Weekend Portfolio Update

The market continues its moonshot and once again closed at all-time record highs. This is why we wait for the market to take us out and don't try to anticipate future movements. While most of the financial media world, myself included, were very cautious on the market during October, the market has a mind of its own and will do as it pleases. This is why we wait for individual stocks to invalidate our trade rationale and why we don't just sell everything to make the pain stop. If you approach the market correctly you shouldn't be experiencing much pain regardless of the action. Your risk is predetermined by your trading rules and you simply stick to the trend until the trend begins to fail. Everyone that felt negative and then acted on those feelings has been left in the dust.

While our portfolio was not left unscathed during the recent decline, we did come out the other side with only the strongest stocks in the market as our remaining holdings. We have since participated in the rally and have found new names that are setting up and breaking out as the next batch of leading stocks.

We have two new entries for our blog Portfolio this week: United Postal Service (UPS) and International Paper (IP). With the two new entries we now hold 11 positions:

Nike (NKE)                                  Consumer Discretionary
20-year Treasury Bonds (TLT)    Rates
United Healthcare (UNH)            Healthcare
Berkshire Hathaway (BRKB)      Financial
Bristol Myers Squibb (BMY)      Healthcare
Goldman Sachs (GS)                   Financial
Hain Celestial (HAIN)                Consumer Goods
United Postal Service (UPS)       Industrial/Transportation
PG&E Corp (PCG)                      Utilities
Gilead (GILD)                             BioTech
International Paper (IP)               Basic Materials

Its no coincidence that we own what we do. If you like stories and fundamental "reasons" for your stock positions, I can describe each of the major talking points for our portfolio. First off, interest rates are low, that supports higher Bond prices and rewards companies that pay substantial dividends, specifically Utility stocks do well in a low rate environment. Financial stocks are also poised to do well as interest rates begin to rise, which many participants believe is in the near future. Next I could say that due to drastically declining oil and commodity prices Consumer, Transportation, and Materials companies are setup to do well as their input costs are being lowered seemingly daily. That savings adds up over time, especially for the consumer who basically sees the equivalent of a tax break due to lower prices at the pump. And lastly Healthcare and Biotech companies are thriving due likely to the increasing number of Baby-Boomers needing health care services.

Those all make up a nice story. So there you go, if you need a narrative to feel secure in your holdings I just formed a nice one for you. Funny thing about narratives however is that they are formed only after prices suggests something is going on. If you waited for the story to get excited about the stock you would often miss half of the move. This is why I prefer to let price lead my investment decisions, as more often than not I have already made substantial gains by the time the media has caught onto the story.

On that note, we should no longer be paying attention to YahooFinance and CBNC for market news. The place for all happenings about your stocks is StockTwits.com. Check it out! Play around on there, respond to ongoing conversations (try not to be a jerk  : ), and look up a few of your stocks and see what's going on. Its real-time data and about 10 solid minutes ahead of major media.


--Lets take a look at each of our holdings and see where we stand with the market at all-time highs, starting with our two newest holdings:

+Entering United Postal Service (UPS)

UPS has been a stock in a box for over a year. This week we are seeing a defined breakout above the prior highs. Relative strength has broken out from its downtrend vs the SP500 and is signalling outperformance. Lastly the MACD is showing that the year long consolidation was simply a pause in the longer term uptrend by reversing higher at the Zero line. (remember why we like this?)

Pretty straight forward here.

UPS monthly bars

Looking at the Monthly chart of UPS you can see the large sideways range the stock has been in since its IPO in late 1999. At the beginning of last year the stock made new all time highs, and after traveling a bit higher, it since has been trading sideways "resting" after the large rally higher. Only this week did we see a solid breakout move above the range highs. This signals that the uptrend is resuming higher.

Using both the Weekly and Monthly charts I want my stops to be placed right at $96. A break of that level would not only be a failed breakout but it would also take out the range lows, suggesting that more digestion is needed. Then looking at the monthly chart, a failure of $96 would also break the rising 20 MMA which tends to be good trailing trend support. If price consolidates over the short term we could then move stops up pretty quickly to the $100 level.


+Entering International Paper (IP)

Ugh, as goes the life of a trader... You buy the breakout, it rolls over, you end up selling at the low, and then have to watch the stock resume to the upside. Its frustrating when it plays out this way; this what's known as a whipsaw. As legendary trader Ed Seykota once said, "if you want to avoid whipsaws, quit trading."

The market loves to frustrate you, but the best thing to do if you get caught in a situation like this is to simply continue to take your signal and treat this new trade like the previous one never happened. Its not easy to do, but this is imperative for your investing success.

As you can see IP has it all right here: Strong breakout above a key resistance level, confirming rotation by the RS breakout and a MACD that suggests the trend is still higher and ready to resume to the upside.

IP monthly bars

The Monthly chart looks even better. After a torrid run in 2012, the stock needed to cool off and spent the last year + consolidating those gains. The risng 20 MMA was able to catch up to price and offer excellent trailing support. Not only did the 20 MMA act as support, but the confluence of that and the uptrend line from the 2009 lows was just kissed before sending this stock recently higher.

Initially it will take a break of $46 to stop us out, but looking at the monthly view we will be able to move that stop higher once price proves it can hold above this lengthy consolidation breakout level.


Nike (NKE)

NKE continues to push to new highs. The breakout is confirmed and there is nothing to do here except get out of the way and just let this one run. For now stops should be placed at $81.50, but soon we will be able to move them up to the $87 closing lows.

Treasury Bonds (TLT)

Since spiking 4 weeks ago, TLT has been steadily trading lower. We have strong trend support at $116 and will be watching closely on any test of that area. For now though, the trend is higher and we will continue to hold Bonds.

United Healthcare (UNH)

Despite this week's slight struggles UNH has been on an absolute tear the past month. This stock continues to make new highs and higher swing lows. There is nothing to do but let it continue. Stops should be below trend support near $84.

Berkshire Hathaway (BRKB)

Berkshire made new all-time highs this week and continues to act very well. They announced earnings at Friday's close, so we may see some short term volatility. When a stock continues to make new highs we just want to let it work, so work we shall. Stops should be below the swing low and 20 WMA, just about $132.

Bristol Myers Squibb (BMY)

Speaking of rocketships, BMY has been in launch mode for the past 3 weeks. Since price has been straight up we still need a wide stop to make sure we capture all this has to offer. Stops should be placed at the swing low near $50.

Goldman Sachs (GS)

Goldman finished higher on the week and seems to be resuming higher after the recent pullback. Nothing to not like here, stops should be at the swing low near $177.

Hain Celestial (HAIN)

HAIN continues to impress and is trading at all-time highs. Again we let winners run, and this one is winning. Keep your stops out of the way and below the swing low at $96.

PG&E Corp (PCG)

Considering PCG's big move over the last couple weeks some constructive consolidation seems likely. The breakout here is of the long-term variety so we are giving this a lot of room with stops down at $44.

Gilead (GILD)

GILD is reversing a bit and is part of the hot biotech space. Some prolonged digestion of the recent uptrend would be positive. Our stops need to be below the recent support zone, the $100 area looks like a good place to be for now.


Well that about does it for our Portfolio. Often the best thing to do is simply sit on your hands and let your winning trades continue to work for you. You don't always have to be trading, You don't always have to be doing something. The key to hitting big winners in the market is simply to let it happen. So often traders want to pick this top and take those early profits in fear of giving them back. If you want to win you need to be willing to do what so many are not. You simply need to act in the way that often goes against your emotions and what "feels" right. What feels right is rarely the best course, but investing doesn't have to be difficult. Have a plan, stick to it and continue to execute your plan regardless of market conditions and headline noise. Price will tell you everything you need to know. A pundit on CNBC will not grow your returns, but a systematic method for identifying high probability situations will.