Lg-Cap Portfolio Review

Markets remain largely range-bound. The SP500 gained 1 whole point for the week but it wasn't without action. As @michaelbatnick mentioned sarcastically on Twitter, it was a boring week. Here is what you saw if you were following closely:

SP500 for the 1st week of December

The last day of November got off to a slow start for the week. After a strong move on Tuesday, Bears took the market down 60 points (~3%) on Wednesday and Thursday. However markets obviously liked the Jobs data on Friday and rallied back more than 40 handles to close the week flat.

Depending on your timeframe these gyrations can be very actionable or completely meaningless. If you are a short-term trader there was likely opportunity on both sides this week. But for longer-term participants this was just another noisy consolidation just below market highs. 

I'm still in the camp that this market is in an extended range environment and there is no telling how long this will go on (a breakout above 2,135 would suggest a more bullish posture). A scenario I've considered is one of a longer-term sideways move. How difficult would it be for most if the SP500 just whipped back and forth in a 200-300 point trading range for multiple years? With the rise of passive index investing, where most just buy a low cost index fund and play the long-term game, a zero return market for multiple years would seemingly frustrate the majority. 

Most traders/investors have some sort of directional bias when they approach the market. Meaning they believe that the market will go higher or lower for a given period. Bears get emboldened every time there is a brief selloff. Bulls get very confident when markets begin to rally higher. Yet if this week is any evidence, both of these biases get whipped back and forth leaving nothing but a headache for those anticipating the next move. 

This market has been one of little follow through in either direction for much of the last two years. Just when it appears prices are ready to breakdown, a bid comes rushing in at key support. Then when things look positive and rosy, sellers step in and slam prices back down.

This remains a stock picker's market. Traders that have been able to find relative leaders within the choppy environment have been able to stay afloat. Those that have held the indices have seen zero return since November of last year. Others have tried to pick bottoms in declining groups like Energy/Commodities and have been subsequently punished for their anticipation.

Stubbornness by market participants is likely to lead to more pain in the future. Those that are able to stick with winners and avoid losers with an open mind will fare better.

We have one new entry for our Large-Cap Portfolio this week: AIG has re-triggered entry signals after stopping us out in mid-August. With the addition of AIG, our Portfolio is now 50% invested and 50% cash.

+Entering AIG

 While AIG has not made new highs just yet, price has been able to close two consecutive weeks above the prior weekly swing high. This week's move came on increasing volume and has triggered a 5-month cup with handle formation. 

Our indicators align nicely as well.

The weekly MACD signal has pulled back to the zero line and found support, this is a sign of continued trend strength. I also like that Relative Strength vs the SP500 continues to make higher highs and higher lows.

Taking a longer-term look at this setup shows more encouraging developments as well.

Following the epic collapse of 2007-2009 the stock bounced around violently below the $60 area. There were multiple tests of this level in 2009 and 2010, all resulting in further consolidation. It wasn't until 2014 that price was able to sustain near this resistance without being rejected lower. Early this year the stock was able to finally print higher highs for the range and the August correction found support at this prior level. It appears resistance has turned into support and suggests prices are comfortable at these higher levels.

For risk management purposes we will use the recent test of the range highs and weekly swing low at $59 as our stop.

COST

Costco will announce earnings this week on December 8th. After the rally it has had recently a consolidation/pullback wouldn't be unexpected. With the continued strength this week we can trail our stops to just below the recent swing low and prior highs at $152.

LMT

FB

Facebook appears to be carving our a bullish flag pattern. We still don't have enough of a new support area to trail stops to, but we may soon should it continue to remain strong.

GOOGL

Google remains extended without new support to trail stops. We will just have to be patient with this one.

GE

LOW

Short AXP

American Express made a marginal lower low this week and remains soft. We will soon be able to trail stops to near $74.

Long UUP

 The Dollar took a bit of a hit this week due to strength in the Euro. There is still little damage done to the longer-term trend. Should it find support near this area and move higher we will be able to trail stops to this new pivot area. For now we need to just sit tight and let this play out.

The bottom line continues to be to remain patient. As long as the market is below its highs at 2,135 we are likely to see more of these large weekly and intra-week swings. This is a range-bound market and it needs to be treated as such. We will continue to seek out the strongest names but with the understanding that risk could elevate quickly as we remain trapped below key resistance.

Thanks for reading
-ZT