Quick Look at the Market and Some Portfolio Changes

I continue to watch in amazement how far the market has marched since March (the pun is intended). My expectations of a challenging July, proved completely unfounded. The earnings results were better for a significant number of companies, but more importantly, the outlook has also improved. At the same time we continue to see better economic stats pretty much across the board. Of coarse we are not out of the woods by any means, but the marktet seems to appreciate it.

More significantly, we have broken out of a very strong trading channel 875-950 on the SPX. The index cleared a 50% Fib retracement on a daily chart and held support at the 200 day MA. It bounced from there with authority, after a brief pullback, which seemed to have satisfied the bulls that waited for a better entry price.

So what do we do now? I think the risk reward is pretty neutral. We are now approaching another Fib resistance (32%) on a weekly chart. The fundamental and technical analysts seem to agree that we will hit 1100-1150. This level corresponds to about 15x 2010 projected earnings. Although I am not a big fan of the consensus opinions, I tend to agree. I am watching the 1100 level as my possible exit point (which is also a 50% weekly Fib retracement), where I will mostly likely take my equity exposure way down. It would be pretty tough to suggest the market is undervalued at this level. The support levels remain very solid at 950 and 875. So the risk reward is 100 points up vs 50-125 points down. As I said, its pretty even.

Below is a weekly SPX chart with Fib levels, trading channel and my support lines that illustrates my point.



For now, I am keeping the allocation pretty much the same, around 55-60% Equity, 10% Fixed Income, 25% cash.

I am also fine tuning my portfolio. I am establishing a new position in AMGN (expect Dmab approval with a clean label very soon) and COMV, a play on intelligent power grid. I am also adding a little SVR, despite a disappointing qtr, the stock is cheap. I am selling SHW, which reached my price objective, generating a nice 12.25% in a few weeks. I am also trimming my MOS, which is only 3% below my target. Ditto VIP, sold calls and I am effectively out. I am also putting some money in US Dollar. I think we may be forming a bottom here. I am buying UUP, but if breaks below 22, I will punt it.

As promised, over the next week, I will attempt to bring my actual and MG portfolios in line, but for more accurate data, use Maven's Short Term Portfolio link on my blog site.

Good Trading!