Lg-Cap Portfolio Review

The SP500 finished the month of August mostly flat. Following the breakout in July this appears to be very reasonable consolidation. Considering the choppy trading action that we've had over the past two years it's refreshing to actually see a breakout hold for more than a day or two. 

SP500 Monthly

It's clear to me the trend remains higher on the larger time-frames and we need to continue to be aligned with that price action. When it changes we can worry about being bearish, but for now that's simply not the reality.

One clear standout over the past month has been the relative out performance of the Financial sector. Maybe this is linked to a possible rate hike...who knows. The fact is the market is telling us something and it likely pays to listen. 

We did a little maneuvering of funds to make room for a few new entries I find very attractive. Our Large-Cap Portfolio has entered Berkshire Hathaway, JP Morgan, and EOG Resources as of the close of August.

+Berkshire Hathaway (BRKB)

While Berkshire is not a true Financial stock, it does trade as a member of the XLF. The stock is setting up a very solid trend resumption from a nearly 2-year consolidation at its highs. BRKB retook the 20 Month SMA back in March of this year and then built a 4-month "flag" consolidation right on top of the moving average. August showed a strong breakout from that flag area and is now challenging all-time highs once again. We want to be long this name if it stays above July's low and the rising 20 Month SMA. We will call it $140.85 for our purposes here and that stop is on a monthly closing basis. 

+JP Morgan (JPM)

JPM has been tightening since the middle of 2015; price formed a triangle pattern, in August it bounced right off the 20 Month SMA and made new 13-month closing highs. This remains the leading large-cap Financial stock and it won't take much to move to new all-time highs. I like this above August's low at $63.30 on a monthly closing basis. 

+EOG Resources (EOG)

I can't help notice how resilient the Energy stocks have been relative to the price of Crude Oil. Since the June high near $53/barrel Oil has now traded down to the mid-40's. What is interesting is that Energy stocks like EOG above are making new 1-year highs.

What this tells me is the market believes the price of Oil has stabilized; it appears likely Oil will remain in a trading range between ~$60 and ~$30. Since prices have more or less found their equilibrium, now Energy stocks can resume a more calculated trajectory where new growth/dividends/etc can once again be drivers of value.

EOG has always been a strong performer in the Energy space and I see no reason why that can't continue should Oil prices remain neutral. The stock is now emerging from a 26-month correction after peaking at $120 back in 2014. While EOG has rallied solidly off its lows, the 3 tight monthly closes in May, June, and July followed by a strong breakout of the downtrend suggest buyers are eager to take this higher.

We want to be long this name should August's lows hold on a monthly closing basis. Above $78.25 this is a very attractive Long position. 

High Yielding/Rate Sensitive Stocks Ahead of the Fed
 
 

Staples and Utilities seem to be bull flagging/retesting breakouts into the "assumed" September interest rate hike by the Federal Reserve. This looks positive to me and sets up a strong trade should rates remain unchanged. 

 PCG

 
AEP

PEP

PM

VZ

There is absolutely no question as to the direction of these long-term trends. All are trading at or above their prior highs. Until interest rates begin to substantially increase I believe these will remain in high demand for investors looking for income.

It would make sense that during the historically worst month for stocks and ahead of a presidential election we see some risk-off behavior for the next several weeks. Nothing major likely but a rotation back toward Staples, Utilities, and REITs would reflect a bit of a safety trade for the near term. Should the Fed not raise rates in a couple weeks, which makes sense due to uncertainty in the near months ahead, these names appear ready for another leg higher.

As always though we must stick to what the market is saying. If it keeps rocking higher, you can't be the guy sitting on the sidelines or short because you expect something bad to happen. Banks are looking strong here while higher yielding stocks have softened, and this trend could just keep on going. We can't assume they must change trajectory here until we actually get some validation through price that this scenario is playing out.

Monthly Flags Galore 

Across the rest of our holdings (which are a good mix of Technology, Healthcare, and Industrial) price action remains firm and stocks are showing many "flag" like consolidations.

FB

MSFT

GOOGL

CSCO

UNH

MDT

GE

SHW

CVX

COST

CMCSA

LOW

 We also remain Short GILD on a weekly closing basis

GILD

I know there are a lot of investors that will never be convinced that GILD can go lower, yet the price structure continues to be very bearish. Every rally is being sold sooner than the last and weakness follows the bounce failure. As long as the stock remains below the "bear flag" high near $82.20 we want to stay with this to the downside.

As always we will stick to our stops and let the price action determine our actions. With all the news flow we will be bombarded with in the week's ahead, whether it be Election related or Federal Reserve policy, understand that its just a way to make you more emotional as a trader.

Stick with the trends, ignore the noise, and do your best to not let emotions drive your portfolio decisions.

Thanks for reading
-ZT