We had no changes to the Portfolio this week so I want to take a look at our holdings and determine which ones look the strongest at this current point. We will rank them 1-10 to see if we are positioned correctly according to strength.
1. CMI 3/3
2. AEP 3/3
The measured target for the inverse head/shoulder pattern is $53.50, so momentum certainly favors a run at the highs.
3. PBW 2/3
It is a positive thing to see where one bullish setup leads to another and so on. We have seen this continuously in PBW. And once again we see its favorite pattern developing.
5. WFC 2/3
If the market is really going to become weaker, the Financials will likely lead the way on the downside. This will be a space to watch closely in the coming weeks.
6. HAIN 2/3
7. DDD 1/3
Currently I don't really know what to do with this stock. It has managed to jump right back above the 20 WMA, but also has the look of putting in a sort of Head/Shoulder Top formation. I really need to see some consolidation before I want to increase my exposure. Basically a 50% smack down in a 5-week period, followed by a 48% snap back bounce in two weeks doesn't exactly set the stage for sound risk management. We will stay small in our positioning and just let this run around until we have some form of solid support base to proceed further from.
8. TLT 2/3
9. UNH 0/3
10. F 0/3
All in all I would say we are positioned correctly considering the current strength and weakness in our Portfolio. Herein lies the issue with a small, focused watch list; we simply have to be patient and wait through dry spells until some if our stocks regather themselves. If we used a wider list to draw from we could likely still find plenty of setups to occupy our funds. That is the downside of following a narrow list like we do, but there are positives as well.
By only watching 10 stocks (1 from each sector group), it gives us a pretty good idea of how aggressive we should be positioned in any market environment; our individual stocks will tell us when to be in and when to be sidelined. Due to the weakness in a few areas we are holding roughly 50% of our funds in stocks at the moment, 10% Bonds and 40% in cash. With a market that is showing weakening internals while trading at all-time highs, I think it is interesting that by following our 10 holdings we are positioned more neutral at the moment. We are not heavy stocks, we are slightly overweight but not by much. We have a little nibble of Bond exposure as they have corrected substantially over the past year. We also hold a solid amount of cash in our account as portfolio protection near market highs and as an opportunity should conditions improve and our lagging stocks signal entries.