Lg-Cap Portfolio Review (6/19/2015)

We had no changes to our Lg-Cap Portfolio this week. While the market has pulled back a little over the last few weeks, most of our holdings have managed to grind higher. This week 6 out of our 13 names closed at new weekly closing highs. We continue to see the top performing stocks lead despite the choppy overall market.

For those traders who focus on relative strength and leading stocks, you likely have been confused as to what all the bearish talk is all about. This week a couple notable investor surveys showed quite a bit of negative sentiment, most investors are expecting a flat to lower market over the next 6-months. These survey results are typically contrarian indicators, meaning when negative readings increase market returns tend to be better than average.

Personally I hear an awful lot of negative talking points from both the public and the financial media, many it seems are expecting a large decline in the near future. However I haven't seen many of the issues they are discussing affect my individual trades. This is still a bull market and there are many opportunities presenting themselves that offer high quality risk/reward setups. So while the majority of traders/investors, analysts, and financial media see these swirling death clouds for the market, my scans continue to pull winning stocks with strong fundamentals emerging from large technical bases.

Maybe the punditry are correct and we will see a large correction soon, but if you follow the price action of leading stocks they will alert you when its time to step aside. As its been said before, "price will not miss the next bear market". This is a cute way of saying that all large declines (aka downtrends) offer multiple exit points before the bottom ultimately falls out. We are always looking for hints that this may be occurring, but so far the larger indexes continue to make higher highs and higher lows.

Here's something you don't typically see at the beginning of a bear market:

Russell 2000 Small Cap Index makes new all-time high

This is a weekly chart of the Russell 2000, there is NOTHING bearish about this chart. Small Caps saw a significant rally through 2013, followed by an 18-month choppy consolidation of that uptrend. Since breaking above the range highs in early spring the Russell has retested it's breakout and now is resuming higher. This is classic breakout behavior: consolidation of prior uptrend, breakout to new highs, throwback to retest prior resistance, and then a resumption to new highs.

When Small Caps lead it means that investors are seeking out the higher risk (but higher returns) of the more economically sensitive stocks. I like a heightened risk appetite, it tends to be very favorable for my style of investing.

The SP500 seems to be where the Russell was about 6 months ago. Still chopping within its range and not in full breakout mode. I would expect the SP500 to follow suit soon. But as always we keep an open mind and manage risk. Should conditions deteriorate we will take defensive measures to protect our capital. 

If you simply look at the market and the leading stocks making new highs it appears more upside is in the cards. If you listen to opinions and media you will be left behind as has been the case for much of this bull market rally. 

In case you missed it, check out my recent post about Offensive vs Defensive sector rotation that is currently underway. The correct sector groups are rotating into leaders and that should not be ignored. 

HOLDINGS REVIEW

In the spirit of "leadership stocks" lets look at the 6 holdings that made new weekly closing highs this week first.

SBUX

Starbucks is relentless. The stock has been mostly vertical on the weekly timeframe for all of 2015. While the daily view shows more even trading and some consolidation periods, the weekly bars continue to rip higher. It is only reasonable that we keep stops well out of the way and give this tremendous leader room to pullback.

DIS

Disney broke its tight trading range this week with an expansionary bullish "engulfing bar". This is typically a positive sign and DIS appears poised to resume its long-term uptrend after the recent 7-week consolidation. This has been a big winner for our portfolio and with the trend resumption this week we can tighten stops to the bottom of the recent trading range at 107.65.

GILD

Gilead is now up 6 weeks in a row and 9 of the last 11. As we have seen before this is a stock that can pack some serious momentum when it gets rolling and this time is no exception. I still don't have what I'm looking for to trail stops just yet. We will likely need to see the stock pullback and then form a new swing low before we can trail up stops and lock in some gains. Its still early here and there is no need to rush things. Building big winners takes time.

GS

While most of the Financial space saw pullbacks this week, likely due to the Fed maintaining low interests rates, Goldman managed to once again close positive. You have to be impressed with how strong this name has been recently, but I wouldn't be shocked if it did pullback a little over the next couple weeks. 

UNH

UNH remains range bound at all-time highs, yet closed at a new weekly closing high. I'm not positive this marginal breakout is enough to propel the stock back into the uptrend monster it has been, but it continues to find buyers at the rising 20 WMA. After the torrid run this stock had from October to March, some extended consolidation would seem reasonable. I still remain quite positive on this position longer-term even though I feel it needs some more time in this 10 point trading range.

TWX

TWX closed at new 13-year highs this week and seems poised to get out of this year long trading range. The fact that it continues to tighten its range and press against the highs leads me to believe its nearing a key breakout point. I have been very positive on this stock for some time and maybe now its ready to finally power higher. When this range breaks I have little doubt the stock will move significantly, and I continue to feel this break will occur to the upside.

BMY

I've been pleased with how well BMY has digested its big downside reaction 4-weeks ago. Often a shock like that to a large winner will lead to more aggressive profit taking, yet the stock has been defended right at its rising 20 WMA. This week's move was particularly positive and I still remain bullish at current levels. The stock seems to simply be digesting the large gains from late 2014 and earlier this year. Until there is a break below these recent swing lows we have to remain appropriately positioned Long.

HON

The grinder continues. HON acts well enough to always push just a little higher. Higher highs and higher lows, that's about it. Until that trend is broken I like our positioning in this leading name.

AIG

AIG looks to have hit a point where it will need a consolidation/pullback before resuming higher. That is a pretty ugly bar and is called a "shooting star". Typically this sort of trading action suggests buyers are getting tired and are in need of some rest. The recent run from February to June has been fantastic, but over the short-term some weakness is likely. Our stops have already been trailed to the breakout area and just below our entry so there is no need to get antsy. I believe the upside potential in AIG can be substantial, there is little reason besides boredom to try and trade the next 3-4 points. If the breakout fails our stops will be triggered and we will exit for a very small loss (now less than .20R).

We essentially have minimal risk and large potential reward; I enjoy sitting on a 7% gain with little to no risk, that's where we are currently with our AIG holding. If the trade fails we take hardly any hit to our capital while leaving the possibility of unlimited upside.

AAPL

AAPL remains in a relatively tight consolidation. It has been a steady drag on momentum for the broader indexes as it holds a large weighting in the SP500, DJIA, and COMP. This is just the second time its closed a week below its 20 WMA in the last 18 months. A swift snap-back above would be a good sign going forward. I will want to continue to hold AAPL above the range lows at 123.25.

WFC

Wells like the rest of the banks saw some profit taking come in this week, but it remains in breakout mode and is regularly setting new all-time highs. We will stick with this one as long as its making higher highs and higher lows.

FB

Facebook continues to meander around between $85 and $79. I am still constructive on the name at current levels, but I will want to see some new highs soon. The range lows at $78 remain a strong place for our exit point.

CSCO

CSCO had a nice finish to the week but is still just hanging out near the prior breakout highs. We've owned this name since February and its never really gotten going. However I do find the recent price action positive and I would hope for a resolution higher soon. Otherwise stops remain near the recent swing lows.

That's all I have for this week. I hope everyone has a happy Father's Day!

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