Saturday, March 26, 2016

Lg-Cap Portfolio Review

The SP500 Monthly chart remains the one to watch. Next week will close the March bar and how it finishes in relation to its long-term moving averages will be important.


In the context of the longer-term view this remains a range-bound correction rather than a bear market. Testing the underside of the 20 Month SMA remains a major obstacle for the uptrend to continue. Generally speaking the market is said to be in a bull market when it is above the 20 Month SMA and a bear market when below. 

The trend of the top 90 stocks in the SP500 that are trading above their rising 20 Week SMA's continues to strengthen and this week printed its highest participation rate since May of last year. Now just less than 50% of these stocks are above +20 WMA's. We saw a strong positive divergence in our trend model from the September and February lows. Now the trend is improving but is between both oversold and overbought levels. Markets remain mostly in no man's land.

We are at a crossroads after a sharp short-term rally within the context of a slightly lower sloping, volatile trading range. To become more bullish we would need to see the SP500 close above the 20 Month SMA and hold, then get through the key 2,100 resistance level.

This market has something for everyone with half the major stocks in uptrending posture and either new or pending breakouts. The other half are nearing very appealing risk/reward short setups. The recent rally has exposed many of the weaker stocks and extended them to overbought readings right back into key resistance levels.

My best advice going forward is to continue to be patient. Keep solid reserves of cash and have a list of names both long and short at the ready should a more definitive direction emerge.

Our Lg-Cap Portfolio is just under 40% invested. Long- FB, GE, PM, AEP, PCG, SHW, UNH;
Short- GD; 60% Cash.

The Portfolio is currently trailing the return of the SP500 YTD with a -2.4% loss. Considering the market lost -11.5% to open the year followed by a +12% surge to get back to even, I'm quite comfortable with our stable, defensive positioning. We never saw a larger than -3% drawdown during the decline and have been slowly stepping back in as stocks setup again. Should the uptrend continue we are positioned in leadership stocks and have Cash to deploy into new emerging setups. If however we see a resumption lower our high Cash position protects us from volatility and we have many stocks that we would look to short should we receive downside confirmation.

FB
Facebook made a new all-time weekly closing high. I'm very pleased with the leadership of this name and see no reason to rock the boat. I would welcome a consolidation/pullback so we could trail our stops higher. Currently there is little defined support for our timeframe above $95. We will continue to keep our stops out of the way and let this work.

GE
GE is nearing its multi-year highs and continues to act very well. Nothing much to do here but sit back and let this one work.

PM
Philip Morris could use a rest, but who knows? The multi-year base it is emerging from was massive and those can lead to explosive moves. I believe its still very early in this developing trend.

AEP
AEP set another all-time weekly high. We can trail stops to the breakout highs of the recent range near $58.50. As I have stated before I don't want to trail stops too quickly as I really like the long-term trend in place. We are in no hurry here.

PCG
PCG is bumped right up against its prior all-time highs, but we can trail stops to its recent breakout also. Until this consolidates more we will simply stay out of the way and collect our 3.4% dividend.

SHW
Sherwin had some big news early in the week by agreeing to purchase rival Valspar for $11 Billion. The initial reaction to the offer saw SHW decline more than 6%, yet by the end of the week most of the losses had been recovered and no harm was done to the recent breakout. Should we see some consolidation here for the next few weeks we may be able to trail stops higher.

UNH
UNH keeps rolling and once again made new all-time highs. I expect some consolidation soon and have some limit orders near $118 should we see any sort of pullback/retest develop. Stops remain far out of the way for now.

Short GD
Our only Short position saw some welcomed downside confirmation this week and appears quite weak relative to the overall market. We own May $120 Puts and will be looking to take half off on a retest of the lows. 





Watchlist- Long

XOM

MSFT


SPG

MDT

GOOGL

Watchlist- Short

GILD

AAPL

BAC

C

Stay open-minded to any possibility and keep your lists ready.

Thanks for reading
-ZT

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