APRIL MONTH END PERFORMANCE SUMMARY AND LOOKING AHEAD TO MAY
*This is a copy of my letter to investors summarizing the month of April. March monthly report can be found here. 2012 Return: +58.61% 2013 Return: -7.36% Portfolio April Performance: -6.86% S&P 500 April Performance: +1.81% Portfolio YTD Performance: -7.36% S&P 500 YTD Performance: +12.02% Total Return Since Inception (1/1/12): +47.80% vs. S&P 500 +27.03% Portfolio Highlights For April - SPNS ended March as the largest position in the portfolios. Throughout April the stock steadily rose, finishing the month up 6.43%. Given the performance of the portfolios thus far in 2013, the strategy employed is siding towards conservatism taking precedence over aggression. SPNS has gained some 40% since being initiated nearly 12 months ago, fluctuating between a mid to large sized position the entire time. Although I believe the company continues to have upside potential into the second half of the year, better opportunities on a purely risk/reward basis exist. SPNS was reduced throughout the month of April, ending the month as a small position. I will strongly consider adding to the position if prices become more advantageous in the months ahead. - CIDM is a new position in the portfolios. The research report was published on April 23rd and can be found here. It was made a mid-sized position from the start given the advantageous setup for the company at this junctures of its existence. To highlight a few points from the research report for CIDM: A restructured business model focused on two segments: 1) Cinema software, where CIDM enjoys 70% of the market on the distributor side 2) Content distribution, where CIDM is the #1 digital aggregator and distributor of independent film content, with major partnerships that include Netflix, Walmart, Amazon and Hulu. Management that includes an experienced former hedge fund manager who specialized in small-cap restructuring situations and a CEO who is a veteran of the movie business including being the COO of MGM before it was sold for $5 billion to a consortium of investors. A completely restructured debt picture that essentially absolves the equity investor base of any responsibility with the debt now being collateralized by existing equipment. The debt restructuring also saves the company substantial interest payments and extends maturities of the outstanding debt. This is an extremely "buzzworthy" opportunity in a digital content company that is selling at valuations that create as well defined a risk/reward equation as possible. What I mean by "buzzworthy" is that it is in the right industry at the exact right time. Any earnings momentum resulting in price appreciation has the potential to see the company appreciate 3-4 times in a relatively quick manner. Portfolio Lowlights For April - WMIH continues to adversely affect...
HOW THE CURRENT MARKET PICTURE STACKS UP AGAINST THE CURRENT SENTIMENT PICTURE
Given the state of information indigestion that is prevalent in today's financial world, it is only proper that I begin this with a little bit of history. History in this case is a little over one month ago. It was at that time I posted an article titled, "Using The Put/Call Ratio To Forecast 5% Correction." The conclusion that was reached as a result of observing the put/call ratio on March 30th was that the stock market was, at a minimum, one month away from a correction of any substance. Sentiment, however, is but one tool in an investor or trader's arsenal of weapons. It must be used selectively based on the nature of the market at any given time. You can always sniff out an inexperienced investor by the level of importance they place on sentiment data alone. Often times an entire investment thesis and resulting portfolio structure will be based on one or a number of sentiment driven indicators without regard for anything else. A boiling pot of impending disappointment that sends the sentiment driven investor back to the drawing board eventually. Tonight we will look at two sides of the equation. First let's see what market action is telling us here. I'll go over these points in living color during this coming weekend's review: - The Dow Transports, arguably THE leader of the current rally, are exhibiting increasingly sloppy behavior, threatening to move below a key technical point. - Dow Industrials today thrust off of the key trajectory for 2013 pictured here. This is an indication that the market is growing uncomfortable with the slope of the current move. - IWM volume today was the greatest for a down day since September of 2011. It is not just the volume on a down day that is of concern. Perhaps more importantly, it is where that volume surge is occurring. In the case of IWM (Russell 2000) it is occurring right at the key trajectory from the October 2002 lows pictured here. A very significant development indicating that the market is recognizing the importance of a failure at this key trajectory. - The SOX is threatening to fail right at its key trajectory from the 1998 lows for the index. Now let's look at sentiment by looking over the combined put/call ratio using the 20 and 100 day moving averages only: click chart to enlarge If you are confused, then you are right where you should be. The market will also be confused, most likely resulting in choppy sideways action that leads both bulls and bears nowhere throughout the summer months. In this case, the preferred position is leaning towards an...