Lg-Cap Portfolio Review (September)

US markets made it through statistically the worst performing month of the year, relatively unscathed. The SP500 closed modestly lower losing -0.12%, while the "higher risk" Nasdaq finished September at the highest monthly close ever adding +1.89%.

Its generally a good sign to see the higher beta and more "risk-on" Technology names leading the market higher. It suggests managers feel the economy is on firm footing and more sensitive companies are showing solid growth potential.

When markets struggle and traders are worried about approaching recessions they tend to seek safety assets like Utilities and Staple stocks. Often Technology and Industrial groups struggle as they are more sensitive to economic changes. Currently we are seeing the exact opposite as our markets sit at all-time highs. Tech is leading and safety stocks are being steadily sold as investors position for stronger growth.

Nasdaq Composite Monthly

Not only was September a new monthly closing high, but the price range of September completely engulfed the prior month's bar. The month began by heading to lower lows suggesting a larger consolidation was needed, only to then reverse and close above the prior month's high. A move like this tends to show how sentiment can be effected within the price action. Lower lows make traders position bearish only to then see the exact opposite reaction occur leaving them missing out on a new potential breakout.

The whip of investor sentiment is what powers new trends higher. The trend grows on skepticism, but as the move progresses more and more sidelined traders begin to move back in. This is the fuel that drives the market, if you can identify these shifts it will improve your read of the market significantly.

I believe we are in one of those times now. Both on a shorter-term basis and longer-term. It appears investor expectations vs the actual price movement are not in agreement. Most people you speak with are worried about the election or the Fed or slow growth. Not too many people are saying US markets could rally 50% in the next few years. Sentiment is generally poor and price action is generally strong. That is often a winning combination for savvy market participants and is the framework for how I am approaching the market here.

We had two changes to our Lg-Cap Portfolio in September. We lost LOW and added PCLN. Our Portfolio is once again maxed out; we hold 20 Long positions and one Short position: CMCSA, COST, GOOGL, JPM, MDT, BRKB, PCG, PEP, AEP, CSCO, VZ, CVX, PM, FB, UNH, GE, SHW, PCLN, EOG, MSFT, GILD Puts.

-Exit LOW

LOW moved back below its prior highs and closed below the 20 Month SMA for the first time since 2011. Its possible the trend remains higher but for now I'd rather let someone else figure out if its going to turn on a dime. We take our small loss and step aside.

For a more bullish posture I would want to see price reverse soon and finish a month back above both the 20 SMA and 77.08 (This month's high). On a turnaround here we may give it another look.

+Enter PCLN

While last month's signal was valid I preferred to let this show me a little more. For September PCLN closed at new monthly highs and appears to be emerging from a multi-year base. This is a pretty easy Long for me here. We will put our stops back below the breakout and rising 20 Month SMA.

CMCSA

Digesting the recent rally in an orderly manner.

COST

Costco came in and gave our stop a little poke. What was nearly an exit signal turned on a dime on the last day of trading for September. An item to note is COST hasn't closed a month below its 20 SMA since 2009, and it held once again here. 

So far we still have a shakeout attempt of the bull flag breakout from June. Support held where it should, now lets see if it can get going again or we will be exiting sooner rather than later.

GOOGL

Just hanging out at all-time highs.

JPM

MDT

Stops remain wide for now. A slightly deeper pullback would give us a new swing point to trail to. MDT is very strong.

BRKB

The breakout is being tested quickly here. BRKB also posted an "inside month", so a break either above or below September's range will likely be significant. For now are stops remain below.

PCG

AEP

The Utility rally had gotten a little ahead of itself and is now coming back to earth. This is still an uptrend, they still pay a large dividend, and our previous swing lows have not been tested. We are giving it plenty of room as the long-term action remains constructive. Again, know your timeframe.

PEP

PEP is killing KO on a relative basis.

CSCO

CSCO currently sits at new recovery highs.

VZ

VZ is still moving against our position but it continues to look positive long-term. This action is still a bull flag above a rising 20 SMA. No worries yet

CVX

CVX is building a bullish flag formation as the 20 SMA begins to cup the price action. As long as we are above the prior breakout I want to remain long.

PM

Our stops are still very much out of the way because remember why we are here in the first place. Short-term the action is very sloppy and fairly negative. But slide that chart out and PM has recently made new all-time highs and is consolidating the long-term breakout in an orderly way.

FB

This is giving us no reason to sell, so we don't. Easy trend to ride in this one.

UNH

Bull flag.

GE

GE is finally coming back to test support again. I would expect buyers to return in here soon.

SHW

SHW closed modestly below the prior swing low but also managed to recover and hold its 20 Month SMA. I am bending my rules a tiny bit here as the action still resembles a positive price structure. The stock is retesting the breakout area and its rising MA. I'm willing to give Sherwin the benefit of the doubt for one more month.

EOG

EOG powered higher this month and looks to be in a strong position.

MSFT

Short GILD

Our lone short position continues to trade in a downtrend. It should be noted that Biotech in general has been recovering and yet GILD is having a very hard time getting off its lows. Below the swing high at 82.10 we will stick with it.