InvestorPlace Blogs is powered by Marketocracy. Marketocracy has authorized Investor Place Blogs as an official registrar for voting through Marketocracy's Investment Research Rating service. Registered members of InvestorPlace Blogs are linked with a Marketocracy account to establish voting power based on their performance of trading and posting on stocks.
Watching the red and green numbers can be distracting and stressful, they flicker and pulse, occasionally the whole screen seems to go red or green or explodes in a sudden paroxysm of activity. What does it mean? Is there a trend? When will it change? Last week was volatile, and I was trading much more actively than usual, both in my personal portfolio and on SLO. Many of the stocks were the same, and my emphasis was on freeing up funds and reinvesting to focus resources on my high conviction picks.
As a bottom up investor I supposedly don't care about market direction, but in point of fact I maintain a distribution/confirmation indicator along the lines suggested by William O'Neil in "The Successful Investor." It's an Excel spreadsheet where I post the volume of the NYSE and Nasdaq, as well as the closing level of the DJIA, S&P, and Nasdaq indices. Based on this input, it flags and numbers distribution days, telling me the market has been going down, as if I would not have noticed.
On Friday 11/09, I spotted what I think is an anomaly - the market was down on high volume, yet the most volatile subset of the Financials - insurance companies that insure mortgages or bonds backed by mortgages - rallied strongly. This was based on ORI filing with the SEC that it had taken a large position in PMI. Both do mortgage insurance, not that profitable lately. That pumped PMI 30%, and other similar stocks were also up dramatically. My take on it was that it marked a possible bottom - this group of stocks is definitely a high stress point on the whole sub-prime/credit crunch crisis and they were rallying furiously while the market went down, led by the Tech stocks.
I hedge my personal portfolio with puts on the OEX index, and with the VIX running high, above 25, I was hoping to sell some of them at a low point as a means of reducing the cost of my hedge. Counterintuitive, reducing your insurance while the house is on fire. In any event, based on the possible bottom, on Friday I sold some of my puts. I vote with my mouse, so to speak. I had been looking for a deeper correction, but this could be it. Timing the market is not easy, but it's worth trying, because the rewards of being properly positioned at a turning point can seriously improve results. After all, you have an opinion, whether you examine it or not, so why not think carefully about it and then act on it?
I used to be a long distance runner, going to various road races on the weekends, running 5 or 6 miles. I never did that well, but I enjoyed getting together with my fellow runners, and I always ran my best for the whole race, well back in the pack, I would concentrate on passing whoever was ahead of me. I think of the SLO as being similar - I have a race to run, and I am still putting forth my best efforts and trying to move up in the standings. Going from 312 to 189 last week, I hope to gain more ground between now and the end of the contest.
Last week marked a change of direction on my SLO portfolio. I had been planning to let my positions run unchanged through the end of the contest, but as MBI and ABK (both Financial Guarantors and both high conviction picks) sank to what I regard as extreme buy points, I increased both positions to sizes somewhat above my normal risk limits. In the process I jettisoned Proctor and Gamble, a fine defensive stock. I am fully invested, seriously overweight Financials, P&C and Specialty Insurance companies, no banks.
Perhaps the Nasdaq/Tech outperformance is coming to an end, Financials could rally, sector rotation.
| 
RSS 2.0
