CURRENT STATE OF THE MARKETS: A SEASON OF MISGIVING
Subversion in the world of finance should be encouraged as a means of challenging conventional wisdom regarding analytical methodology that far often falls flat. There is very little in the way of originality in thought or behavior among Wall Street participants, leading to a singularity in underperformance that has become nearly impossible for most to overcome. The world of technical analysis is no different. The dissection of price behavior should be a dynamic process that functions as an interpretive art rather than a predictive one. Often times those who look at price will get caught up in a trend following mentality that renders them unable to interpret turning points, instead relying on the trend to predict further upside with the foundation of their analysis being the trend itself. This functions as one of the many avenues towards underperformance on Wall Street. Robotic behavior has no place in this venue. Proper dissection of price is an invaluable tool for any investor. It accelerates performance over time. It allows for controlling overall portfolio volatility. It will lead to a strategy that relies on fluidity in rotation, as opposed to a portfolio that is sluggish in adaptation due to fundamental data that severely lags price. Those investors who ignore it are typically intellectually arrogant discounting anything that cannot be properly theorized within an academic setting. Their below average returns often prove that a leg of their strategy is wobbly at best, with misunderstanding of price behavior being the most common culprit. Those investors who embrace the interpretation of price, pairing it with a vibrant fundamental strategy, can create well above average returns over the long-term. With that said, the markets at this juncture are sitting in a precarious position. Leadership names, as you will see below, are beginning to show signs of agony as they roll around without much direction. Important leadership, such as the SOX, is coming up against a very important trajectory as discussed this past week. And we are in the midst of the summer trading season within a year that has been choppy and tedious in its behavior. This type of circumstantial concoction of time and price makes this market observer a bit nervous. Let's first look at important leadership names, with AAPL once again rising to the top of the list of technology with its recent surge: You will notice that AAPL has rolled up against a trajectory point here and begun to fade a bit. The volume surge on Friday seems to be triple witching related so I wouldn't read into that much. However, if anything, AAPL is telling us that it is moving into a...
BEWARE THE SOX
The reasons why one should beware described elegantly below. Enjoy with a hibiscus flavored beverage and vanilla wafers, ideally. click chart to enlarge
THE CURRENT STATE OF THE MARKETS: GRAND ILLUSION AND DELUSION
Within the grand illusion that makes up day to day trading in the financial markets, there are few of us who choose to zoom out from the myopic focus of day to day green and red. Instead, a vast majority of investors enjoy taking the path of least resistance that entails maximum information that goes on to create discontinuous analysis lacking any tangible edge. What is being offered by the markets at any point in time is all the information that is needed to make a decision. A decision that does not necessitate reams of information, constant chatter or an overly-complicated attempt at portraying sophistication. Those who choose to rely on only one side of the information coin will always be in a state of imbalance and dissatisfaction. With that said, the focus of this posting will be of the technical nature. This is an update to the last "Current State Of The Markets," that without trepidation or an inconclusive agenda set forth a bullish forecast for the markets clearly interpreting what the important market averages were attempting to convey at the time. Now that we have hit and exceeded all of the targets on the upside mentioned in the previous two "Current State" postings, it is time to hit the refresh button. Just as the winds bristling through the hair of a Chihuahua roaming the streets of Tijuana are subject to dramatic, unpredictable changes, so are the winds that carry price in the financial markets. As such, we are approaching a point in time when the winds of change will subject the markets to a different tone, encompassing all that is dreaded, loathed and bemoaned by investors. That event, of course, being a change in trend or rather, in this case, an interruption in the trend that will serve as a stark reminder that Hoodews and Wollywops of all shapes and sizes still exist in the financial markets. We begin with a look at the venerable, but at the same time antiquated Dow Jones Industrial Average: Important to note with the Dow: The trajectory that was just exceeded goes back roughly 15 years, making it an important trajectory and one that will be taken much more seriously than the market is currently suggesting. I expect that the Dow will make a move back below this trajectory here shortly, beginning a game of ping-pong before deciding if it wants to continue higher or lower. What gives me the confidence to make such an audacious prediction with respect to the Dow is a question that may...
WHERE INVESTORS AND INVESTMENT MANAGERS HAVE IT WRONG IN 2014
What follows is the "Looking Ahead" portion of my monthly letter to investors at T11. I have created an email list that sends this report out at the beginning of each month to those interested. The full report contains commentary about the general markets and individual positions held in managed portfolios, as well as overall performance. To be added to the list email me at mail@T11Capital.com If there is one thing I have consistently been reminding myself of recently it is the benefit of keeping an open mind with respect to the general market for the remainder of 2014. It would behoove those interested in capitalizing on equity appreciation for the remainder of the year to follow the same path. The nature of the current market is unlike any we have experienced in recent memory. There is a tremendous amount of dislocation taking place between popular averages, with uncommon divergences becoming the norm rather than the exception. There is also a tendency towards sideways movement that is becoming extremely compressed in nature. In fact, through May 23rd, 2014 is the first time in market history that both the Dow and Nasdaq are within 1% of unchanged for the year through May. Growth names have suffered dramatic corrections. However, the remainder of the market remains content with sitting still. The greatest challenge affecting investors in the current environment is that general market conditions are being disproportionately lumped in with growth related investments. Growth does not constitute but a fraction of the market. Companies like Google, Facebook and Yelp are components of a terrific acceleration in technology. They are not the be all and end all of markets. The current attitude that pervades investor psychology is undoubtedly brought about by past experience. More specifically, the experience of the internet bubble and the credit crisis, where the bursting of two distinctly separate excesses in the economy collapsed everything around them. Similar to a blast wave from an atomic bomb, there was little left standing in the aftermath of each crisis, irrespective of a company's specific merits. It goes without saying then that investors would see to it that in the modern day rendition of a bull market old psychology would pervade the new, disallowing investors the privilege of accurate interpretation of current events. The grace and ease with which the current bull market has dealt with the difficulties in the growth sector during 2014, essentially allowing these companies the privilege of correcting their excesses while the Dow and S&P remain tightly wound, should be seen as an indication of strength rather than a signal that a collapse of ALL sectors is imminent....
PORTFOLIO UPDATE: SIMPLICITY RULES
During the trading day today, I tweeted the following: IWSY has been a position I have been in and out of numerous times over the past year after publishing research on the name when it was trading below $1. It has been a profitable investment overall, although lately the company has been grinding in a sideways range. I would like to hold onto a position in IWSY from this point, perhaps into the end of the year. I believe that revenues are about to ramp, as is recognition of the company as the leader in multimodal biometrics. It is not a matter of IF IWSY becomes an acquisition target by a large, well heeled technology company, but rather WHEN. In the meantime, you get the revenue ramp as the catalyst not only to an increase in value overall, but an increase in recognition of the company, which will feed the eventual acquisition of this name. A classic virtuous cycle. I will go into the reasons why I believe revenues are set to ramp, as well as other catalysts that are becoming apparent, in the monthly report I send to investors, to be published at the end of June. Increasingly, I am keeping the monthly report/summary as an email only type deal. I'm giving away too much information about the portfolios I manage to simply post it publicly. I will continue to post the report from time to time. However, the monthly summary postings on this site will be more infrequent in nature. If you haven't joined the email list, you may do so by getting in touch with me at mail@T11Capital.com As of the close today, managed portfolios are invested in four positions: IWSY, WMIH, HH and KFS. Simplicity has and will always...
PORTFOLIO UPDATE: NIP AND TUCK
During the trading day Thursday of last week, I tweeted the following: There are certain positions at certain times that simply make me nervous. I can't pinpoint the exact reasons why and frankly, I don't want to. However, I've learned that the nervous feeling throws me off the scent of the stock, with the best move from that point being to exit. I would rather be in territory that I understand completely than that which I am foggy about. BFCF is foggy for the time being. The investment in BFCF was a good one. It was a "no pain" investment from the beginning, basically going up from the time I bought in. It seemed the rest of the micr0/small-cap community started catching on in the months following my research report, as there wasn't anything that I know of published on the stock prior. I will continue to track it for developments over the near-term, with an eye on reestablishing the position should I feel comfortable with the investment, once again. It should also be noted that SPNS was liquidated during the second half of May for what was a breakeven trade. I gave it a month to move, however, it did exactly nothing. A month is enough with this one. I have my eye on a couple of opportunities from here, with one position that I am in the midst of establishing at present. I'll tweet that out once its filled. As of now, exposure is at 85% invested and 15% cash. Three positions with one yet to be announced. The three positions should be familiar to everyone: WMIH, KFS and HH. A tight portfolio of names that I am intimately familiar with. Just the way I like it. ...