Thoughts On The Recent Market Action

My intermediate SPX target has been achieved as the index touched 1100. Although, I can make a case for it to move higher to 1150-1200 by year end, I think the risk reward of this scenario is not very attractive. We are now more likely to see an organized pullback, perhaps back to 1050 or even 1030 level.

While the earnings continue to surprise both on the EPS as well as the revenue line, the clear pattern is emerging. The sellers are moving out post the earnings surprise. Nothing to do with fundamental prospects, but traders are not sticking around to find out how the long term thesis will play out. With oil also reaching the top of my near term $80 range and the US$ attempting to rebound, the easy money has been made. The strategy now is to tread water, wait for the pullback or the sideways action to come down the nerves and get the overbought readings reset. We will see how willing and courageous are the buy the dip guys. I am not shorting the market, but it’s clearly saying: “Don’t chase, stay nimble, don’t speculate without having a very strong conviction in the trade”. I am listening, since I learned a long time ago to respect it. I will let the amateurs chase it here…but will remain vigilant in case I think it gets overdone in some of the names I don’t mind holding through even a more serious correction.

A few weeks ago, I started implementing my 'barbell' rotation strategy. Basically, reducing risk by lowering beta and selling some of the extended commodity, materials, china, and energy holdings. See the post here: 'Barbell' Your Portfolio to Reduce Risk.

My net cash is higher this week than it has been in the last 3-4weeks (~65% net long), but more importantly, the aggregate portfolio beta is now .55,following the aggressive rotation into Healthcare. I am also layering some shorts positions, but most are earnings specific or company specific ideas, and not a bet on the market weakness.

Main recent portfolio changes: Sold/Reduced - ANR,SWN,CELG,NE, IPI,MWE,DVN
Bought/Added - ALGN, OMPI,SNDA.

Intermidiate/longer term I remain bullish on multinationals (US$ play), agriculture, healthcare, and select energy, materials, industrials and infrastructure.