Lg-Cap Portfolio Review (4/17/15)

SP500 Remains Range-bound

A lot has and will be made of Friday's trading action, where the SP500 lost 1.1% on the day. Never mind that the market still remains up roughly 1% for the month of April, all the media sees are the impending disasters. Greece, US Dollar, Earnings, Interest Rates, etc, etc. I feel like I go over the same thing every week. Maybe I do, but its simply to show how meaningless all this Bullish/Bearish debate really is. Despite the strong options either way, the market remains range-bound and will do what IT decides to do.

 The market decides where the market goes. It doesn't matter how strongly you feel your opinions are justified (or anyone else's for that matter) NONE of it matters unless the market says it matters.

If Greece matters to the market, then the market will respond to that accordingly. If Rates matter to the market, the market will respond to them. And maybe it already has, who knows? All we know and can know is where the market sits currently and where the major risks for our timeframes are.

If a move down to 2,040 means major risk to you then you will need to act according to your predetermined plan. If you are a longer term trader then maybe risk is not considered major until a break of 1,980 occurs. You should not be allowing CNBC or any other 3rd party opinion to alter your investment process. If you stick to what matters to your timeframe and your risk parameters then you are on the correct path.

Its important to remember that nobody else has your best interests in mind when they make a market call. They are looking out for themselves and likely have some agenda behind their remarks. If you think Goldman is looking out for you when they say to sell stock $ABC because "its overvalued", it doesnt mean they hope you listen and save yourself all this money and live a fulfilling life. It means they hope you react emotionally so they can come in and buy that stock at lower prices.

The bottom line is you should have a process based on actual market evidence and not let anyone's outside opinion cause you to deviate from your plan.

All that being said, we have 1 new entry for our Lg-Cap Portfolio this week and no exits. And speaking of Goldman, we have entered a position in $GS as of the close of trading Friday.

Entering Goldman Sachs (GS)

I will admit that's a pretty ugly looking candle on the weekly view. It's not exactly what I would call a convincing signal of strength. But it is a new weekly closing high. The highest weekly closing price since 2008. So there is that.

If we look at the daily chart though I feel it paints a healthier looking picture:

GS Daily bars

The stock gapped higher on Wednesday morning following a stronger than expected Q1 Earnings report to new recovery highs. It then fell back in line with the rest of the market Thursday and Friday, weakening enough to throw-back to retest the prior highs. Of course we don't know if this will be the end of the decline, but this is why we have specific entry triggers; uncertainty is always present in the market. All we can do is find quality setups in leading stocks, while managing our risks appropriately.

Weekly indicators suggest a high probability entry

 Our two secondary indicators are pointing in the right direction. All winning stocks present similar repeatable patterns. When those patterns are in place it is our job to take advantage of them as we don't know which ones will work and which ones wont.

As you can see here we have a weekly MACD that pulled back to (and violated) the Zero line in early April 2014. It then recovered back above Zero and the subsequent pullback was able to hold above Zero this time and has crossed back bullishly. This is the signal I look for from the MACD trend indicator.

Also we can see that Relative Strength (RS) vs the SP500 is in a steady uptrend since 2012. It has found support along its rising trend line and is continuing higher.

We will place our initial stops below the March low at $182.70, which is roughly 8% below our entry. That makes this a fine R/R and we have sized our position accordingly so that a stop-out would result only in a .5R loss for our account.


We have plenty to look at this week for our portfolio review. This week I wanted to "zoom out" on the long-term trends for our positions. I like to do this every few months to make sure I'm not getting too focused on the short-term and missing the bigger picture. Far too many (and under capitalized) traders focus too much attention on the short-term movement of stocks. They get so absorbed in the day-to-day gyrations that they lose sight of the larger movement going on.

To be successful in the market you don't have to play every wiggle. If you can make money during the uptrends and protect capital during the downtrends, you will outperform significantly over time.

As usual we will focus on our losers first. Those are the positions that require action. Winners take care of themselves, its the losers that are the drain on the bottom line.

CSCO (-5.2%)

While CSCO has been weak since our entry, the longer term view looks quite constructive. The stock has recovered above the 61.8% Fibonacci level from the '08 decline. Typically when that level is broken price is pulled toward the prior highs for a retest. I still think this is likely, but a violation of support and the breakout level would be enough for us to step aside. 


LMT (-4.5%)

LMT this week closed below its 20 WMA for only the second time since its long-term bottoming formation after the financial crisis. The last time this occurred price was able to snap right back within two weeks. With earnings on deck Tuesday before the open we will see if the decline has more to go or if it will recover quickly like the prior instance. 


TWX (-3.8%)

TWX continues to hang out near its recovery highs. This leads me to believe an upside resolution is likely. But if not, our stops remain under the prior swing low at $77.


WFC (-3.5%)

Wells led out with earnings this week and posted a mixed result. The market didn't seem too phased by it and the stock traded mostly sideways. As you can see the long-term trend is intact. It will take a violation of the uptrend support and swing low to cause us to exit.


FB (-2.4%)

Facebook has traded back into its prior highs and breakout level with earnings due to be released after the close Tuesday. It is often a great setup for a stock to retest its breakout heading into an earnings report. FB has that setup here.


IP (-1.0%)

IP is a stock that loves to consolidate. Its currently in another post breakout consolidation. Nothing to do here as long as the recent higher lows are intact.


HON (+0.5%)

HON announced earnings on Friday with mixed results. International companies are struggling with the impact of the higher US Dollar, but the stock is in no immediate danger. Our stops are still well out of the way for now.


AAPL (+2.1%)

I'm still waiting for AAPL to pullback enough to give us a decent new swing low to trail our stops. That's an important concept to remember:

It is the trailing of stops that locks in our gains. Most people think of pullbacks as the time when their profits are at risk. But without pullbacks we have no way of establishing newer, higher supports.

Higher support areas are essential for the long, successful uptrends that payout large gains.


PCG (+3.4%)

Due to FreeStockCharts not updating for dividend adjustments, high yielding stocks like PCG don't look the same as a chart with dividends factored in. Often with high dividend stocks you need to look at another source for an accurate read on the price action (Finviz or StockCharts.com are good places). The $49.50 level we are using is the prior "flag" breakout level after the larger base breakout. Its the most recent swing point before the vertical move PCG made.

I am also watching the lower consolidation that is being built currently between $51-54. I'm hoping price can hold here and break higher so we can trail our stops up to that range. 


PPG (+5.0%)

PPG reported a very strong quarter this week yet the stock was rejected from making a higher high. It is still trading within its $18 range and actually closed flat on Friday's big drop.

I'm not too sure what to make of all this yet. But our stops below support at $219.80 look like the right place to be.


BA (+11.9%)

BA is still flagging and trying to build a support base. I would expect to see some strength come back into the stock soon. They will report earnings Wednesday morning, so maybe that's the catalyst it needs to resume higher. Its also possible that any weak report will cause the stock to retest its prior highs at $144. We will just have to see what's in-store this coming week.


DIS (+15.1%)

Disney continues is ascent and with the recent Star Wars buzz its hard to imagine too much damage being done here in the short-term. Disney won't report earnings for another couple weeks, so I wouldn't be all that surprised for the stock to tread water heading into the report.


SBUX (+19.2%)

Starbucks will be announcing earnings on Thursday and I'm interested to see how the market responds to it after the torrid run its had since the last one. There has been little to no weakness to speak of in the name, so they will likely need to have a very strong report to not induce a little profit taking.


BMY (+26.8%)

BMY saw a +2.5% gain on Friday with the market lower by 1%. They had some positive news on a cancer drug and the stock was able to gap higher at the open and hold pretty well. We still want to stay with this until it gives us reason not to.


UNH (+53.6%)

 What a beast. UNH reported another strong quarter last week and the stock held up pretty well.. I do see some signs of profit taking over the last couple weeks, so a pullback soon would be expected. I still think a move down to the $106 area would be healthy. After that level though there isn't much support until around $85.

Its been our biggest winner since the portfolio's inception so I'm willing to give it some room at these highs to see if it can keep it going.


--The purpose of looking at these very long-term charts is to show just how little damage is done by these so called daily "events". And for those who feel that trading is highly risky to see how tight our stops really are in relation to the current rallies in place. Everyone with their bubble predictions about how it so dangerous to invest right now. If you employ some very basic risk management you are able to participate in (bubble-like) uptrends...Which is where a huge amount of the gains are made during a Bull market.

Honestly think about those who have been "trimming exposure" during this rally. I know I've heard since 2010 how the "easy money" has been made and that it was time to start taking profits. If you followed this advice you have dramatically underperformed and have watched this market move forward without you. No wonder everyone wants a breakdown, or even just a 10% decline. This is exactly why we haven't had one, in case you needed some evidence of underexposure.

I'm currently 85% long in all my accounts which is about the same exposure level I have had for the better part of the last 3 years. I see little reason to change that posture at this time. I'm always open to the possibility of change, and when it starts to happen I will adjust with it. I just haven't seen enough evidence that this Bull is rolling over. Sure I've seen Margin Debt levels and Risk Adjusted Return graphs, But I've been seeing this for a couple years now. Its not that those data points are useless, quite the contrary. All it tells me though is that when it goes it will really go, it tells me nothing about WHEN to expect it. I'll let price do that part for me.