2010 Fund Performance Period 7

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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 seventh 4 week period is now complete. (Data is through last Friday's closing prices)

(click to enlarge)

Period 7 was among my favorites of the past 3 years as there was a great amount of volatility, we were able to trade that volatility well, and our relative performance versus the market was off the charts. Technical levels were obeyed very rigidly which helped our performance - essentially these 4 weeks were a big V; to be shorted/avoided in the first half, and bought and sold into during the second half. Economic news continued to degrade across the board, with the July earnings period launching during the last week of the period. China once again (broken record) struggled, and copper remained in bad shape. One difference from previous periods was a big shift in currencies and precious metals. The latter lost their luster while the US dollar sold off sharply, and the Euro/pound rallied, as U.S. economic data became the focus for the dollar, rather than a 'safe haven' trade. Once more we had many 90%+ days and a market with no memoery from day to day and week to week. .

For the seventh "four week" period of 2010 the fund returned +7.5%, versus the market's -5.0%, so an outperformance of +12.4%.

On a cumulative basis in 2010 the return is +51.1%, versus the Russell 1000's -4.3%, so an outperformance of +55.4% for the year to date. (thus far 28 weeks)

Period 7 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: This period began with a massive headfake with a surge intraday on the opening Monday *over* the 50 day moving average - the S&P 500 ran to 1130 and the bulls thought they selloff of May and June was done. Both the 50 and 200 day moving averages had been successfully cleared. Unfortunately that Monday was the high water mark for period 7, and it was downhill (sharply) for a few weeks from there. While many "knife catchers" were trying to call the bottom (incorrectly) we said there was rarely a triple bottom that held, so we targeted a break (not hold) of S&P 1040. This happened with the S&P 500 plunging to 1010 intraday on a Thursday of week 2, where we switched our tune and got rid of short exposure and went quite aggressive long. Targets were S&P 1040 and/or 1070 (depending on action at 1040). Of course this market moves in hyper speed and 1070 was reached in 4 sessions. We turned more neutral at that point as we wanted to see how the market reacted at the 200 day moving average. Week 4 showcased three intraday rejections at S&P 1100 and the period ended with a large selloff the last Friday as poor consumer confidence and weak bank earnings disappointed bulls. Needless to say this was an incredibly technical period, but it made a lot of sense to us versus a lot of what we saw in latter 2009 and the beginning of 2010 - hence we could use the volatility to our advantage. Effectively there was a 8-9% drop, followed by a 7-8% gain, all within one 4 week period!

Below is the chart for period 7:

Week 1: Entered the week: Cash 71%, Long 17%, Short 12%

I was quite perfectly positioned entering the week but a Chinese yuan revaluation announcement over the previous weekend had bulls giddy and the move Monday to S&P 1130 took me out of many of the individual short positions. That proved to be unfortunate as the Mondy spike was the high of the week, and indeed entire period. As I had noted at the time we had been up 8.2% in 10 days [Jun 21, 2010: S&P 500 Up 8.2% in 10 Days] and were overbought but I did not expect such a swoon in the following 2 weeks. We made up for it with some index plays on the short side during this -3% week.

On the long side:

Monday, I restarted a smallish position (0.6%) Chinese coal name L&L Energy (LLEN) as it broke out. However I was aware in the 'student body left' environment, if the market sold off this stock would be hit regardless of fundamentals or breakouts.
Wednesday, as the S&P 500 fell below the 200 day moving average I got more defensive. I closed the L&L Energy I had bought Monday, NetLogic Microsystems (NETL) which also was a recent purchase, and First Trust ISE Revere Natural Gas (FCG) as the hedge fund algo's abandoned natural gas stocks after a 2 week run.
Moving up the relative strength chart, I began a modest 0.75% exposure in Netflix (NFLX).
Friday, I cut some Sandisk (SNDK) exposure as the stock was holding in quite well but had a gap to fill, was hoping to buy it back lower if possible.
Late in the day after what appeared to be a successful retest of S&P 1070, I went long for a trade into quarter end "mark up" with exposure added in Salesforce.com (CRM), Netflix (NFLX), F5 Networks (FFIV), and TNA ETF.
Restarted South American internet company Mercadolibre (MELI) with a 1.4% exposure.

On the short side:

Monday morning I was stopped out of roughly half my short exposure for losses - Pitney Bowes (PBI), Discover Financial Services (DFS), and Celanese (CE).
Thursday, I covered Energizer Holdings (ENR) and Hartford Financial Services (HIG) for 4% gains.

Week 2: Entered the week: Cash 76%, Long 22%, Short 2%

Beginning of week exposure was again a bit deceiving... we had booked some nice profits on shorts the previous week (along with being stopped out of some exposure unfortunately) and I was hoping for a Monday morning bounce after a horrible week for the market - it did not happen so Tuesday I dumped my index long exposure and focused back on the short side. Once S& 1070 broke my goal was a break of 1040 as I did not believe this bottom from February and June would hold this time around. That turned out correct - as the market sliced through this level Thursday I got out of just about all short exposure, and began buying equities in the S&P 1010 to 1020 level. Despite headline risk of the monthly jobs report on Friday of this week, I thought the bad news was "in the market" by that point - that proved to be true; not immediately but by the following Tuesday as week 3 was a rip roarer. It was a very busy week!

On the long side:

Tuesday, first thing I sold my TNA (3x small cap long) ETF that I had purchased the previous Friday hoping for some Monday bounce. S&P 1070 had been my pivot point and premarket futures looked to open below that level, so it was to be sold no questions asked - turned out to be one of the better moves of the week despite taking some losses.
I closed the last of my Atheros Communications (ATHR) as the stock is trading as if orders are being cancelled by the hour. Still like the name long term but right now it's simply not performing.
Valassis Communications (VCI) held up very well in the May selloff, but the June selloff finally sniped it. It finally broke support - I never had a chance to really build the name up to a good sized trading position so I never took any profits I had in the name. Instead it was closed at a small loss.
I restarted a position in Akamai Technologies (AKAM).
Thursday as the market finally really broke down below 1040, I became constructive on the long side. I began stakes in two "non hedge fund centric" names - Dr Reddy's Laboratories (RDY) and Polypore (PPO). I am hoping these names can somewhat avoid the risk on, risk off trade that dominates everything.
A bit later in the morning I began "high beta" hedge fund names VMWare (VMW) and Acme Packet (APKT) - these are high beta names that will trade with the market. Risk on. Risk off types.
I closed Polaris Industries (PII) for similar reasons to Valassis - held up great in May relative to market but finally broke down in the June selloff.
Thursday afternoon I put on some index longs (TNA & SPY 103 calls) once the S&P 500 regained 1120 and seemed to hold it. I bought some Netflix (NFLX) and Las Vegas Sands (LVS) - 1% allocations roughly, at the same time.
The "meh" reaction to the labor report Friday had me selling the index longs bought Thursday afternoon for quite small gains in the mid S&P 1020s. The market actually went on to fall below 1020 before doing some kind of snake dance in the last 30 minutes of the session Friday.
I closed Sandisk (SNDK) late Friday, since I had similar 'high beta' names that I was able to initiate or add to during the week, with better relative strength profiles.

On the short side:

As the market was very weak Tuesday I bought some SPY puts, in the July 104 and 103 areas - I was late to the game that day and since the selling was quite heavy was a buyer way down at S&P 1046... I sold some around 3:59 Tuesday as S&P 1040 broke and then an 'urgent buyer' showed up in the closing minutes to help the S&P recapture 1040. I had expected more of a cascading selloff. I sold the rest the next morning as S&P 1040 seemed to hold, for small gains.
The S&P 500 broke down below 1040 again Wednesday and I thought it too cute for the 'urgent buyer' to show up in the closing moments 2 days in a row to 'save the market', so I pressed a new round of shorts into the close. Thursday a whole bunch of global manufacturing index reports came in weaker than expected and we had our moment....but the washout opening we were seeking was elusive. Finally the weaker mfg & housng data in the U.S. circa 10 AM seemed to cause the sellers to show up. In the 11 AM hour as the S&P drooped to 1110 and then bounced back closer to 1120 I let go of ALL short exposure, I had two 2.5% exposures into SPY puts along with a 4% exposure in "short TNA". This was our big kill of the week.
I closed the Powershares US dollar (UUP) long position (which I consider a short), and replaced it with Currency Shares British Pound Sterling (FXB). I don't consider those a 'short' position as I did the dollar since there is no 1:1 inverse relation with the S&P 500, as the dollar seemed to take on.

Week 3: Entered the week: Cash 78%, Long 21%, Short 1%

All sytems go long; the beginning of week allocation was deceiving because the S&P 500 was under 1040; I wanted to see the index jump over that level and then I wanted to get even more long; which I did. The party bus was intense this week and the market put on many points; later in the week I began to begin with some sales of long exposure as the index ran to 1070 (much sooner than anticipated).. I put on some very small short exposure as well this Thursday but just starter positions. Bad economic data continued, but was ignored as the market was oversold. One key issue this week - the precious metals trade began to fade, and the US dollar continued to struggle after a reversal late the previous week.

On the long side:

Tuesday, I cut Powershares DB Double Long Gold (DGP) exposure by half as the gold chart broke support for the first time since March. I wanted to see how things developed.
Wednesday was big money day - as the market surpassed Tuesday's intraday highs in the mid 1040s I went in with some SPY calls and TNA ETF. My objective was S&P 1070; did not expect it to happen with 24 hours. I took half off Thursday AM as the market jumped right from the open and said I'd sell the other half of these positions on any break of 1067ish - no questions asked. That happened within an hour, and we booked substantial wins for renting our money for just 4-5 market hours.
I closed the position in Cummins (CMI) as the chart was still weak at the time and my position size was smallish; by Friday the chart improved but the stock remains largely range bound.
Thursday, sold 2/3rds of VMWare (VMW) for a quick 10% gain in a week.
Sold 90% of Las Vegas Sands (LVS) for a 8.5% gain in a week; my limit sell price just missed or else it would of been double digits.
Sold 40% of Netflix (NFLX) to lock in modest profits of 6.5% and lower my cost basis.
Friday, I cut 30% of largest individual position Acme Packet (APKT) for a 10% gain in 6 days.
With the S&P 500 over my pivot point of 1070, I decided to replace the exposure I had sold earlier in the week with an ETF that would be easy to get in and out of, so back to TNA ETF with a new position.
Late Friday, I added to Salesforce.com (CRM) and Akamai Technologies (AKAM) along with topping off with some more TNA ETF.

On the short side:

I shorted some Priceline.com (PCLN) and Amazon.com (AMZN) Thursday. I covered the former the next day for a 2% since that was a "yes or no" trade - either it was going to cross key resistance or not.

Week 4: Entered the week: Cash 71%, Long 28%, Short 1%

The market had come off a furious holiday shortened week rally, and I said the 'easy trade' was over after the S&P 500 had run to 1070... between S&P 1070 and 1100 it would get more choppy and it was. A large bounce on Tuesday, offset by a large drop Friday for this week as earnings season began in earnest. Intel set the tone with a great report that was sold. Economic data continued to be awful but the market was trading on technical, S&P 1100 was rejected 3 times intraday as the market ran into the wall of the 50/200 day moving averages. .

On the long side:

Tuesday, with a 10% gain in just over a week, I took 1/3rd of F5 Networks (FFIV) off the table.
As the S&P 500 rallied into the 200 day exponential moving average (1094) Tuesday, I sold 60% of my TNA position (I had put a 7% allocation on the previous Friday)
I continued a round of profit taking to lock in profits: 30% of Acme Packet (APKT), 40% of Tibco Software (TIBX), 33% of Polypore International (PPO), and 50% of Mercadolibre (MELI).
I started a trader position in Citigroup (C) ahead of earnings as the stock looked like it finally broke out over the 200 day moving average; Thursday I cut the position in half as JPMorgan (JPM) earnings did not impress the Street, and I sold out the other half Friday when earnings did not provide any boost and the chart degraded.
Wednesday, I sold the other 40% of my TNA long on the "non" Intel bounce - I was hoping for some fireworks and gap up to sell into, but nothing.
I cut BorgWarner (BWA) in half as it was up 20% in 6-7 days.
Thursday, sold a third of what remained of Acme Packet (APKT), and almost all of VMWare (VMW).
Thursday I restarted Monsanto (MON), and Priceline.com (PCLN); two positions from the past.
I began a position in a new name, Rovi (ROVI).
Late Thursday when the market rallied on Goldman, BP I threw on some modest TNA long but dumped it first thing Friday morning when there was no follow through.
Friday, I closed Chinese small cap semi name Spreadtrum Communications (SPRD) reluctantly as a 'non performer'.
I added back some Acme Packed (APKT) at a nearly double digit discount to where I had sold the previous day.

On the short side:

Amazon.com (AMZN) had cleared its 200 day moving average so I took a 5% loss on a small short (1%). Later in the week it reversed down but with earnings coming this week, I would not have a position either way.
Added some TNA short late in the week on the break of S&P 1070.