Lg-Cap Portfolio Review

Had you been in hibernation for the past few months you would likely have been better off than if you were actively following the market. The sideways environment we have been experiencing in 2015 is still in place despite recent efforts to break the market higher.

Looking at the Weekly chart of the SP500 you can see that with the close Friday we are no better off than we were at the end of February. The SP500 has traded between a high of 2,134 and a low of 2,039 over the past 15 weeks, yet here we sit unchanged for more than a 3 months.

Something constructive we can take away from the recent sideways trading is that prices have been able to hold (on a weekly closing basis) above the February and March highs. We can also see steadily higher trending ranges. There has certainly been a fair amount of top calling recently as well as a bullish cohort expecting a breakout higher, however sustained momentum in either direction has been lacking.

While the Bears continue to point to any divergence they can find and all the reasons the market should crumble, there remains a strong demand to buy any and every dip. This underlying support for stocks continues to force the trend higher albeit at a snail's pace.Until the Bears can produce some consistent pressure and begin to break trailing support levels, the benefit of the doubt has to be given to the Bull camp and long-term uptrend.

 Daily chart

Something the "early" Bears fail to see is that selling pressure has not damaged the trend in any meaningful way. We continue to see swing low areas defended and intact. As long as this is the case and higher lows remain in place I see no reason to try to anticipate the end.

Another key hint that the market is not currently high risk is to look at the status of a group of moving averages. Switching back to a Weekly chart, this is how the SP500 looked during the most recent market peak in 2008:

As a market trends, the direction of that trend can be seen in a more smooth manner by using moving averages. When these averages are all moving in the same direction is when you have a trending market. For the better part of 2007 these averages were all moving in the same general direction and were layered in order of their timeframe. We refer to this layered movement as "stacked". This means the 5-average is above the 10-average, the 10-average is above the 15-average and so on. Where you need to begin taking defensive positioning is when this "stacked" formation shifts and changes direction. Above you can see that by January of 2008 the slope and relative positioning of the moving averages had completely reversed. Instead of the averages rising and in ascending order they all began declining and were in a reverse "stacked" formation. This was your big warning to be defensive in your allocations.

With that in mind, here is a look at the market's current posture with relation to these same moving averages:

Apart from a few short-term wiggles these averages have been moving higher and in a "stacked" uptrend formation. For this market to truly be at a top we would need to see much more deterioration and a change in this "average" trend.

While no indicator is perfect in terms of its predictive ability, having a process that aligns you with the dominant trends will be the most effective way to approach the markets over the long-term. There will be false signals and shakeouts along the way (see 2010 and 2011 for examples of this), but by simply not over-thinking or attempting to outsmart the market you will improve your returns dramatically.

--We had one exit for our Lg-Cap Portfolio this week. We received stop signals for Boeing (BA).

Exiting BA

Boeing busted through our stops this week in a convincing way. Not only did it fail a retest of its 20 WMA, but this week's close was also below the "hammer" low from 3 weeks ago. This is not bullish behavior and set new 85 day lows. We will take our exit for roughly a +7% gain.

I still am constructive long-term here as the trend is still higher overall, but for our purposes its time to transfer the short-term risk to someone else.

Our remaining holdings are listed in inverse order to their current performance within our Portfolio. As always we will start with our laggards:

FB

Facebook continues to struggle with resistance in the $81 area and is once again challenging its 20 WMA. The trend (if you can call it that) is quite sloppy and unconvincing. Currently the stock is wedged between our stop at $78 and overhead resistance at $81. At some point this will decide a direction, but for now we will just wait for it to declare itself and not overreact to daily wiggles.

TWX

TWX continues to tighten its range near multi-year highs. When this action finally resolves itself there should be a convincing move in one direction or the other. Our focus will be on the range highs and lows. A move either above ~$87 or below ~$82 on strong volume will give the best indication of where this is headed.

Tight trading ranges near highs are often bullish, but we will simply have to wait and see.

CSCO

After a slow start, CSCO has come right back to the highs and is acting quite resilient. Once a new breakout occurs we will look to trail our stops higher. But for now the current placement is just fine.

WFC

Wells tried to breakout last week but was met with late week sellers. This week they tried to push it lower but found buyers quickly. I am certainly encouraged to see it continually pressing against the highs. Its also abundantly clear that the pullbacks are progressively shallower and are in a "higher low" trend. Our stops sit below the most recent weekly swing low, I feel the bullish thesis would be put on hold should our stop level fail.

AIG

AIG has had an up, down, up, down month. However the trend is clear and the stock is well above the prior highs of 2014. I see no trouble until the breakout fails. Any downside above $54 is simply noise and consolidation within a larger uptrend.

HON

Honeywell is doing what it does, which is to fade breakout moves. If you have been trying to buy breakouts in this name you are likely frustrated. But again, the longer term trend is well established and the stock continues to make higher highs. Above $101 this is just fine.

AAPL

AAPL is steadily moving higher within its consolidation. The longer prices can stay near the highs of the range the better the chances of an upside resolution. Last week set a new weekly closing high and this week gave much of that move back. But no real harm is done as long as the stock can hold above the $123 support lows.

GS

GS has been on fire recently, a rest here would do it some good. We can trail our stops up to $186.90 on a weekly closing basis which is still far from trouble currently. The long-term chart looks very constructive with a substantial breakout underway.

GILD

GILD has been impressive considering the choppy environment the major indexes have been mired with. This is what we look for: strong trending stocks moving out of rest periods that lead the market higher. We want leaders in our Portfolio and GILD is demonstrating solid leadership at this time.

BMY

BMY was on its way to setting multi-year highs this week before a sudden and sharp slam in the late afternoon on Friday. All stocks have inherent risk, drug makers tend to see risks elevate when there are major results for a hot drug in the pipeline. BMY released some results that inspired selling on the part of traders.

The decline found buy support right near our stops and then bounced back to finish above the 20 WMA. As far as we can know it appears the trend is still intact, but if something were to change in the next couple weeks we will act accordingly and cut our risk. For now we still hold the position and have quite substantial open gains even if a $62 stop violation occurs, so we can afford to be patient.

UNH

UNH seems to be doing its best to "correct" through time rather than price. I have been concerned slightly by the recent signs of selling pressure as the stock has challenged new highs. While at the same time any sell-off has found swift buy support near the $112 level. There is a clear range developing between the highs at $124 and the swing lows at $112. That is roughly a 10% trading range and anyone looking to play swings can trade against those levels until a breakout takes place.

We will keep our stops at the range lows and look for a positive resolution higher as long as those lows are intact.

SBUX

SBUX set new all-time highs this week and continues to trade bullishly. Of all my holdings this one feels the most like a true leader. There has been just perfect trending activity for all of 2015.

Just for perspective the SP500 is currently up 1% in 2015. SBUX is +27% YTD. These are the moves we want to catch and hold onto for dear life. We have done that all year long and I see no reason to quit now. Stops can trail to $46.90. If you are trading SBUX more aggressively I also think $49 on the Daily timeframe is an excellent stop location.

DIS

Disney has been trading quite tightly at all-time highs. There are just simply no aggressive sellers currently and buyers are there for even the smallest dip. We can trail stops to $105 on a weekly basis.

Disney is currently +17% YTD

--The bottom line is the market sits 1% off all-time highs, this is not a bearish indicator. The trend is higher, swing lows are intact and many stocks remain in market leading posture. It is our job to find those winning stocks and get on for the ride. Once the tide actually begins to turn then we can look at the Bearish case. Anyone who is telling you "this is the top" or "the market is going to crash soon" is lying and trying to scare you into an emotional decision.

The truth is nobody knows what the future holds. All we can do is position ourselves as correctly as possible in relation to the market's overall direction. That direction is clearly higher and you should be shaping your strategy around that reality. Predictions, opinions and beliefs are not an investing strategy. It has been proven throughout history that humans are terrible at predicting financial markets, why do you think this time is any different?

Have a strategy that aligns you with the dominant trends in the market; Be invested while the market goes up and protect capital when it goes down. 

GL trading! -ZT

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