders punish mistakes at an exaggerated rate, leading corporate executives to grasp onto corporate efficiency as the primary means of placating investors. The ultimate goal, of course, is to create value in an environment that is under constant threat of macro shocks. The problem of efficiency in the insurance industry has roots in many places. One of the primary problems is the fact that insurance companies are relying on outdated legacy systems that are increasingly falling behind the technological innovations of the past several years. These legacy systems have been in place for decades at many companies, having simply been band-aided together in order to avoid the cost and headaches involved with a major upgrade. Avoiding the short-term upgrade cost, however, has resulted in increasing long-term maintenance costs, regulatory concerns and limited functionality that inhibits growth. What all of this translates into is a minute by minute furnace in the office that is burning dollars through inefficiency during a point in time when burning dollars is no longer tolerated. It is not a matter of "if" but rather a matter of "when" ALL of these legacy systems will be upgraded. "Technology innovations, including social networking, telematics, SOA and beyond, will play a major role in determining success or failure in the insurance industry. Firms that effectively harness technologies and the opportunities they offer are destined to be among the industry winners, leading the way toward growth and prosperity. Companies that fail to keep up with the latest technologies—those mentioned in this paper and the lasting "next-gen" innovations that arrive on the scene—risk falling further behind and relinquishing their leadership positions. Make no mistake, the insurance industry is at a pivot point as future success is likely to rest on today's technology decisions and strategies." http://www.atkearney.com/index.php/Publications/technology-the-insurance-industrys-pivot-point.html Well researched estimates put the number of insurance companies that are still holding onto their old legacy systems at 80%. This is within a $50 billion insurance software industry. Post-2008 the fiscal conservatism that has become the financial industry has led to gobs of cash on the balance sheet being available for just these types...
THE RESULTS OF THE TRADING ACTION TODAY ARE IN AND IT IS…………
A follow up to yesterday's chart review. Dow and VIX told the story today. click chart to enlarge
