Latest Economic Comparisons for the United States
Leery but not in Denial
for the upcoming week beginning July 12, 2016
With Market Questions and Answers
Summary Comments:
I walked around this week feeling as though I was missing something. I was struggling, and continue to struggle, with the justification for the advance in the market from a valuation perspective, while recognizing that I cannot ignore the breadth and depth of the participation that is the backbone of the advance. This is a market that simply wants to go higher whether that advance is logical or not.
I remember feeling this way as we came out of the 2008 financial crisis. The valuation metrics in 2009 and 2010 were not supportive of the advance at that time, an advance which was being driven by an oversold market and the monetary support from the FED through Quantitative Easing. I keep thinking that, similar to 2009 and 2010, the forecasts for cash flow growth must be incorrectly low and that the market is recognizing future strength that the analysts are missing. I must admit that I presently do not see where this future accelerated growth is to come from, given the current 2017 forecasts for cash flow growth are already at 12.41% over the forecasted 2016 cash flows. With that growth assumed to be in the bank, the current market is trading at 16.77X of the 2017 cash flows. A very fully valued multiple.
If it is not unanticipated cash flow growth that is driving the market advance, should the foundation be in the yield spreads between fixed income and equity earning yields? To test this hypothesis, consider the spread of the earning yield of the S&P 500 over the ten-year Treasury yield. It presently sits at 2.70%. Over the past year it has ranged from a low of 2.20% to a high of 3.12%. The current differential is right in the middle of the pack, so absent continued declines in bond yields, the current earning yield on equities is not, based on recent history, a powerful driver in support of equity purchases, particularly given the capital risk of equity price declines. The yield spread does support the equity pricing we have, but this further assumes Treasury pricing is rational with the Ten Year at 1.36%. I wonder about that given the small differential between 3-month money and ten-year money which is approximately 1%. Risk-Reward just feels completely out of touch with reality.
Be careful out there.
Prior week’s investing activity: A focus on extending the short side hedges to protect the equity gains was paramount. The strength of the market move higher is pushing valuation boundaries and as such the increase in short positions seemed appropriate. The net impact of the shorts was to shave the YTD gains on the overall Connolly portfolio. The extended gains with the Gold and Silver miners was welcome, but I sold into some of the strength to reduce the overall PM position. I was, and remain, very leery of the market at its present levels, but cannot deny the upward momentum that is present.
My portfolio’s YTD performance vs the market, and its current composition as of July 8, 2016, are as follows:
Connolly Portfolio YTD gain as of July 8, 2016 equals + 9.85%
S&P 500 Index YTD gain as of July 8, 2016 equals + 4.21%
NASDAQ Index YTD loss as of July 8, 2016 equals – 1.01%
The Portfolio’s composition as of July 8, 2016 is as follows:
• Cash 42.3%
• Equities 39.1%
• Gold 15.4%
• Fixed Income 3.2%
Forecast for the coming week: U.S. equity market momentum is carrying the market higher. The news releases for this week are notable from a consumer and inflation perspective. Given the employment strength from last week and the muted market reaction to BREXIT, a refocus on a FED Rate increase may emerge in the traders’ dialogue. Expect the week to begin with strength and follow-thru, but an early upward move may very well fade into the latter part of the week.
What are DJIA, DJT, DJU, S&P and NASDAQ metrics indicating?
The upward pressure on what had been ceilings is beginning to press through resistance points on the individual charts of the major equity indexes. I am surprised by this strength. The S&P and DJIA are at that point where any closing week gains will give support to the view that we are out-of-the-woods in terms of a downward channel governing future market behavior. The NASDAQ is also looking to break a mid-level point of resistance and should be watched for additional gains.
Relative Strength: The level of up and down points in the RS index are more or less offsetting. The roll-off of prior week down action will bring the RS indicator into overbought territory in the coming four weeks, so a technical correction down between now and the end of August is in the cards, but the near-term strength is the dominant play at the moment.
Price Earnings multiples are 24.62X for the S&P 500 and 19.40X for the DJIA, indicating an expensive market to invest in at these levels.
The DJT rose nicely but remains in a declining chart pattern. It has been a leading indicator of the broader market. The continued selling of the Transports is a strong negative for the overall market.
The DJU has moved to a new high as investors seek yield reflecting the cautionary investing strategy of a market that poses greater risk then reward for investing in growth oriented businesses. Safety is being sought.
What is the current score on the “Market Tells metric”?
The Market Tell indicator, which is a comparison of the market’s current cash flow and valuation metrics to its historic medians, closed the week at negative 132. As an FYI, when we have a high positive reading this is a strong buy signal and when we have a high negative reading it is a strong sell signal. The -132 reading indicates an expensive market. The highest negative reading here was -182 on November 6, 2015. The strongest positive reading was +28.5 on February 12, 2016. Last year at this time (July 10, 2015) the reading was -112, which foretold the summer of 2015 declines in equity prices. We are at a similar place with declining cash flow estimates for the year occurring when high current multiples characterize the market.
The Portfolio’s Cash flow multiple based on expected 2016 full year results is 18.86X. This is a relatively high reading of price to cash flow when compared to the historic median of 16.96X. This is getting closer to an extreme overvalued market (19.72X was last extreme point before a sell-off). The expectation of earnings and cash flows are falling in a market that desperately needs improving operating performance to justify its current value. This does not bode well for equity price appreciation from this point forward.
Comparing current equity prices as the week closed on the 187 portfolio companies to their Discounted Cash Flow values indicates 72 companies were priced above their DCF value which exceeds the historic average of 61 for the portfolio. This supports an expected fall in the market as more companies have become overvalued and need to correct lower.
The dollar spread between the Current Price and the Discounted Cash Flow price utilizing 2017 cash flow projections on the 187 Portfolio Companies is now at $16.55. The difference or spread today is below the historic median of $22.38. A higher spread indicates greater value to invest in whereas a lower spread indicates subpar returns will be realized from investing at current prices. In this environment it should be apparent that future performance has been pulled into the current pricing in a manner that reduces potential gains absent a significant improvement in future earnings and cash flows.
What is the position of the weekly net up down Vol/Issues?
The week’s volume and issues were perfectly aligned with the market move higher. Strength in volume on the buy-side and the overall participation as reflected in the number of issues advancing confirmed the strength of the move higher.
What are the daily point vs issues and point vs volume measures indicating up or down?
The daily metrics of (1) index point moves being supported by the daily advancing or declining volume, and (2) the index point moves being supported by the daily rising and falling number of issues traded, confirmed the support for the market.
Where are the New Highs and Lows moving toward?
We are seeing a meaningful rise in the number of companies hitting new 52 weeks highs. The broadening of the issues that are advancing is a positive as leadership is no longer from just a few.
How well are Market Tells correlating with Market trading internals?
The technical market indicators and the Market Tells of valuation are not in alignment. This is an indication that future volatility will arise to bring about a resolution of this imbalance. As we continue to extend gains the level of risk for a dramatic decline to adjust the price of the market to the cash returns from the market becomes increasingly dangerous. Close attention needs to be paid to exogenous events that could ignite a market reversal of current buy-the-dip psychology.
What is the composite reading of the Calendar, Environment, Duration, Action, Trend, Emotion and Valuation Index (“CEDATEV”)?
The reading is 0 (zero). This score reveals a market that has many competing influences. The world events and economic trends coupled with an expensively priced group of stocks and bonds is dancing on emotion that reflects the climb over a wall of worry. I see great risk in this combination.
Contributors are:
Environment
Valuation
Positive in the following areas:
Action
Trend
Neutral in the following areas:
Calendar
Duration
Emotion
Other:
Bitcoin fell this week to $645 per coin. The continued volatile movement in this digital currency is telling us something important. I believe it is the economic and political turbulence in world markets that is creating buying and selling here, and it reflects a foreshadowing of greater uncertainty and loss of confidence in the Central Banks of the world. Something is happening in the alternative currency sphere that should not be ignored in terms of the implications for the broader financial markets. The per unit value based in the low $400 area over the past four months. Over the past year, the price has increased by over 200% from the $230 area. I hold a position in Bitcoin as we move closer to digital currencies vs paper money and coinage. Please note I also own stock in the company PayPal (symbol “PYPL”) and Square (”SQ”) given the success and reach of digital online payment platforms.
The Dollar Index has been firming and now sits at 96.27. Over the past twelve months it has traded between 93 and 100. The dollar has appeared to be range-bound in this area. The latest global economic data failed to indicate economic improvement in the United States and in other geographies throughout the world. We should see the US Dollar act as a safe haven.
Gold closed the week at the $1,367 per ounce. The global phenomena of negative interest rates on sovereign debt in many parts of the world are giving support to the price of Gold. In the past week, the Gold and Silver Miner equities rose meaningfully. I believe there is much more room to the upside for these equity holdings. Given the continued global uncertainty and currency volatility issues that exist, I do see material price increases for gold and silver in the foreseeable future and for Gold to advance much higher above the $1,300 level. I will therefore maintain my PM positions (with modest sized exits and entrances to capture periodic swings above or below a normalized trend) to offset potential equity price declines from the broader market.
The Ten-year bond yield dropped dramatically and closed at 1.36%. We are now at yields that seem irrational given risk reward profiles of return. The economic signals I see from the latest government releases show an economy that is contracting. The behavior of the Bond market is confirming that economic slowness. Of concern is a flattening of the yield curve (recession) and the absence of economic activity that a steeper yield curve, if we had one, would indicate. Again, the safety trade of the US is a dominant theme, and yields may fall further as the safety and liquidity of the U.S. market is sought.
Commodities: This week we saw the CRB commodities index decline. The softness in economic demand factors and the rise in the value of the U.S. Dollar are negatives for the pricing of Oil and the Industrial commodities.
The High Yield vs Investment Grade spread contracted to reach prior support and is an indication of a perceived low level of risk in the high yield market. This is also supporting the rising equity market and the risk-on trade. We closed this week at a spread of 3.897% and the indication was to take risk-on. Over the past two weeks the range has been 3.94% to 4.352%, and we are now reaching a new low. High Yield is at 6.513% and Investment Grade is at 2.616%. If the oil market fails to hold the price of a barrel near the $50 mark or higher, the health of high yield market may once again show pressure. A fall in oil will be problematic for the High Yield market and a general negative for the overall market.
That about covers it for this week.
As always, have a great week!
Tom
Equity Portfolio Activity for the Week Ended July 8, 2016
Commentary: I must say this past week was frustrating and really has me scratching my head. Valuations are stretched and world news is troublesome. Yet the US market is advancing as if the crystal ball shows only good times to come. Do not ignore the upward momentum in this market.
From a valuation perspective I added to short positions, which all suffered during the week. Fortunately, Precious Metals continued to rally, as well as the core equity holdings. I decided to trim a bit of the Gold and Silver miners on Friday, and given some weak price action in the early part of the week I added more First Solar and Synaptics. Celgene has been on my list for quite some time and I added it as well. I may reduce short exposure in this upcoming week, or switch the nature of positions to limit downside results. Check on the Daily action section of this website for real time updates to see whether I make the changes I am thinking about.
New Additions
1. Celgene
Increase in Holdings
1. First Solar
2. Proshares Ultra Short S&P 500
3. Proshares Ultra Short VIX
4. S&P E-Mini Short Futures Contract September Expiration
5. S&P July Put Options
6. S&P August Put Options
7. Synaptics
Complete Dispositions
1. None
Partial Decrease in Holdings
1. Hecla Mining
2. New Gold
Overall Equity Portfolio holdings
1. Alamos Gold
2. ASA
3. Arm Holdings
4. Bank of America
5. Bank of America Preferred C
6. BB&T Corp
7. Brocade
8. Brookfield Total Return
9. Celgene – Opened New Position
10. Chevron
11. Con Ed
12. CISCO
13. Corning
14. Daktronics
15. Disney
16. Eastman Chemical
17. Endo Int’l
18. Ericsson
19. First Solar – Increased position
20. Ford
21. General Electric
22. Golar LNG
23. GreatBatch (now Integer Holdings Corp)
24. Greenbrier
25. Halliburton
26. Harmony Gold Mining
27. Hecla Mining – Reduced position
28. Hershey
29. Ingredion
30. IROBOT
31. Jabil Circuit
32. JP Morgan
33. JP Morgan Preferred D
34. Legg Mason
35. Matson
36. Microsoft
37. MTN Group
38. Mylan
39. Netflix July 15 Put Options
40. Netflix Short Put Options July 22 Expiration
41. New Gold – Reduced position
42. Noble Corp
43. Nokia
44. Nordic American Tanker
45. Norfolk Southern
46. Nucor
47. PayPal
48. Phillips 66
49. Pro Shares Ultra Short S&P 500 – Increased position
50. Pro Shares Ultra VIX Short – Increased position
51. Qualcomm
52. S&P E-mini short futures – Increased position
53. S&P 500 August Put Options – Increased position
54. S&P 500 July Put Options – Increased position
55. Sarepta Therapeutics
56. Square Inc
57. Synaptics – Increased position
58. Ten Cent Holdings
59. Tessera Technologies
60. Tetra Technologies
61. Travelers
62. Twitter
63. Viacom
64. Wells Fargo
65. Yum! Brands
Equity Portfolio Activity for the Week Ended July 1, 2016
Commentary: This was a week that had two distinct sets of opportunities. On Monday, it was a day to buy equites and close/reduce short positons as the market completed its sell-off from last Friday’s Brexit vote. From Tuesday through Friday it was a time to sell less favored equities as they rose in value, to increase short positions, and to add to volatility. I did all of the things noted here, and as displayed below the individual actions I took reflect this behavior. I expect the run higher in equities is nearing its end, and have positioned my portfolio to benefit from this exhaustion move. I have also selectively added to individual equities that I view as good long-term holdings given the Monday sell-off, and to my precious metal holdings with the addition of Harmony Gold Mining.
New Additions
1. Harmony Gold Mining
2. Mylan
3. S&P 500 Put Options Aug 19 Expiration
Increase in Holdings
1. First Solar
2. Golar LNG
3. Great Batch (changed name this week to Integer Holdings Corp)
4. Greenbrier
5. Legg Mason
6. Netflix July 15 Put Options
7. New Gold
8. Nokia
9. PayPal
10. Proshares Ultra Short S&P 500
11. Proshares Ultra Short VIX
12. S&P E-Mini Short Futures Contract September Expiration
13. S&P July Put Options
14. Synaptics
15. Tetra Technologies
Complete Dispositions
1. Apple (Bought and sold during the week)
2. Google (Bought and sold during the week)
3. Morgan Stanley (Bought and sold during the week)
4. Reaves Utility Income Fund
5. S&P 500 Put Options Jul 29 Expiration
Partial Decrease in Holdings
1. Corning Glass Works
2. Netflix Short Put Options July 22
Overall Equity Portfolio holdings
1. Alamos Gold
2. ASA
3. Arm Holdings
4. Bank of America
5. Bank of America Preferred C
6. BB&T Corp
7. Brocade
8. Brookfield Total Return
9. Chevron
10. Con Ed
11. CISCO
12. Corning – Reduced position
13. Daktronics
14. Disney
15. Eastman Chemical
16. Endo Int’l
17. Ericsson
18. First Solar – Increased position
19. Ford
20. General Electric
21. Golar LNG – Increased position
22. GreatBatch (now Integer Holdings Corp) – Increased position
23. Greenbrier – Increased position
24. Halliburton
25. Harmony Gold Mining – Opened New position
26. Hecla Mining
27. Hershey
28. Ingredion
29. IROBOT
30. Jabil Circuit
31. JP Morgan
32. JP Morgan Preferred D
33. Legg Mason – Increased position
34. Matson
35. Microsoft
36. MTN Group
37. Mylan – Opened New position
38. Netflix July 15 Put Options – Increased position
39. Netflix Short Put Options July 22 Expiration – Decreased position
40. New Gold – Increased position
41. Noble Corp
42. Nokia – Increased position
43. Nordic American Tanker
44. Norfolk Southern
45. Nucor
46. PayPal – Increased position
47. Phillips 66
48. Pro Shares Ultra Short S&P 500 – Increased position
49. Pro Shares Ultra VIX Short – Increased position
50. Qualcomm
51. Reaves Utility Income Fund – Closed position
52. S&P E-mini short futures – Increased position
53. S&P 500 August Put Options – Opened New position
54. S&P 500 July Put Options – Increased position
55. Sarepta Therapeutics
56. Square Inc
57. Synaptics – Increased position
58. Ten Cent Holdings
59. Tessera Technologies
60. Tetra Technologies – Increased position
61. Travelers
62. Twitter
63. Viacom
64. Wells Fargo
65. Yum! Brands
Balancing on the High Beam
for the upcoming week beginning July 5, 2016
With Market Questions and Answers
Summary Comments:
A holiday weekend shortened letter. Happy 4th!!
Prior week’s investing activity: Very active in shorting and moving pieces around the board. Rise in precious metals and the equity market after Monday provided new opportunities to invest based on market metrics that favored longs and shorts. The week’s returns and overall performance were very good, with the double digit ROI threshold for my portfolio exceeded for the first time this year.
My portfolio’s YTD performance vs the market, and its current composition as of July 1, 2016, are as follows:
Connolly Portfolio YTD gain as of July 1, 2016 equals + 10.25%
S&P 500 Index YTD gain as of July 1, 2016 equals + 2.89%
NASDAQ Index YTD loss as of July 1, 2016 equals – 2.89%
The Portfolio’s composition as of July 1, 2016 is as follows:
• Cash 43.9%
• Equities 37.2%
• Gold 15.7%
• Fixed Income 3.2%
Forecast for the coming week: Market has been on a roll higher since last Monday’s losses, recovering all of the declines from BREXIT. This buy-the-dip behavior will not end well. I am building new short positions to prepare for a market resumption of declines. Healthy positions in cash are advisable.
What are DJIA, DJT, DJU, S&P and NASDAQ metrics indicating?
Everybody joined the party but the equity indexes and transports are all reaching points of upper resistance. The Dow Jones Industrial Average, the S&P 500 Index, the NASDAQ index and the Dow Jones Transports are all in a downtrend channel even with the past week’s rise.
Relative Strength: I do not see the market as being resilient in its current state, and the level of up and down points in the RS index are offsetting.
Price Earnings multiples are close to 24.31X for the S&P 500 and 19.19X for the DJIA, indicating an expensive market to invest in at these levels.
The DJT rose nicely but remains in a declining chart pattern. It has been a leading indicator of the broader market. The continued selling of the Transports is a strong negative for the overall market.
The DJU has moved to a new high as investors seek yield reflecting the cautionary investing strategy of a market that poses greater risk then reward for investing in growth oriented businesses. Safety is being sought.
What is the current score on the “Market Tells metric”?
The Market Tell indicator, which is a comparison of the market’s current cash flow and valuation metrics to its historic medians, closed the week at negative 134. As an FYI, when we have a high positive reading this is a strong buy signal and when we have a high negative reading it is a strong sell signal. The -134 reading indicates an expensive market. The highest negative reading here was -182 on November 6, 2015. The strongest positive reading was +28.5 on February 12, 2016. Last year at this time (July 3, 2015) the reading was -115, which foretold the summer of 2015 declines in equity prices. We are at a similar place with declining cash flow estimates for the year occurring when high current multiples characterize the market.
The Portfolio’s Cash flow multiple based on expected 2016 full year results is 18.91X. This is a relatively high reading of price to cash flow when compared to the historic median of 16.96X. This is getting closer to an extreme overvalued market (19.72X was last extreme point before a sell-off). The expectation of earnings and cash flows are falling in a market that desperately needs improving operating performance to justify its current value. This does not bode well for equity price appreciation from this point forward.
Comparing current equity prices as the week closed on the 187 portfolio companies to their Discounted Cash Flow values indicates 73 companies were priced above their DCF value which exceeds the historic average of 61 for the portfolio. This supports an expected fall in the market as more companies have become overvalued and need to correct lower.
The dollar spread between the Current Price and the Discounted Cash Flow price utilizing 2017 cash flow projections on the 187 Portfolio Companies is now at $16.20. The difference or spread today is below the historic median of $22.38. A higher spread indicates greater value to invest in whereas a lower spread indicates subpar returns will be realized from investing at current prices. In this environment it should be apparent that future performance has been pulled into the current pricing in a manner that reduces potential gains absent a significant improvement in future earnings and cash flows.
What is the position of the weekly net up down Vol/Issues?
The week’s volume and issues continue to reflect divergent views.
What are the daily point vs issues and point vs volume measures indicating up or down?
The daily metrics of (1) index point moves being supported by the daily advancing or declining volume, and (2) the index point moves being supported by the daily rising and falling number of issues traded, appear to be in a transition stage from being directionally upward in nature to more neutral.
Where are the New Highs and Lows moving toward?
On Friday we reached a total of 411 New 52 week highs for the day. Very positive reading, but in the context of the past 52 weeks, this is logical given the move in the indexes and the proximity to new index highs.
How well are Market Tells correlating with Market trading internals?
The technical market internal indicators and the Market Tells are not in alignment. This is an indication of volatility that needs a resolution one way or the other.
What is the composite reading of the Calendar, Environment, Duration, Action, Trend, Emotion and Valuation Index (“CEDATEV”)?
The reading is -7. This score reveals a market that is turning lower, one that is showing bear market tendencies in the face of expensively priced stocks and bonds, poor economic results, and a world of increasing political uncertainty. The range is from +7 to -7 and we are at an extreme negative level. Contributors are:
Calendar
Environment
Duration
Action
Trend
Emotion
Valuation
Positive in the following areas:
None
Neutral in the following areas:
None
Other:
Bitcoin rose this week to $671 per coin. The continued volatile movement in this digital currency is telling us something important. I believe it is the economic and political turbulence in world markets that is creating buying and selling here, and it reflects a foreshadowing of greater uncertainty and loss of confidence in the Central Banks of the world. Something is happening in the alternative currency sphere that should not be ignored in terms of the implications for the broader financial markets. The per unit value based in the low $400 area over the past four months. Over the past year, the price has increased by over 200% from the $230 area. I hold a position in Bitcoin as we move closer to digital currencies vs paper money and coinage. Please note I also own stock in the company PayPal (symbol “PYPL”) and Square (”SQ”) given the success and reach of digital online payment platforms.
The Dollar Index now sits at 95.64. Over the past twelve months it has traded between 93 and 100. The dollar has appeared to be range-bound in this area. The latest global economic data failed to indicate economic improvement in the United States and in other geographies throughout the world. We should see the US Dollar act as a safe haven.
Gold closed the week at the $1,340 per ounce. The global phenomena of negative interest rates on sovereign debt in many parts of the world are giving support to the price of Gold. In the past week, the Gold and Silver Miner equities rose meaningfully, but less then I would have expected. I believe there is much more room to the upside for these equity holdings. Given the continued global uncertainty and currency volatility issues that exist, I do see material price increases for gold and silver in the foreseeable future and for Gold to advance much higher above the $1,300 level. I will therefore maintain my PM positions to offset potential equity price declines from the broader market.
The Ten-year bond yield dropped dramatically and closed at 1.44%. We are now at the low yields last seen in 2012 (1.64%). The economic signals I see from the latest government releases show an economy that is contracting. The behavior of the Bond market is confirming that economic slowness. Of concern is a flattening of the yield curve (recession) and the absence of economic activity that a steeper yield curve, if we had one, would indicate. Again, the safety trade of the US is a dominant theme, and yields may fall further as the safety and liquidity of the U.S. market is sought.
Commodities: This week we saw the CRB commodities index remain flat. The softness in economic demand factors and the rise in the value of the U.S. Dollar are negatives for the pricing of Oil and the Industrial commodities.
The High Yield vs Investment Grade spread contracted in support of a rising market and a risk-on trade. We closed this week at a spread of 4.059% and the indication was to take risk-on. Over the past two weeks the range has been 3.94% to 4.352%. High Yield is at 6.768% and Investment Grade is at 2.709%. If the oil market holds the price of a barrel near the $50 mark or higher, the health of high yield market should continue to improve. A fall in oil will be problematic for the High Yield market and a general negative for the overall market.
That about covers it for this week.
As always, have a great week!
Tom
Preservation of Wealth and the Return of Capital
for the upcoming week beginning June 27, 2016
With Market Questions and Answers
Summary Comments:
The analyst cash flow revisions to their full year 2016 company estimates are arriving and they are not pretty. The political world is feeling tremors in every corner of the globe. Economic results are uninspiring and flat lining, currency markets are volatile, and credit markets are entirely dependent on Central Bank policies.
In this environment we have equities at valuations that are expensive, justified by the “professional” traders as rational because of the pursuit of yield that is best found in dividends versus interest coupons. I see nothing in any of this that tells me this will end well, or that we will escape a dramatic revaluation lower that must happen if we are to rebuild a foundation that is stable and supportive of organic growth. Preservation of Wealth and the Return of Capital is today more important than the Return on Capital. Remember that!
Prior week’s investing activity:
Prudence versus being a Cowboy dominated my investing this past week. Through the close of the U.S. markets on Thursday, I ignored the noise around the UK vote on remaining in or leaving the European Union. Instead I focused on the markets valuation and the behavior of the market coming into the vote. By Thursday I was convinced that being short the market was a winning strategy regardless of the Brexit outcome. Why? Because the pre-vote buying activity by market participants to get ahead of what they believed would be a rally on Friday from a UK vote to Remain would, to me, only result in a buy the rumor sell the news moment given the expensive nature of the market. Profits in this case would be had from selling before Friday even if the UK vote went as the experts projected. On the flip-side, if the vote in the UK resulted in an Exit, the market would sell-off as well. It seemed pretty straight-forward that the correct move by Thursday was to short the market. I did so, and the results are reflected below.
My portfolio’s YTD performance vs the market and its current composition as of June 24, 2016, are as follows:
Connolly portfolio YTD gain as of June 24, 2016 equals + 8.75%
S&P 500 Index YTD loss as of June 24, 2016 equals – 0.32%
NASDAQ Index YTD loss as of June 24, 2016 equals – 5.98%
The Portfolio’s composition as of June 24, 2016 is as follows:
• Cash 44.3%
• Equities 38.0%
• Gold 14.2%
• Fixed Income 3.5%
Forecast for the coming week:
I expect more turbulence in the markets and some form of intervention into the normal operations of the market by governmental authorities. Margin call pressures, portfolio re-balancing, quarter-end positioning, and high degrees of uncertainty in an expensive market indicate to me that we will continue to see pressure to the downside. The likely swings in the market, both higher and lower, could be dramatic, but the overriding path is lower. I will be keenly focused on my portfolio’s position and adjustments to that position given the events to come. With the potential for unanticipated Central Bank actions, one must not get too aggressive and only focused on profiting from a market move lower. Prudence and active management in the near-term is required to protect the value of your Capital. I will act accordingly with a heightened degree of discipline dominating my every move this week. Healthy positions in cash are advisable.
What are DJIA, DJT, DJU, S&P and NASDAQ metrics indicating?
The Dow Jones Industrial Average, the S&P 500 Index, the NASDAQ index and the Dow Jones Transports are all in a downtrend channel. The large declines on Friday brought all of the above noted indexes to points of lower resistance, except for the DJT which broke through resistance. These indexes have been in a decline for more than a year, choppy in action, but in a persistent decline. If the current level does not hold at these resistance points, the declines would become more meaningful. I do not expect the resistance points to hold.
The Relative Strength readings have now declined into the low 40’s and upper 30’s. They reflect a trending market lower as the RS indicators have been declining for the past seven weeks. This is a sign of the market losing momentum as it digests the large increases off of the February lows. The prior highs were not exceeded and the move lower brings into question the market risk of a rush to the exits. I do not see the market as being resilient in its current state, and the level of down points in the RS index are insufficient to indicate a bottom is at hand.
Price Earnings multiples are close to 23.55X for the S&P 500 and 18.60X for the DJIA, indicating an expensive market to invest in at these levels.
The DJT remains in a declining chart pattern. It has been a leading indicator of the broader market. The continued selling of the Transports is a strong negative for the overall market.
The DJU has moved to a new high as investors seek yield reflecting the cautionary investing strategy of a market that poses greater risk then reward for investing in growth oriented businesses. Safety is being sought.
What is the current score on the “Market Tells metric”?
The Market Tell indicator, which is a comparison of the market’s current cash flow and valuation metrics to its historic medians, closed the week at negative 71. On Thursday, at the market close and ahead of the Brexit vote, it gave a reading of negative 128 which clearly pointed to an extended and over-valued market that was in need of a correction lower. As an FYI, when we have a high positive reading this is a strong buy signal and when we have a high negative reading it is a strong sell signal. The -71 reading indicates an expensive market. The highest negative reading here was -182 on November 6, 2015. The strongest positive reading was +28.5 on February 12, 2016. Last year at this time (June 26, 2015) the reading was -131, which foretold the summer of 2015 declines in equity prices. We are at a similar place with declining cash flow estimates for the year occurring when high current multiples characterize the market.
The Portfolio’s Cash flow multiple based on expected 2016 full year results is 18.16X. This is a relatively high reading of price to cash flow when compared to the historic median of 16.96X. This does not reflect an extreme overvalued market (not a “bubble”) based on historic fundamental comparisons, but in the context of the surrounding economic and market data it is a value that is unsustainable. Additionally, the revisions to the cash flow forecasts that came in this week were strongly negative. The expectation of earnings and cash flows are falling in a market that desperately needs improving operating performance to justify its current value. This does not bode well for equity price appreciation from this point forward.
Comparing current equity prices as the week closed on the 187 portfolio companies to their Discounted Cash Flow values indicates 71 companies were priced above their DCF value which exceeds the historic average of 61 for the portfolio. This supports an expected fall in the market as more companies have become overvalued and need to correct lower. The market declines on Friday drove the negative DCF count to 67, but the downward revisions of cash flow growth expectations that came in after the market closed pushed the Negative DCF count back up to 71. This is troublesome.
The dollar spread between the Current Price and the Discounted Cash Flow price utilizing 2017 cash flow projections on the 187 Portfolio Companies is now at $19.04. The difference or spread today is below the historic median of $22.42. A higher spread indicates greater value to invest in whereas a lower spread indicates subpar returns will be realized from investing at current prices. In this environment it should be apparent that future performance has been pulled into the current pricing in a manner that reduces potential gains absent a significant improvement in future earnings and cash flows.
What is the position of the weekly net up down Vol/Issues?
The week’s volume and issues continue to reflect divergent views. Volume tracked the index point declines, supporting the move lower. Issues did not support the move lower, with more issues advancing for the week then declining. My instincts and experience tell me this is a reflection of the one-day large decline in index points that is unbounded as compared to the number of issues that can move on any one day which is bounded. I expect this to resolve itself with volume leading the direction and with issues playing catch-up as more and more issues experience share price declines that better align volume and issues with the broader market index moves.
What are the daily point vs issues and point vs volume measures indicating up or down?
The daily metrics of (1) index point moves being supported by the daily advancing or declining volume, and (2) the index point moves being supported by the daily rising and falling number of issues traded, appear to be in a transition stage from being directionally upward in nature to more neutral. If this persists and soon begins to move with a downward trajectory, it will confirm a move lower in the overall market. This is something to watch in the weeks to come.
Where are the NYSE New Highs and Lows moving toward?
On Friday we reached a total of 75 New 52 week Lows for the day. This is the highest number of daily new lows since February 2016, the markets last bottom, which was more than 1,000 points lower in the DJIA than now. The New Highs and New Lows this past week in both the NYSE and the NASDAQ indicate a loss of upside momentum consistent with the week’s index declines.
How well are Market Tells correlating with Market trading internals?
The technical market internal indicators are moving to be more aligned with the move lower, and are reacting in a way that conforms to a market that needs to correct to address the negative reading in the Market Valuation Tells.
What is the composite reading of the Calendar, Environment, Duration, Action, Trend, Emotion and Valuation Index (“CEDATEV”)?
The reading is -7. This score reveals a market that is turning lower, one that is showing bear market tendencies in the face of expensively priced stocks and bonds, poor economic results, and a world of increasing political uncertainty. The range is from +7 to -7 and we are at an extreme negative level. Contributors are:
Calendar
Environment
Duration
Action
Trend
Emotion
Valuation
Positive in the following areas:
None
Neutral in the following areas:
None
Other:
Bitcoin declined this week to $631 per coin from $760 per coin last week. The continued volatile movement in this digital currency is telling us something important. I believe it is the economic and political turbulence in world markets that is creating buying and selling here, and it reflects a foreshadowing of greater uncertainty and loss of confidence in the Central Banks of the world. Something is happening in the alternative currency sphere that should not be ignored in terms of the implications for the broader financial markets. The per unit value based in the low $400 area over the past four months. Over the past year, the price has increased by over 200% from the $230 area. I hold a position in Bitcoin as we move closer to digital currencies vs paper money and coinage. Please note I also own stock in the company PayPal (symbol “PYPL”) and Square (”SQ”) given the success and reach of digital online payment platforms.
The Dollar Index now sits at 95.54. Over the past twelve months it has traded between 93 and 100. The dollar has appeared to be range-bound in this area. The latest global economic data failed to indicate economic improvement in the United States and in other geographies throughout the world. Coupling this with the historic moves on Friday in the currency markets, and the likely action in response by the Central Banks of Japan, Europe, China and the U.S., we should see the US Dollar act as a safe haven.
Gold closed the week at the $1,319.10 per ounce. The global turbulence this week in the financial markets and the phenomena of negative interest rates on sovereign debt in many parts of the world are giving support to the price of Gold. In the past week, the Gold and Silver Miner equities rose meaningfully, but less then I would have expected. I believe there is much more room to the upside for these equity holdings. Given the continued global uncertainty and currency volatility issues that exist, I do see material price increases for gold and silver in the foreseeable future and for Gold to advance much higher above the $1,300 level. I will therefore maintain my PM positions to offset potential equity price declines from the broader market.
The Ten-year bond yield closed at 1.56%. We are now at the low yields last seen in 2012 (1.64%). The economic signals I see from the latest government releases show an economy that is contracting. The behavior of the Bond market is confirming that economic slowness. Of concern is a flattening of the yield curve (recession) and the absence of economic activity that a steeper yield curve, if we had one, would indicate. Again, the safety trade of the US is a dominant theme, and yields may fall further as the safety and liquidity of the U.S. market is sought.
Commodities: This week we saw the CRB commodities index fall to 485. The softness in economic demand factors and the rise in the value of the U.S. Dollar are negatives for the pricing of Oil and the Industrial commodities.
The High Yield vs Investment Grade spread made a meaningful move on Friday as it reversed the narrowing and tighter spreads that were indicating Risk-On was the right place to be. We closed this week at a spread of 4.321% and the indication was to take risk-off. Over the past two weeks the range has been 3.94% to 4.352%. The bottoming and potential rise of the HY/IG spread is a negative for equities. High Yield is at 7.125% and Investment Grade is at 2.804%. If the oil market holds the price of a barrel near the $50 mark or higher, the health of high yield market should continue to improve. A fall in oil, which we witnessed this week, will be problematic for the High Yield market and a general negative for the overall market.
That about covers it for this week.
As always, have a great week!
Tom
Equity Portfolio Activity for the Week Ended June 24, 2016
Commentary: The market rallied higher during the week through Thursday which resulted in a market that was nearing an extreme in valuation. Accordingly, I added materially to various short positions on Thursday, even with the expectation that the BREXIT vote would fail resulting in Great Britain remaining a part of the European Union. To my surprise, the BREXIT vote succeeded which resulted in global market dislocations on Friday.
As Thursday night began to unfold the British Pound initially strengthened in anticipation of Great Britain staying within the EURO Union. It climbed to over 1.5 USD to the pound at which point I began to sell the GB short. By 11:00 PM on Thursday it was becoming clear that the tide in favor of BREXIT was winning and the markets began to fall. I closed the GBP position at a profit and trimmed the Volatility position taking in gains. As the market closed on Friday, I made the decision to hold a material position in various financial instruments that will benefit from further market turbulence and declines. I believe the equity market will continue to decline in search of a new lower point of equilibrium. Future decisions to close the positions that benefit from a market decline will be made in the coming days and weeks as market valuations move back in line with what I deem to be fair value and/or market internals indicate a change in momentum to the upside. Absent such changes, the volatility and short positions should prove to be rewarding.
Good Luck and have a great week!
New Additions
1. Morgan Stanley
2. Netflix Put Options
3. S&P 500 Put Options July 29 Expiration
Increase in Holdings
1. Proshares Ultra Short S&P 500
2. S&P E-Mini Short Futures Contract September Expiration
Complete Dispositions
1. None
Partial Decrease in Holdings
1. Proshares Ultra Short VIX
Overall Equity Portfolio holdings
1. Alamos Gold
2. ASA
3. Arm Holdings
4. Bank of America
5. Bank of America Preferred C
6. BB&T Corp
7. Brocade
8. Brookfield Total Return
9. Chevron
10. Con Ed
11. CISCO
12. Corning
13. Daktronics
14. Disney
15. Eastman Chemical
16. Endo Int’l
17. Ericsson
18. First Solar
19. Ford
20. General Electric
21. Golar LNG
22. GreatBatch
23. Greenbrier
24. Halliburton
25. Hecla Mining
26. Hershey
27. Ingredion
28. IROBOT
29. Jabil Circuit
30. JP Morgan
31. JP Morgan Preferred D
32. Legg Mason
33. Matson
34. Microsoft
35. MTN Group
36. New Gold
37. Noble Corp
38. Nokia
39. Nordic American Tanker
40. Norfolk Southern
41. Nucor
42. PayPal
43. Phillips 66
44. Pro Shares Ultra Short S&P 500 – Increased position
45. Pro Shares Ultra VIX Short – Decreased position
46. Qualcomm
47. Reaves Utility Income Fund
48. S&P E-mini short futures – Increased position
49. S&P 500 July Put Options – Opened New position
50. Sarepta Therapeutics
51. Square Inc
52. Synaptics
53. Ten Cent Holdings
54. Tessera Technologies
55. Tetra Technologies
56. Travelers
57. Twitter
58. Viacom
59. Wells Fargo
60. Yum! Brands
Upside Down Environment
for the upcoming week beginning June 20, 2016
With Market Questions and Answers
Summary Comments:
The level of uncertainty in the world’s financial markets is extremely high. There is no clarity or uniformity of view as to whether we are on the path to a better or worse economic state. The actions of governmental institutions result in less and less positive economic impact. The issues and problems we faced coming out of the Great Recession are still with us but now they appear to be more global in nature. The rates of return on investment today are at minimal reward levels for the risk accepted, more so than at any time in my investment life. I do not have a crystal ball to show me how this will all turn out, but I am finding it harder and harder to see a natural progression to a better economic world from where we are now. Accordingly, I now take on more risk with positions that benefit from falling markets than I do from positions that would benefit from rising markets. We are in an upside down environment.
Prior week’s investing activity: My activity this past week was dominated by buying and selling positions that capitalized on market volatility and in particular market declines. I closed the week with smaller short positions than when I began the week, but a larger volatility position.
My portfolio’s performance and composition for the YTD period ending and ended on June 17, 2016, are set forth below:
YTD Connolly portfolio gain as of June 17, 2016 equals + 5.81%
S&P 500 Index YTD gain as of June 17, 2016 equals + 1.33%
NASDAQ Index YTD loss as of June 17, 2016 equals – 4.14%
The Portfolio’s composition as of June 17, 2016 is as follows:
• Cash 45.8%
• Equities 36.8%
• Gold 13.8%
• Fixed Income 3.6%
Forecast for the coming week: The inconsistencies of the World’s Central Banks in terms of policy and the upcoming Great Britain vote on continued participation as a member of the European Union are holding the market hostage in the face of economic malaise. The general expectation is that the market will rally hard if Britain votes to remain in the Union. If it happens, I do not see that outcome to be of a long lasting positive market dynamic. Accordingly, I may manage my investments early in the week to capture profits that are offered from uncertainty to arrive at a pre-vote position that is more neutral than biased to the downside. After the vote outcome is realized and the market reacts, I will reassess my holdings and invest where I see the greatest value opportunity.
What are DJIA, DJT, DJU, S&P and NASDAQ metrics indicating?
The indexes, other than the Dow Jones Utility average, were all down this week. From a chart perspective the picture is weak, with trends pointing lower.
The Relative Strength readings are now in the 50s, reflecting a trending market lower as the RS indicators have been declining for the past six weeks. This is a sign of the market losing momentum as it digests the large increases off of the February lows. The prior highs were not exceeded and the move lower brings into question the market risk of a rush to the exits in the face of any unexpected bad news. I do not see the market as being resilient in its current state.
Price Earnings multiples are close to 24X for the S&P 500 and 19X for the DJIA, indicating an expensive market to invest in at these levels.
The DJT remains in a declining chart pattern. It has been a leading indicator of the broader market, and with the rotational trading that has been taking place, a return to the selling of the Transports would be a strong negative for the overall market.
The DJU has moved to a new high as investors seek yield reflecting the cautionary investing strategy of a market that poses greater risk then reward for investing in growth oriented businesses. Safety is being sought.
What is the current score on the “Market Tells metric”?
The Market Tell indicator, which is a comparison of the market’s current cash flow and valuation metrics to its historic medians, closed the week at negative 91. When we have a high positive reading this is a strong buy signal and when we have a high negative reading it is a strong sell signal. The -91 reading indicates an expensive market. The highest negative reading here was -182 on November 6, 2015. The strongest positive reading was +28.5 on February 12, 2016. Last year at this time (June 19, 2015) the reading was -133, which foretold the summer of 2015 declines in equity prices. We are at a similar place with declining cash flow estimates for the year in the face of high current multiples that yield negative Market Tell readings.
The Portfolio’s Cash flow multiple based on expected 2016 full year results is 18.37X as compared to last week’s 18.58X. These are relatively high readings of price to cash flow when compared to the historic median of 16.92X. This does not reflect an extreme overvalued market (not a “bubble”) based on historic fundamental comparisons, but in the context of the surrounding economic and market data it is a value that is unsustainable.
Comparing current equity prices as the week closed on the 187 portfolio companies to their Discounted Cash Flow values indicates 71 companies were priced above their DCF value which exceeds the historic average of 61 for the portfolio. This supports an expected fall in the market as more companies have become overvalued.
The dollar spread between the Current Price and the Discounted Cash Flow price utilizing 2017 cash flow projections on the 187 Portfolio Companies is now at $18.01. The difference or spread today is below the historic median of $22.41. A higher spread indicates greater value to invest in whereas a lower spread indicates subpar returns will be realized from investing at current prices. In this environment it should be apparent that future performance has been pulled into the current pricing in a manner that reduces potential gains absent a significant improvement in future earnings and cash flows.
What is the position of the weekly net up down Vol/Issues?
The week’s volume and issues are caught in this ever swirling change in direction. One day the internals are pointing to support of a rising market to only switch to a divergent position supporting a market decline. This is a very uncertain market that will resolve itself in a way that breaks out of the range either to the upside or downside. The other market and technical indicators lead me to be biased to a breakout to the downside.
What are the daily point vs issues and point vs volume measures indicating up or down?
The daily metrics of (1) index point moves being supported by the daily volume in rising and falling issues, and (2) the index point moves being supported by the daily rising and falling number of issues traded were both meaningfully supportive of a market direction to the upside.
Where are the New Highs and Lows moving toward?
The New Highs and New Lows this past week in both the NYSE and the NASDAQ indicated a loss of upside momentum consistent with the week’s index declines.
How well are Market Tells correlating with Market trading internals?
The technical market internal indicators are moving to be more aligned with the move lower, and are reacting in a way that conforms to a market that needs to correct to address the negative reading in the Market Valuation Tells.
What is the composite reading of the Calendar, Environment, Duration, Action, Trend, Emotion and Valuation Index (“CEDATEV”)?
The reading is -7 as this rise shows fatigue and topping in the face of an expensive market and political uncertainty. Range is from +7 to -7. Contributors are:
Calendar
Environment
Duration
Action
Trend
Emotion
Valuation
Positive in the following areas:
None
Neutral in the following areas:
None
Other:
Bitcoin rose again this week to $760 per coin. The continued rise in this digital currency is telling us something important. I believe it is the economic and political turbulence in world markets that is creating demand here, and it reflects a foreshadowing of greater uncertainty and loss of confidence in the Central Banks of the world. Something is happening in the alternative currency sphere that should not be ignored in terms of the implications for the broader financial markets. The per unit value based in the low $400 area over the past three months. Over the past year, the price has increased by over 200% from the $230 area. I hold a position in Bitcoin as we move closer to digital currencies vs paper money and coinage. Please note I also own stock in the company PayPal (symbol “PYPL”) and Square (”SQ”) given the success and reach of digital online payment platforms.
The Dollar Index now sits at 94.43. Over the past twelve months it has traded between 93 and 100. The dollar has appeared to be range-bound in this area, but the latest global economic data failed to indicate economic improvement in the United States, and likewise softness in other geographies throughout the world, which pressured the dollar lower. A break under 93 brings us into a void area where there is no support until we get to the 88 area. Additionally, the Chinese currency is pegged to the US Dollar, so a decline in the dollar helps currencies that are pegged to the dollar become more competitive in world trade. This dollar decline eases pressure on the Chinese authorities and Emerging Markets, but exacerbates the global pressures on other non-dollar based countries to compete based on their currencies relative value. Declines in the dollar elicit government responses to lower values of other currencies. This drives investments to non-paper holdings and feeds price rises in precious metals and digital currencies. Paying attention to the movement of the dollar is important given the fragile state of the global economy.
Gold closed the week at the $1,301.60 per ounce. The decline in the dollar’s relative value and the view that the Central Banks will continue to ease in the face of slowing economic growth are leading investors to seek the perceived safety of hard assets such as Gold and Silver. In the past week, the Gold and Silver Miner equities moved counter to the move in the metals, yet this seemed more in line with raising cash then a negative indicator of the future price increase of the metals. Given the continued global uncertainty and currency volatility issues that exist, I do see material price increases for gold and silver in the foreseeable future and for Gold to advance higher above the $1,300 level. I will therefore maintain my PM positions to offset potential equity price declines from the broader market.
The Ten-year bond yield closed at 1.61%. We are now at the low yields last seen in 2012 (1.64%). The economic signals I see from the latest government releases show an economy that is contracting. The behavior of the Bond market is confirming that economic slowness. Of concern is a flattening of the yield curve (recession) and the absence of economic activity that a steeper yield curve, if we had one, would indicate. We are below the weekly closing low for the calendar year that occurred on April 8 at 1.72%, and are still below the 2015 year-end rate of 2.27%.
Commodities: As this week closed and the dollar weakened, we saw the CRB commodities index rise to 491.32. We are now at levels last seen in July 2015. This is great for Emerging Markets as they derive so much of their economic wealth from raw material mining and exporting. However, the softness in other economic demand factors may be indicating that this rise is more currency related than vibrancy of demand related.
The High Yield vs Investment Grade spread appears to have formed a near-term bottom. We closed this week at 4.261%. Over the past two weeks the range has been 3.929% to 4.352%. The bottoming and potential rise of the HY/IG spread is a negative for equities. High Yield is at 7.101% and Investment Grade is at 2.84%. If the oil market holds the price of a barrel near the $50 mark or higher, the health of high yield market should continue to improve. A fall in oil, which we witnessed this week will be problematic for the High Yield market and a general negative for the overall market.
That about covers it for this week.
As always, have a great week!
Tom
Equity Activity for the week ended June 17, 2016
Commentary: I did not post my trades for the week ended June 10, 2016 as the weekend was consumed with celebrating my daughter’s birthday.
Last week presented great opportunities, but they were only to be realized with the employment of discipline and rules based investing. The greatest returns for me were from entering and exiting positions at maximum value based on when the technical indicators gave strong “Stay” or “Go” signals. As the week closed, my investing decisions resulted in meaningful gains arising from short equity positions, increases in precious metal and volatility positions, and opportune small equity buys for the long-term. A very volatile market within a narrow band is our present state and I have moved assets in concert with this environment. I do not see a calming of the waters in the near future, and do expect the volatility to increase and for the range of the moves to expand. I will act accordingly with the goal of profiting from the volatility while protecting my capital base.
Good Luck and have a great week!
New Additions
1. Alphabet (Google)
Increase in Holdings
1. Alamos Gold
2. Golar Limited
3. Hecla Mining
4. New Gold Inc
5. Nokia
6. PayPal
7. Proshares Ultra Short VIX
8. Square
9. Synaptics
Complete Dispositions
1. GLD
2. S&P 500 Put Options
Partial Decrease in Holdings
1. Proshares Ultra Short S&P 500
2. S&P E-Mini short contracts
Overall Equity Portfolio holdings
1. Alamos Gold – Increased position
2. ASA
3. Arm Holdings
4. Bank of America
5. Bank of America Preferred C
6. BB&T Corp
7. Brocade
8. Brookfield Total Return
9. Chevron
10. Con Ed
11. CISCO
12. Corning
13. Daktronics
14. Disney
15. Eastman Chemical
16. Endo Int’l
17. Ericsson
18. First Solar
19. Ford
20. General Electric
21. GLD – Closed position
22. Golar LNG – Increased position
23. GreatBatch
24. Greenbrier
25. Halliburton
26. Hecla Mining – Increased position
27. Hershey
28. Ingredion
29. IROBOT
30. Jabil Circuit
31. JP Morgan
32. JP Morgan Preferred D
33. Legg Mason
34. Matson
35. Microsoft
36. MTN Group
37. New Gold – Increased position
38. Noble Corp
39. Nokia – Increases position
40. Nordic American Tanker
41. Norfolk Southern
42. Nucor
43. PayPal – Increased position
44. Phillips 66
45. Pro Shares Ultra Short S&P 500 – Decreased position
46. Pro Shares Ultra VIX Short – Increased position
47. Qualcomm
48. Reaves Utility Income Fund
49. S&P E-mini short futures – Decreased position
50. S&P 500 July Put Options – Closed position
51. Sarepta Therapeutics
52. Square Inc – Increased position
53. Synaptics – Increased position
54. Ten Cent Holdings
55. Tessera Technologies
56. Tetra Technologies
57. Travelers
58. Twitter
59. Viacom
60. Wells Fargo
61. Yum! Brands
Equity Activity for the Week Ended June 3, 2016
Commentary: The market churned this week without making much progress up or down. There were strong moves lower that reversed during each of the days the declines occurred. It was a week of being patient. As it churned, I rated a number of equities and found a few that rose to the top. I planned to add them after a market pull-back but after some thought decided to nibble at each to establish them in the portfolio for the long-term. I also added meaningfully on Thursday to the gold and silver miners in anticipation of a rise in the physical metals. That move was rewarded on Friday. On the short side, I added strategically to the hedges in place for the perceived risk of a market pull-back in reaction to its over-valued nature and the weak economic data that populates our current environment. A net gain for the week was realized largely driven by the rise in the price of gold.
Good Luck and have a great week!
New Additions
1. Daktronics
2. Jabil Circuit
3. Legg Mason
4. Noble Corp
5. Sarepta Therapeutics
6. S&P 500 July Put options
7. Tessera Technologies
8. Tetra Technologies
Increase in Holdings
1. Alamos Gold
2. Brookfield Total Return
3. Hecla Mining
4. New Gold Inc
5. Proshares UltraPro Short S&P 500
6. Proshares Ultra VIX Short
Complete Dispositions
1. Yahoo!
2. Zimmer Biomet Holdings
Partial Decrease in Holdings
1. Synaptics
Overall Equity Portfolio holdings
1. Alamos Gold – Increased position
2. ASA
3. Arm Holdings
4. Bank of America
5. Bank of America Preferred C
6. BB&T Corp
7. Brocade
8. Brookfield Total Return – Increased position
9. Chevron
10. Con Ed
11. CISCO
12. Corning
13. Daktronics – Opened New Position
14. Disney
15. Eastman Chemical
16. Endo Int’l
17. Ericsson
18. First Solar
19. Ford
20. General Electric
21. GLD
22. Golar LNG
23. GreatBatch
24. Greenbrier
25. Halliburton
26. Hecla Mining – Increased position
27. Hershey
28. Ingredion
29. IROBOT
30. Jabil Circuit – Opened New Position
31. JP Morgan
32. JP Morgan Preferred D
33. Legg Mason – Opened New Position
34. Matson
35. Microsoft
36. MTN Group
37. New Gold – Increased position
38. Noble Corp – Opened New Position
39. Nokia
40. Nordic American Tanker
41. Norfolk Southern
42. Nucor
43. PayPal
44. Phillips 66
45. Pro Shares Ultra Short – Increased position
46. Pro Shares Ultra Vix Short – Increased position
47. Qualcomm
48. Reaves Utility Income Fund
49. S&P E-mini short futures
50. S&P 500 July Put Options – Opened New position
51. Sarepta Therapeutics – Opened New position
52. Square Inc
53. Synaptics – Reduced position
54. Ten Cent Holdings
55. Tessera Technologies – Opened New position
56. Tetra Technologies – Opened New position
57. Travelers
58. Twitter
59. Viacom
60. Wells Fargo
61. Yahoo – Closed position
62. Yum! Brands
63. Zimmer Biomet Holdings – Closed position