2010 Fund Performance Period 5

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For those who read the content of the website via email or RSS reader, you can come to the website at any time and click on 'Performance/Portfolio' tab in the menu bar to get updated positions (weekly) and performance.

Total Portfolio Value, as maintained by 3rd party, can be checked here each day with 20 minute delay vs real time (starting value $1,000,000 or $10.00 NAV)

I will post an update of performance versus Russell 1000 every 4 weeks; we moved to a new tracking system in 2009 (Investopedia.com) as the old system would not allow shorting of individual stocks, among other "technical issues" that often came up. Hence while the website and portfolio began in August 2007, we "began anew" in terms of performance with portfolio "B" as of early 2009. Detailed history on latter 2007 and 2008, as well as 2009, [Jan 7, 2010: 2009 Final Performance Metrics] can be found on the above mentioned tab. For 2010 our fifth 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 5 was in stark contrast to periods 3 and 4 which were almost identical non stop low volume, low volatility rallies. Greece finally mattered and Europe was at the tip of tongue every day. The period marked the first 10% correction since the March 2009 low, and in fact was highlighted by a one day 10% intraday 'correction' (crash!). China continued to underperform and was joined by such bourses as Brazil. Commodities were crushed - oil for example fell some 20% in the period, copper even more. Fund performance was very good relative to the market as we were able to stay in the green despite some wicked volatility. As individual stocks broke down our cash position went up and long exposure reduced, and we were able to hedge intraday to make some gains on the short side with index positions. If not for a "suspicious" 1.5% rally in the closing 18 minutes of this period, performance would have been even better relative to market.

For the fifth "four week" period of 2010 the fund returned +2.4%, versus the market's -10.8%, so an outperformance of +13.2%.

On a cumulative basis in 2010 the return is +32.2%, versus the Russell 1000's -2.1%, so an outperformance of +34.2% for the year to date. (thus far 20 weeks)

Period 5 was a period of both absolute performance (making money) and relative performance (outperforming the market) - our favorite kind. The yearly goal of beating the index by 15% is on track.

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*** Long/Short Fund Discussion below

Overview: The first part of this period was looking quite sickly as we continued recent under performance as exhibited in period 4. This was due to the market making 1 day directional changes in directions as volatility picked up - further these changes were right around key moving averages so we were whipsawed. However through week 2, the trend of the market began down and this caused many of our positions to be eliminated or shrunk. Hence by the time the real selling went off, we were in an extremely high cash position. This was offset by index position plays (puts and short TNA i.e. long TZA) used mostly intraday. Due to headline risk (i.e. one Monday when the Europeans announced their version of TARP the market gapped up 4%) it was difficult to hold short exposure overnight since one +4% day against an bevy of index puts will ruin your month if not quarter. Please note the "short" exposure listed below is what I carried over the weekend and understated what I had during the week since the risk of "Sunday night bailouts" puts the fear into any short. Hence some profits were left on the table but considering the massive volatility (a 10% intraday crash, plus a 4% premarket gap up not to mention numerous 1-3% moves) I am very happy with this period. In fact a +2% gain in a -10% market makes me much happier than a +12% gain in a +8% market.

Below is the chart for period 5:

Week 1: Entered the week: Cash 52%, Long 44%, Short 4%

Ironically I entered this week with the highest long exposure in a long while as I was exasperated by the "market that cannot go down". I was obviously a contrary indicator. Performance this week was actually poor as the market was showing the first signs of increased volatility and changing directions around a key moving average (20 day) so my exposure was being thrown off as I kept going with some index shorts when the market fell below this level or vice versa.

On the long side:

I had piled into some TNA ETF and SPY calls the previous Friday on a breakout over S&P 1214. That looked great as the typical Magical Monday seemed underway, but once S&P tagged 1220 it reversed. Since nothing major happened other than a modest pullback I kept the positions on. Tuesday started slightly down but the severe drop happened suddenly in a 45 minute stretch mid day. So it was time for damage control since I was badly positioned. After falling to as low as S&P 1190, we saw a bounce to 1198, where I dropped half my SPY calls for a loss. When the market failed to make a material move up after that, I sold the other half of the calls and the TNA ETF.
I was stopped out of 60% of Bucryus (BUCY) on a break of support - the stock continued weak the rest of the week, where I cut a bit more.
I added to Atheros Communications (ATHR) after it came down to fill a gap created on one of the best earnings reports of the past 3 weeks.
I sold some Skyworks Solutions (SWKS) ahead of earnings to be safe - no need, the company had a nice report and was up in a bad tape Friday.
I was stopped out of about half my Netlogic Microsystems (NETL) on an old limit order not well priced, as it reacted poorly to what I considered a good report. Just the random nature of markets to earning reports.

On the short side:

I did almost nothing except put on some SPY puts as insurance late Friday when we broke support.

Week 2: Entered the week: Cash 68%, Long 25%, Short 7%.

Two words - FLASH CRASH! (or as told to us by CNBC promotional staff "Fat Finger"!) Thankfully early in the week many stocks were flashing danger signs and breaking down so our cash quickly rose and we were able to make some money on the short side intraday in this very volatile week. I was unfortunately stopped out of a very solid short exposure Wednesday AM, by a quick headfake or else profits would have been greater. Even if I had covered before the flash crash as Thursday was ugly pre flash.

On the long side:

Monday I closed the last of coal/mining related Alpha Natural Resources (ANR) and Bucyrus (BUCY) positions as the charts had rolled over late the previous week. Bucyrus actually went from breaking below its 50 day moving average late last week to breaking the 200 day last Friday. Ditto for ANR - ugly set ups but now they can gap up Monday on Euro party time.
Tuesday as the market had a big hit, some of our charts began to break down so I took action: Atheros Communication (ATHR) broke its 50 day, I cut the stake by 75%; took more profits (1/3rd of remaining position) in homebuilder Lennar (LEN) simply to lock them in, in case the market took them away; cut Riverbed Technology (RVBD) in half to lock in profits as there was a gap that looked like it needed to be filled; sold half of Skyworks Solutions (SWKS) to lock in profits as it had a similar "gap" situation as Riverbed.
Wednesday, as the market fell again - more stop losses. I closed completely out of L&L Energy (LLEN), 2/3rds of Discover Financial (DFS), and 2/3rds of Quality Systems (QSII).
Thursday morning, stopped out of 2/3rds of Indian bank HDFC Bank (HDB).
Restarted a smallish position in industrial name Cummins (CMI).

On the short side:

I assumed the Greece bailout was "in the market" and with the S&P 500 below the 20 day had some SPY puts on from late last week; those were stopped out for loss Monday as the S&P 500 broke back ABOVE the 20 day.
I tried another SPY put position (along with short TNA ETF) Wednesday - but a 20 minute splurge over 1172.50 which was my stop out area caused me to stop out... and of course the market promptly rolled over after spiking to 1176 for only a very short while. Another loss.
After the S&P 500 had broken January 2010 highs of 1150 and seemed to still be going down, I placed some small exposure into SPY puts in the 1130s, within 30 minutes the S&P 500 crashed and I sold at some level - no idea where but the position obviously paid off. Wish it had been bigger.

Week 3: Entered the week: Cash 86%, Long 11%, Short 3%.

After flash crash Thursday, and a nasty Friday where the market closed at the lows the market was greeted with Bailout Monday European version. A 4% gap up Monday AM was the highlight of the week. This caused the S&P 500 to bounce off the 200 day moving average almost right into the 50 day, where it stalled. The rest of the week was not as pleasant as more selling ensued. I did some buying to redeploy some of the cash in case this would be a "V shaped" bounce as it looked to be Monday, but still did not even reach 20% long exposure.

On the long side:

Monday, I began a position in ETFS Physical Palladium (PALL) since it had pulled back nicely to support.
I restarted a position in Intercontinental Exchange (ICE) as the stock looked ready to breakout. Might rescind this one soon.
Began a stake in auto supplier BorgWarner (BWA) as the stock filled a gap created by an excellent earnings report. I flipped a coin among quite a few names in the sector, this one is basically a proxy for the group.
I closed Discover Financial (DFS) and replaced it with Capital One Financial (COF) which at the time had a better chart formation; obviously very similar companies.
Wednesday, I bought some Wyndham Worldwide (WYN) and Riverbed Technology (RVBD) as they crossed back over their 50 day moving averages.
I started REIT SL Green (SLG) - very similar idea to BorgWarner; a good chart in a hot sector... the specific name has little meaning to me.
I started Tibco Software (TIBX) on a nice breakout - the very next day the stock exploded on volume but then sold off Friday with the market. While a "technology" name, it is software so a bit different from our normal fare.
Friday, I sold 20% of Ultra Silver (AGQ) simply as a function of locking in some profit in one of the hottest instruments in the land.
I cut back in Wyndham Worldwide (WYN) [which had just been increased Wednesday] as it fell right back below the 50 day moving average; likewise Quality Systems (QSII). I took 0.3-0.5% back from any number of other positions as well as the market broke 1150 on the S&P 500 and a break over 1174 (needed to get more comfortable with long exposure) faded.

On the short side (please note I consider 'long dollar' short since this has been a 'safety trade' for the markets in times of worry)

Monday, I sold 45% of Powershares DB US Dollar Bullish (UUP) which I had not touched for months as the Euro was in freefall and I was worried of some snapback.
Friday, as S&P 1150 broke I threw on some short TNA ETF along with buying some puts later in the session. 2/3rds of the puts were sold same day for decent profit.

Week 4: Entered the week: Cash 75%, Long 18%, Short 7%.

This ended up being an ugly week with 4-5% losses across all major indexes; it would have been much worse if not for a magical 1.5% rally in the closing minutes of Friday's session. Early in the week more long positions were cut as they broke support. I also closed out some positions to realign the portfolio in a less tech heavy way. After numerous short side plays with the indexes, I had been looking to go long in the S&P 1060s for a trade, which was executed Friday morning to positive effect. It was not worth buying individual equities at that point because the action was so quick and building intermediate term positions was too onerous.

On the long side:

Monday, sold half of Lennar (LEN) and BorgWarner (BWA) for 3 and 4% losses respectively.
Tuesday, cut Skyworks Solutions (SWKS) by 2/3rds but didn't like the looks of the chart and said I'd most likely sell the last 0.3% in short order. Which I did the next day.
I had attempted to get back some Riverbed Technology (RVBD) the previous week when it began bouncing nicely but the market selloff caught this stock in its wake, so I was forced to sell 60% for a 4.5% loss.
Wednesday, added back to the Ultra Silver (AGQ) I had sold the previous week (20% of the position) 14% lower.
Closed hotel chain and long time holding Wyndham Worldwide (WYN). Chart was weakening severely.
Closed Netlogic Microsystems (NETL) - another chart situation and clearing out space for some potential buys in the future.
Friday I began to hedge long in the morning with TNA ETF in the lower S&P 1060s, I added more nearer to 1070 as well as intraday SPY calls. I sold one batch mid day and then the rest once S&P 1079 broke to make sure I locked in profit.