Sunday, July 02, 2006

Portfolio June 2006

In the interest of time there will not be a separate market review for the past two days. Instead, it will be incorporated at the end of this post.

It is only by the last ditch effort at the end of the month that my portfolio was able to eek out a gain in June. The actively managed portion bettered last month by a slim margin of 0.24%, bringing the cumulative gain from Jan. 11 to 18.73%. The asset allocation portion managed a better showing this month: a gain of 0.47% and a cumulative return of 1.74% from Jan. 11. The combined portfolio returned 0.35% for the month and 10.66% from the inception day of this blog.

Looking at the table blow, the asset allocation accounts have had a more turbulent couple of months. Most of last month’s decline and this month’s gain relative to the bench mark S&P can be attributed to my wife’s company stock which makes up 20% of her 401(k). It suffered a precipitous drop in May and made a partial recover in June. If the 401(k) were to represent the bulk of our financial assets, 20% would be too high a portion for comfort for me. But in view of our other assets, it can be taken in stride. The other take away is that despite the high risk assets in my actively managed accounts, my timing in the past two month was good enough to reduce the volatility and preserve the gains made earlier this year.

Click to enlarge in a new window.

This month’s contributions were exclusively for 401(k) accounts. We have been adding to a joint HSBC savings account which is not included in the portfolio. In addition, I’m in the process of opening a Citi eSavings account which pays 5% apy, since my TDAmeritrade account pays an abysmal interest on the cash balance. (See, I do read all the personal finance blogs!)

Short positions closed

  • 6/13 EEM Dec 110 puts 3 contracts @ $28.20, bought 5/11 @ $10.30
  • 6/16 SPY Jul 122 puts 10 contracts @ $1.30, bought 6/6 @ $1.25
  • 6/19, 21 IWM Jan 80 puts 10 contracts @ $11.60 avg, bought 5/9 @ $5.10
  • 6/28 CFC (short) covered 400 sh @ $37.30, sold 5/19 @ $38.965 avg
Long positions opened
  • 6/13 CEF 800 sh @ $7.80
  • 6/23 AUY 1000 sh @ $9.38, NXG 2000 sh @ $3.46

The loss in value in my bullion holdings and my company stock were offset by some opportune profit taking in the put options. I was lucky to break even on the SPY puts after letting a 70% profit slip due to too much faith in my downside projections.

Market overview
I pointed out the down trend in the S&P in this post, when the 1265 resistance area was also mentioned. Any worry I had before the FOMC meeting about the general market dragging down the PMs evaporated with Thursday’s big move. Chances are that a new short term up trend is upon us. I’m fully aware of the arguments about quarter end window dressing, but as I’ve said before, price action must be respected. Friday’s action was also mildly bullish, although the indices were down on heavy volume, the internals were positive. Of course, I place this new up trend in the context of a bear market bounce. Note the semis ($SOX, SMH) and banks ($BKX) are quite weak. The market can prove me wrong by making new highs, until then I’ll be on the look out for shorting opportunities in housing and consumer discretionary stocks.

In retrospect, picking up some cheap calls on Wednesday would have been an ungodly trade. Even without the benefit of hindsight, a straddle (a put and call at the same strike price) would have been thematic in view of the contracting volatility and the triangular set-up. Ah, live and learn!

Consistent with my view that this market is unlikely to go to new highs I’m keeping my bear funds and the short in Beazer which is becoming a long term holding. I maintain my long term bullish views on energy and base metal stocks as well an impending housing led slowdown in the US. For now the commodity stocks appear to be leading the general market. A divergence, however, would signal another important market juncture. Until then, I’m unlikely to deploy large chunks of capital in the commodity space except for PMs.

I’ll try to take a closer look at the long bonds in the coming week. In the mean time, a happy 4th of July to all my readers!