Momentum Book Update

This was consolidation week in the market, holding gains was priority number one.  We came in overbought and exited on a strong note after a week of opening gaps that all got filled.  By Friday afternoon I upped my exposure to over 90% as I believe a powerful rally is brewing.  I continue to pick up alpha in a tough market environment even though my absolute return didn’t budge from last week.  I see a lot of traders getting a bit frustrated on the intermediate term time frame which is why I’m satisfied with my performance.  On any further strength in the market early next week I will load the boat and take cash below 5%.

The falling wedge patterns on the indices are extremely bullish, and if Goldman Sachs $GS and Citibank $C can recapture 160 and 3.50 respectively, the market should be off to the races.  In fact, while I’ve avoided the financials like the plague for what seems like an eternity, I’m starting to get interested.  Certain insurance and foreign bank names are showing good relative strength.

The heart of my exposure continues to be in technology and services.  I’ve also added decent exposure to healthcare as the biotech space is currently surging.  Energy is definitely on my radar right now, I took a shot at $DRQ on Friday after it was smacked around on the open, but didn’t see the dip buying I expected, so I exited the position with a small loss.  I’ll be focusing on the smaller driller and energy service names instead of the big boys.  Major M&A action is going to take place imminently, we got a little taste this week with the buyout of Smith International $SII.

It was oh so delightful to see the action in $PALM this week.  This is such a great example of the fact that although in the short and intermediate time frame, fundamentals can be wiped aside by capital flows and momentum, in the long run the fundamentals matter and a company has a real value based on its earnings.  Was I short, no, unfortunately not, I don’t have the patience or mind set to be a successful value investor, on both the long or short side.  The Palm story was all smoke and mirrors from the beginning, one last ditch effort to get acquired by an even more incompetent and uninnovative company (Nokia?).  This week the stock got what it deserves, a pounding.  By the way, Motorola $MOT is next in line to get whacked, same story, all smoke and mirrors, no one bought the Droid and no one ever will.  $MOT is a short to 5, at least.

Another market catastrophe  this week took place in Game Stop $GME.  Their business model has been broken for a long time as Wall Mart $WMT entered their space and crush them on margins.  If you were a money manager invested here, you should be fired, now.  Nothing about that chart, the earnings, or the story said to own this stock.  It’s been a crazy ride on the short side, and I’ve participated at times, but this thing could really go to zero at some point.

Winners this week included $DV, $CPLA, $IPXL, $SBAC, $CREE, $CTRP, and $MJN which finally broke out on Friday.  The $IPXL earnings were gangbusters and this is a stock I can see being a huge winner.  The education names are on fire and I love their low correlation to the overall market as I’m heavy in tech.

Losers this week include $V, $NTCT, $ARUN, and $ALGT.  I’m getting a little frustrated in $ALGT as the airline sector was hot Friday but Alegiant did not participate.  Visa is also having issues but I’m more likely to give it a longer leash.  The pullback in $ARUN looks constructive, I expect to see the next leg in the coming week, if it falters from here I’ll be banking more profits there.

I sold whole positions in $DECK, $PEGA, $PCLN and $DLM this week.  Though, I added back the Priceline position on Friday.  $DECK was the only mistake, they crush earnings Thursday after the bell and were up greater than 10% the better part of Friday.  Oh well…

New positions in Ford $F, $SFSF, $GMCR, $IMAX and $HAS were added this week.  I’ve been wanting a piece of Imax for a while now as well as those guys at Green Mountain who make coffee pots.  Personally, I don’t drink coffee, I try to stay away from dependent substances, primarily because I have an addictive personality.  I also just hate the taste of coffee.  But people are buying these things left and right, we just got one for the office, and the trend is excellent.

After you’re done fighting people at the store for your Kourig machine on Sunday morning, don’t miss the gold medal hockey game, USA vs Canada.  I could talk about this for hours, but I’ll leave it at this.  Although the Americans are not nearly the underdogs that they were to the Soviets in 1980, and have already beaten Canada once in this tournament, do not underestimate their disadvantage in both skill and size compared to Les Habitants.  Yes, the Americans are all bonafied NHL players, and most stars,  they don’t nearly match the skill on the other side of the rink.  If they play as a team, as they’ve shown throughout this Olympics they can, they’ve got a decent shot, but it will still be a monumental upset for the books.

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