04 September 2008

Portfolio Changes

Today brought some changes to the portfolio. Before I get to those, I'm starting to change my tune about this bear market rally. I think it may stall out before the Dow breaches 12K after reading this market outlook, found via Daily Options Report:

* Liquidity Drying Up - I see that Rennie Yang, author of the excellent Market Tells service, observes that 20-day volume in the stock market has made a seven-year low. "Once in 2004 and a couple of times in the 70's NYSE volume hit a three-year low," he observes, "but this is the first time in the last fifty years we've seen it hit a 5-year+ low. Volume is not just low, it's really low." Of course, it's not just that volume is low; it's that we are seeing reduced volume following a bounce from the mid-July lows. If you think in Market Profile terms, this means that higher prices are failing to attract participation--not something you'd expect to see if this were a fresh bull market leg.
* Checking Readership - I've mentioned on a number of occasions that the readership of this blog tends to spike during bear market swings and pull back during bullish moves. Since the summer of 2007, this has formed a rather accurate timing tool with respect to intermediate-term market tops and bottoms. The pattern of readership of late has been consistent with tops, not bottoms, in the market.

* Hmmm... - Yes, the market looks weak right now, and I wouldn't be surprised to see us test the July lows before too long. That having been said, I notice that we're knocking at the door of multi-month highs in retail stocks (RTH) and that we're posting multi-week highs in housing stocks ($HGX). Not exactly what you'd expect if all were going to hell in a handbasket...a lot of issues might be setting up for non-confirmations of any test of lows.
Trader's Narrative also recently lamented the limp market by pointing out the recent rallies off of oversold levels have been getting smaller and smaller.

So the nattering nabobs of negativism convinced me to make some changes to the portfolio.

On the selling front, I unloaded the entire UYG position at $22.64, for a gain of 6%. Click on the chart below for some technical justification for today's sale.

Conversely, I initiated a swing trade by buying shares of the ultra-short financials ETF (SKF) at the bargain price of $109.99. The SKF position is approximately one-fourth the size of the closed UYG position. The short-term trading thesis for the SKF position is to sell if SKF moves into $130-$140 range, and swing back into UYG below $19.

Of course, there's a clickable annotated chart of SKF, if you're interested:

I also put my money where my mouth (pen, keyboard, whatever) is and purchased some gold ETF shares (GLD) at $78.95. Below are two informative GLD charts, the first a daily chart, the second a weekly chart:

If you need some hearty fundamentals after all this technical chartastic mumbo-jumbo, The Big Picture offers up a Bloomberg piece pointing out that Wall Street analysts are far too optimistic about corporate earnings, further cementing my bearish outlook.

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