Market Pullback - Its all Good

With a long awaited pullback upon us, I am not panicking but looking for an opportunity to slightly increase my total equity exposure to 60-70% up from 50%. With most of the important earnings reports pretty much done, and no really critical economic data to hot the tape for a few weeks, the market used Japan's slightly slower pace of economic recovery as an excuse to take profits and force this expected selloff. If it wasn't Japan, it would have been something else. FOR THE FORESEEABLE FUTURE, THIS MARKET WILL HAVE NO SHORTAGE OF EXCUSES, LIMITING AND INTERRUPTING RALLIES. Just like in in July, we have been trading just under a number of tough technical price levels while technicals got pretty overbought. To move further required a lot more firepower. But the investors were reluctant to put new money to work at this level, and rightly so. We just ran out of steam ...it was pretty obvious last week, as the US dollar began to get stronger and oil weakened.

Why do I think this is just a pullback as opposed to major correction? Here is why. Most violent corrections happen when no one expects them. Not the case now. Thus far this has been pretty organized selling, no real panic, just people working out of some crowded situations...e.g. energy, commodities, material, financials etc. We are still seeing some money rotating into defensives like Healthcare, rather than just exiting. we are not likely to see irrational selling in my opinion. For a major correction (10%+ move) we would need to start pricing the odds of a economic double dip. I don't have a crystal ball, but nothing I have seen thus far makes think we are going to double dip. Sorry, bears.

For now I am still watching and not playing as I think we have a bit more downside before the technicals get attractive again. But this could change pretty quickly if we keep having days like today.

Speaking of technicals...the damage is still pretty much contained. We did break below 995 on the SPX, but this was not really a key support. The level I continue to watch is 950. I was pretty neutral as we climbed above 1000...but as we get closer to 950, I will get more interested. A 5-7% move from the recent highs would not constitute a correction, but a pause and a pullback that you should take advantage off to buy the stocks that are now on sale. I am on the road today, so don't have access to all my charts and spreadsheets, but I will likely start adding to some of my existing positions as they get to my predefined levels. My favorite ideas remain XTO, SLB, RIG, SVR, NKTR, TSYS and half dozen others. I will update my portfolio and Maven's 50 on my blog later this week.

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!

Portfolio Update

First of all - apologies for not posting lately. Some things are just more important - like a summer vacation. I have done very little work over the last few weeks, by design. We all need some time away from the market to regain perspective. Having said that, over the past few days I have fine tuned my portfolio and listed my ACTUAL positions on my blog, under the Maven's Short Term Portfolio link, on the right sidebar. Please feel free to visit and leave comments.

You may notice that my MG portfolio is a just a subset of my actual portfolio, and to be honest, there will definitely be inconsistencies between the two. Some of my ACTUAL positions are legacy, core positions, while MG may have some of my more recent ideas. The opposite is true as well, as I may be trading in and out of a position in my real account, but never get a chance to update the MG.

One of my goals is to bring my MG portfolio in line with my actual.

Again, I will resume my regular and more frequent posting as soon as I get my bearings.