Chop Suey

This market has been a mess since early Fall. Its chopping up and down, big swings down followed by huge swings up; the volatility is hard for many investors to stomach. Despite the amazing rally we saw in October, due to the recent whiplashes, the market currently sits only 1.5% higher since September. While the market has gained 1.5%, we have seen the SP500 swing from a low of 1,818 to a high of 2,092 (thats 14% from peak to trough).

6-month Daily

Depending on your timeframe you have either profited well, lost a ton of money, or been about even over the last 5 months. Results are all over the place and most traders have had their accounts chopped to bits. Fortunately we have adopted a slightly longer time frame for our holdings and have been able to modestly outperform the averages in this difficult period. Our Portfolio sits on a 5% gain since September and considering how much up and down we have seen recently, most of our holdings are faring pretty well.


Financials took an especially hard hit this week. Even when the market staged a solid recovery from early weakness on Monday and Tuesday, Financials as a group closed out near their lows. Most of the Sector Top 10 holdings from the XLF have broken through their rising 20 WMA's and are issuing a warning as we head into the bulk of bank earnings next week. While most are still above key trend support their leadership status is not looking great as we begin 2015.

Financials have acted similarly each of the last couple years. In 2013, 2014 and now 2015 we saw rotation coming into the space into year end, but then saw the group struggle to keep up with the broad market averages for the rest of the year. Will 2015 be a repeat of the previous couple? From the early price action I think its certainly possible, but we will learn a lot more as earnings begin to roll in starting on Wednesday and Thursday.

GS (announces Jan 16 BMO)

BAC (announces Jan 15 BMO)

Our two bank holdings will announce earnings this coming week and as we approach those results both stocks are weakening but are still above our stop levels. We still have about a 5% cushion for any pullback that might occur, but these will be something to keep a close eye on as we head into next week.


As for what has worked so far this year, anything that is attached to lower interest rates has continued rocking.

TLT (20+ Year Treasury Bonds)

As the inverse to interest rates, bond prices have continued to soar. TLT set a new record high this week and also finished the week at its highest closing price ever. I am beginning to become concerned about the sustainability of this move as the recent action has the look of vertical acceleration.

Trends become unstable once they move away from their trend slope average and begin to go vertical. Due to this and my second measured target for TLT being aquired at $132, I removed another 1/3 of my holding this week.

Something to watch moving forward will be the relationship of TLT to the Financial stocks. Banks will be able to increase profits if interest rates begin to rise. With banks sitting on support and Bonds looking extended, it will be interesting to see what comes in the next few weeks.

PCG (Utility)

Our Utility holding, PCG, has continued to rally. High dividend paying investments tend to see inflows when interest rates are low. PCG has clearly been a beneficiary of these historic low rates. If rates begin to rise names like PCG will struggle, but by looking at the fierceness of this recent rally, a little cool down should be expected and met with patience.


The other factor playing a big role in shaping the market environment is obviously the continued weakness in Oil. Energy sector names continue to get hit as well as most material names that have a large part of their sales linked to commodities. Our Portfolio holds no Energy exposure and only modest Material exposure. What material exposure we do own is on the favorable side of cheaper commodities. PPG purchases a lot of petroleum product to create their paint and coating products. IP also uses energy resources for their paper production and distribution. Both of these names have held up well recently.

PPG

IP

With oil trading so low we would expect the consumer and retail space to be doing very well. Its hard to argue too much with these results:

NKE

DIS

TWX

SBUX

Starbucks has been sideways and sloppy recently but still manages to hold above its next obvious trailing stop level.


A list of what's working in this market just wouldn't be right without some Health Care stocks thrown in. Health Care has been a monster for years now and it seems to be continuing.

UNH

BMY

The remainders

HAIN -Daily chart

I was a little troubled last week with Hain not being able to keep up with the overall market and this week again failed to rally back strongly. We are looking at a daily chart for Hain here because the recent pullback and weak bounce has the look of a developing Head/Shoulder top formation. 

This bearish pattern won't be confirmed until the lows at ~$54.50 are broken and held, but the implication is that this stock is weakening. 

Our stop continues to be a weekly close below $52. This is one we will need to watch closely. 

UPS

Ups is looking fine and I like the two long bullish wicks that have formed (both this past week and 3-weeks ago) near the previous breakout level at 106. Twice in the last 4 weeks price has pulled back to retest the prior highs breakout, each time those sellers were met with strong buyers as they drove the price right back higher. 

This new buy support means that we will soon be able to move our stops up to the $105 level. As a break of that would be a failure of the recent demand we have seen there.

HON

HON looks fine.

BRKB

BRKB looks fine. 

Sometimes when volatility strikes it's best to be able to just do nothing. That doesn't mean giving up and being ignorant to it, what it means is sitting on your hands will keep you out of a lot of trouble and stress. 

Size your positions and risk to the point that you can have a little wider stop and not be worried about every market wiggle. Don't be so obsessed with picking this top and that low. Just try to keep yourself aligned with the current dominant trend and try to hang on for dear life.

The idea with a trend based trading plan is that ideally you find the best stocks and hold them for as long as you safely can. You don't need to be flipping holdings every day or week. Just hold what's working and adjust with the flow of the market.