Joining UpDown.com - Maven's Back!

After using Marketguru.com for over year and half, I had to relocate my portfolio to a new home. The Marketguru website ran into financial difficulties and was forced to shut down. Thanks to Sean and other MG staff for supporting this site for as long as they did.

After some research, I signed up at UpDown.com. I have retained my username - Maven100. The interface is not as nice as MG, but it allows you to short stocks, which is something I could not do in MG. It has some similar features as MG, but I am yet t figure out how to provide automatic feedback to my followers in the most efficient way. I do like the fact that everyone starts with the same $1 million amount.

I put a few trades in my brand new UpDown portfolio this week, but it would take some time for me to get invested since I am basically neutral now, awaiting a better entry point.

I am still trying to figure out how this site operates and find the most efficient way for people to track my performance. For now, I guess you can become my 'friend' at UpDown and be added to my list. In order to do this, provide your email and username and I will send you the invite to link up. So, if you want to follow me to profits (lol) you can email it me at v_sapi@verizon.net.

Unfortunately, since MG site was shutdown, my track record is lost as well, and it would take some time to rebuild it.

Here is my performance(according to Marketguru)as of July 30th, 2010:

YTD - 9.87%
Monthly Average Return - 2.07%
Excess Return vs SP500 - 1.73%

YTD Returns for comparative purposes:

SP500@1100 - (1.4%)
Dow Jones@10,435 +.07%
COMP@2,250 - (.08%)


It is important to note that the 1,100 bps out-performance relative to SP500, came at lower risk. Based on Marketguru's data my portfolio risk profile was as follows: Overall:Low Volatility; 60% correlation to SP500 (R-Sqrd); Beta of .85. A beta of .85. indicates that on the average, my portfolio had only 85% of the volatility of the index. In other words, this outperformance was not achieved by taking out-sized risks, in contrast to someone trading penny stocks, leveraged ETF's, or stuffing a portfolio full of high beta stocks. Risk management has always been the most important part of my portfolio strategy.

Again, since I no longer automatically post my blog to Marketguru, I really have no idea what the actual readership of my blog is. If you like what I write and would like to see more of my posts, just drop me a simple line at v_sapi@verizon.net. You can also leave the comments in the post comment fields.

Just Follow China ..as the sun moves from East to West

The SPX index closed right on its 200 day ma yesterday, and on the high of the day, implying the continuation of the positive momentum, following the Dow and COMP, both of which has already cleared this hurdle. As I said before, there is room to run to 1140-1150,which to me would be a major inflection point to sell. But, after a brief rally this morning, the market seems to be running out of steam

The techincals still rule here, as earnings have been coming in mostly better than expected, but have received little focus and only a temporary reward. The beats are nice, but not getting much play for two reasons: 1)The Q2 earnings were pretty much front-end loaded, with April being a peak for many economic indicators, which means April may have contributed disproportionately to Q2 results and the business may have declined since 2)the overall lack of faith that strong earnings wold be sustainable in light of a increased risk of a double dip.

Over the past few months we have seen the US market trade off of a variety of factors (either inversely or in correlation with) crude, Euro, gold, BP, Europe, etc. During the last few weeks the markets seemed to have been especially coupled with China. China was up for the past five or six trading sessions and finally closed lower overnight. The Shanghai index is very overbought and a normal correction of a few days and a few percentage points would be reasonable. The bottoming of the Chinese markets have corresponded with the bottoming of the sentiment towards risk, double dip, and China bubble, so this tandem recovery in both markets is not very surprising. If you are worried about the risk on/risk off trade whipping the markets, just watch China for any clues.

Although there is still a possibility of this market running unabated to 1140/50, I made a few moves this morning to get even more defensive.

My trades so far this morning:

Sold TNA,GES,and WMT.
Short WLT, ACI, and AMAG.

I am taking a bit of a drubbing in DNDN, MOS, GDX and FCX, but except for GDX, I
am fairly well hedged with options, softening these blow.

If the market deteriorates more over the next two, three hours, I will likely buy SMN and TZA.

Assessing the Odds of the Next Move Up...or Down.

Watching the markets very carefully as we approach a 200 day moving average at 1114. For those still focusing mostly on Dow Jones, the 200 day ma was conquered on Friday and there is follow through today, a positive sign. There is definitely some resistance at 10,500. Ditto for COMP, but if we clear this major overhead resistance, there is some room for the market to run. Still, my inclination is to sell resistance, and take some profits although I am still positioned defensively. The first to go will be WMT and TNA bought on Thursday. Both have stops slightly below current levels and will be sold at a profit. I am not shorting this market, other than a few option hedges listed below.

I am experiencing some pain in SLB,(no it is not a body part, but a large international drilling company),the stock was downgraded to neutral by several sell side firms after posting less than stellar results and not really providing much of an outlook. Although I am down about a point or so, I believe I missed most of the downside and expect to see the stock stabilize here and rebound.I may have been a bit early pulling the trigger on it, but I think the reasons the stock got hurt this quarter are temporary and short term in nature (Gulf of Mexico drilling moratorium which may last 6 months and some slow down in international operations). I see the downside limited to 56.

BAX - which I bought on Friday morning, has been a winner thus far, partially from an uptick in most healthcare names on rumors of GENZ takeover by GSK or SNY. This was not a reason I bought the stock, however. The three main reasons were: 1) BAX has underperformed the group, while the healthcare in general, has lagged the broader market. 2) Goldman has upgraded the stock and added it to its Conviction List, recognizing that the business have likely bottomed. 3)Valuation is reasonable and provides some downside protection with the stock ~5%-6% from support.

The volume has remained anemic and the the activity pretty much dies after 11 am. Its a type of market that generally trades on technicals in the absence of major news, but given that it is only a fraction below a key resistance and momentum indicators are short-term overbought, which makes it pretty vulnerable to a volatile correction. In other words, the risk reward is unfavorable. I would rather see it move and close aggressively above its 200 dma and I will jump back on for a ride to 1150. If there is a correction, we may see it take the market down all the way back to 1080 on the SP and 1150 on the Dow.

Since we are no longer using Marketguru.com to track our trades, positions and results, I will try to post them on my blog as timely as I can.

Current Longs: AAPL*,FCX*,MOS*,DNDN*,NKTR,BAX,WMT,TNA,CEF,JPM,GES,GGN,REXX,CELG,DVN

Current Shorts: August Calls (APPL,FCX,MOS,DNDN).

Cash/Bonds ~ 50%-55%

*Hedged with short calls

Turning Modestly Bullish, Cautiously Adding to my Longs

I am currently positioned neutral, with a slight long bias. The portfolio still has plenty of cash and I have sold a number of calls against some of the larger positions like MOS, FCX, and DNDN that had a nice run. I am not seeing many bargains here, but opportunistically picking up some stocks that have improving fundamental picture and sentiment, with a decent technical risk reward and already reported their results.

This morning I bought some BAX, agreeing with Goldman's upgrade. The stock has been a terrible underperformer and at this price seems to be assuming the worst case scenario, while business is stabilizing....the risk reward seems pretty attractive.

I am also looking for a good entry into some drillers...and bought some SLB as its pulled back after earnings. Looking to potentially get involved in ESV and NOV. I feel like I missed a move in some of the coal and retail names, but will pick them up on the next pullback. Key candidates are ANR, WLT,BTU,CNX, PERY, MFB, WRC, GES.


Overall, I remain cautions as we approach the European banks stress test. I think, the news will be taken in stride, as some bank are expected to fail and will have to raise capital. Earlier concerns of European economic meltdown are now postponed, as the economic data that we continue to see out of Eurozone is pretty constructive and indicates that its recovering, albeit slowly. The sentiment has improved lately, although there is still a steady chorus of 'double dippers' out there.

The FED is indicating that they will continue to accommodate its monetary policy, so rates will remain low and the inflationary shocks that I expected to materialize by now, are not there. The expectations are still pretty low for the economy, and most of the economists have already revised their GDP growth expectations down.

Politically, we are not yet out of the woods, but the FinReg is now out of the way, Goldman has settled with the SEC, The Congress will be extending jobless benefits and the expectations of GoP taking the House and the Senate in November are alleviating some of the investors' fears related to Washington's policies. And yes, the Cap and Trade is basically dead. Lastly, we are no longer looking at the pictures of the oil gashing into the Gulf of Mexico and baby pelicans covered in crude. The risk of of military conflict in North Korea, Israel/Iran is always there, although the tensions have died down and are not on splashed on the front pages of newspapers and TV screens. But this risk is always there and should not be ignored.

The markets have also seemed to have decoupled from USD/Euro trade...which was the main directional indicator for the markets over the last few weeks and the corporate results are now at the forefront again. The earnings have been mostly solid and the outlook provided by most companies indicates that companies are not seeing any major deterioration in their business, especially in Tech.

Technicals look very interesting right now. we are trading around the key level of 1095, on the SPX. The significance is that we finally poked above the downward sloping trendline, breaking the pattern of lower lows and lower highs that was in place since the selloff that started in late April. The next key move is into a psychologically important level of 1100. If we can take out 1100, then there is a clear shot at 200 day moving average (1114)which coincides with a Fibonacci 50 % retracement of the April high. This would likely be the battleground level. The technical bulls are also talking about the inverse head and shoulders pattern, which will get some validation on a break above the neckline at 1100. In general, however, when you have a confluence of important resistance levels, it takes a few tries to take them out. Personally, I think that the short squeeze that started the most recent rally, has mostly played out and it would take a fresh pile of $$$ to push through. Taking some profits and getting defensive (sell calls, raise cash) as we get closer to resistance levels I outlined on the attached chart, would be prudent.

If the 1100 objective is achieved, the focus will shift to rally into 1140, another key resistance on the chart, at a 62% Fib retracement. At the moment I just don't see any reason to own the stocks as we get closer to 1140 and would be selling aggressively and likely going short on a move into that area.

On a flip side, if the bears take charge and the fear trade comes back, I am watching a pullback to 1070, where there is some support, with a more solid support at 1040/45. I am not completely ruling out a scenario of revisiting 1010 either, although the odds not as good right now.

Net-net, if the Euro bank test that will be announced at 12pm today will be in line with expectations, we should expect to see the markets drifting modestly higher. One can buy carefully, but the momentum indicators are no longer oversold, the support levels for many stocks now is 5-10% lower, which obviously increases the risk.

It could be a nice, tradable rally into resistance levels I mentioned above, but the volume and conviction behind the move is still absent, so volatility will remain. No real urgency to load up here, as you will likely get a chance to buy here on a pullback, even if get a pop of the news.

Buying APPL into Tomorrow's Announcement

This morning I began to press my short position, as the indicators triggered the anticipated leg down. This was a fairly easy call, given the setup was pretty straightforward, with 6 consecutive up days and plenty of divergences and obvious resistance levels. It gave me the confidence to add more to my short bet.

AAPL - I am also adding to my AAPL position, but I am well hedged with short exposure so this is not a straight bet. Here is the logic: the well documented hardware issue with I-phone 4, cost the stock at least more than 10 points or roughly $9B in market cap - totally disproportionate punishment. The stock was not overbought as the rest of the market and is only 2.5%-3% from a decent support (~242). Additionally, we should find out tomorrow what type of fix they will offer for Iphone 4. Whatever it is, the uncertainty and the overhang will be removed, and even the worst case scenario, a recall, would most likely be a temporary set back. It should also be understood that the initial move on the news could be pretty violent. The speculation is pretty rampant and the expectations range from AAPL doing nothing about it to a complete recall. I would tend to agree with those expecting that AAPL will offer free bumpers (it would be a totally negligible cost ~ a few pennies in EPS per million phones) plus a silent recall.

My gut tells me that this is completely overblown by the media rather than users complaining about it. I conducted a small informal poll of my own, asking my family members and friends who own it and NONE of them had any problems with the antenna. I think the recall would be too drastic and frankly unnecessary, for an issue that is not as bad as some others that we have witnessed with consumer electronics products. Bottom line, I see this as a temporary issue which will be resolved by Apple.

Apple earnings are expected to be solid when they report on Tuesday, likely to be at least in line or slightly better than consensus. There is some talk that margins may have a bit see some pressure because of new product introductions. The I-Phone shipments will be strong as well, and I doubt that this antenna issue is likely to dissuade potential buyers. I am not entirely sure what reaction will be to their earnings, but I am not sweating it. Buy the dip, but if you are negative on the market's near term direction, hedge it with either QID, SDS or TZA. This morning I added a small stake, but will be adding more if tomorrow's announcement creates volatility in a stock.

Shifting to Negative Bias as Odds Favor a Near Term Move Down

While on vacation over the last two weeks, I remained mostly in cash with a just a few bets that actually worked out OK while I was away. I covered my shorts before I left and had one small short bet that got kicked out on a stop.

The recent rally has corrected the oversold condition, but I still see the intermediate trend as being down. What that means in practical terms, is that there is a decent chance that we may revisit the 1000-1010 level before the end of the summer. This has been confirmed with a much publicized 'death cross' (a 50 day moving average crossing below the 200 day ma) in early July.

As I've written in my previous post, I would be an aggressive buyer on a move to 1010. I was fully prepared to add there when we tested that level on July 1st, but the timing sucked, as it happened a day before my two week vacation. I was not planning on trading or even spending much time monitoring the market while in Alaska, so from a risk management perspective it would have been wrong to have too many open positions.

Currently, in my brief assessment of the market (still just getting oriented after a long absence) the odds favor the near term move being by roughly 2:1. There are just too many technical confirmations to ignore.

While I certainly see a possibility of moving and testing the resistance at 200 day ma (~1115 on the SP), I believe there is a higher potential that a leg down could bring the index back to revisit the lower end of the short term trading range near 1045-1050sh. This morning the index has unsuccessfully tried to move higher, bumping against a down-slopping trendline from the April 26th high. With Semis fading and unable to provide any leadership to this tape despite the strong INTC numbers, confirms that this rally is running out of steam. The volume remains seasonally weak and the sentiment has improved from a panicky mood of just a few weeks ago.

So while I was not able to capitalize on a the recent bounce from a major support, I am beginning to add slowly to my short positions both individual stocks as well as index. The risk reward is unfavorable here, and one should get more aggressive shorting it if the SP gets closer to 1115 for an even better setup to move back to the lower end of the trading channel.

The 1010 level now is almost a certainty, but then what, is the ?

For the last few weeks, all of my technical, sentiment and gut indicators were pointing for an upcoming market wash out and an eventual tag of a 1010 level on the SPX. The chart below shows how each of the support levels has been systematically broken and how subsequent rallies failed to get any kind of sustainable bounce. The sentiment is as bad as it has been in at least few a year, and although eventually this would be a great way to bet against, for the time being, no one should be standing in front of the herd. The stamped is here, and its no longer just a dust cloud near horizon.

The rhetoric aside, this is how I'm positioned. I am basically market neutral, with maybe a short net long exposure in some of my long term retirement accounts where I am just unwilling to sell to incur capital gains and would just prefer to protect the exposure with short ETFs. These ETFS (SDS, TZA, QID) are dangerous razor blades and one should play very carefully.

My best guess is that we will get to 1000-1010 over the next few days (or hours). We could test this level and actually get below 1000, closer to 990. I would expect an aggressive bounce here and will likely remove my negative bias, by closing my short positions and potentially going long. As a reminder, the 1000-1010 level is a KEY level both psychologically and technically (fib 32%). Even if I am wrong, and we go lower than 990, let's say 940-950, the next major support, the bounce will come and the bounce will likely take it to the breached support of 1000-1010 level, giving you a chance to sell it there...so what I am saying is that buying 1010 level will give you a shot to play a bounce from there or give you an exit at a small loss or even money when the index bounces to that level.

Of course many will still be predicting even lower levels, so one needs stay fluid in this market and reevaluate our stance frequently. Time to pay attention.