More Whipsaw Please

Just before the long holiday weekend, I want nothing more than some whipsaw. Let’s sell off the NASDAQ with reckless abandon due to growth being present. Any company that is growing their revenues by more than 20% should be sold, immediately. In its place, a good utility or REIT might do.

I’ve started off the day 0.7% in the hole, almost giving back yesterday’s gains. I’ve been combing over my pnl and have decided one of my four horsemen of financial disaster must be sacrificed. I must sacrifice one, not because its not totally awesome and worthy of my time and money, but because I need to raise capital in order to nimbly reduce the cost basis of the other three.

In other words, If I am going to escape this pickle with dignity, I need to absorb a loss, move on, then put that money to work in the other 3 to bring my basis back in line with reality.

At the present, I am -29% in FEYE, -16% in SPLK, -15% in YELP and -21% in WDAY, with WDAY being the smallest of the four. Other down positions include EGRX (-11%) and IFON (-14%).

If I do nothing, I will probably have to ride these stocks through earnings, something I am not exactly keen on, considering my recent foray into high beta hell. However, if I can reduce my cost basis in 2 or 3 of the four to a level that can be reached with any strong market uptick, why, I might be able to reduce my losses from -23% to -10% in fairly short order.

The stated goal here is to get down to at least -15% within the month.

UPDATE: I utilized some leverage to average down in SPLK, YELP and WDAY, bringing my basis down to $78.77, $75.6 and $97.40 respectively.

I feel like I need torches of fire around these parts just to write a blog. I have to back down these dogs, subhuman monsters, on a minute by minute basis, with the chards from broken bottles and lash them with the ends of my belt buckles. When I told you about my “many enemies” I am sure you said to yourself “surely he jests.” After leaving the gates open, allowing the prisoners of the iBankCoin dungeons roam freely, you now see that I was not exaggerating.

Multiple positive bullets points are hitting my screen this morning, from price target increase for GOOG at Credit Suisse, to a GE/PEP/GS and MS beat to a massive beat for CMG, effectively shoving all of the Einhorns back into their burritos pressers.

This is day 4 of the recovery. I expect nothing less than an all-out rout to neutralize the idea that any measurable pullback is cause for alarm and crash-worthy. These monsters will all be put back into their rightful places, the dungeons, in due time.

I’m afraid my recent foray into the land of Mad Max has diluted what I once preached and practiced for a long, long time, which is diversification. Now this post is for those of you who are interested in self-directing your accounts, without big turnover, minimizing the chance of a blow up.

Let’s start with the foundation. Most managers are unable to beat the S&P 500. It’s not that the folks at S&P are great stock pickers, but has a lot more to do with the structure of it. When building a portfolio, you have to think macro, and try not to get hung up on any one cog in the wheel. You can fine tune the wheel as you go; but it’s vitally important to set yourself up for success.

The S&P 500 is made up of 8 principle sectors.

Tech: 20%
Healthcare: 13%
Financials 15%
Energy and Materials: 13%
Industrials: 11%
Consumer Goods: 10%
Services: 15%
Utilities: 3%

What I like to do, just like I did with my semi-annual managed portfolio inside of The PPT, is pick two stocks per sector, weighted equally, except for utilities. With just a 3% weighting, I just go with 1. The stated goal is to assemble a portfolio that will be judged per quarter, adjusted per quarter to correlate with S&P weightings, and of course beat the S&P. In other words, if the S&P is 20% tech and your tech holdings soared, sending your weighting to 25%, you’d have to sell enough to get back down to 20%. The same goes for underperformance. If your energy stocks tanked, lowering the weighting to 8%, you’d add to those positions to get the weighting back to 13%.

Now the median market cap in the S&P is $17 billion. With smaller market caps, more concentrated on high growth, I am confident anyone can crush the S&P; it just won’t be nearly as fun as trading in and out of pin less hand grenades.

Here is what a typical portfolio of this nature would look like:

Tech: SNDK (1.2% yield), SFUN
Healthcare: BIIB, AET (1.3% yield)
Financials: BX (7.8% yield), IEP (6.3% yield)
Energy and Materials: CXO, OII (1.3% yield)
Industrials: ETN (2.8% yield), TOL
Consumer Goods: KORS, CREE
Services: LVS (2.7% yield), EBAY
Utilities: TRP (3.7% yield)

Or, you can just ebb and flow between TNA and TZA positions, using The PPT‘s propietary Overbought/Oversold signals as your guide.

Despite FEYE holding me down, I managed to make a little more than 1.25% today, putting my year to date losses around 22.5%. I realize it will upset many of you to see me make even a slither of my coin back. Moreover, anything less than total loss, 100%, is reprehensible to you. Perhaps one day “The Fly” will blow up in spectacular fashion, even more so than now. However, I still have my wits about me and haven’t lost an edge. By the time I lose my edge, you will already be dead;therefore, as logic dictates, it’s as moot point.

When is a good time to buy a winner?

Remember the answer, always: anytime.

Most can’t grasp it, as they’re too busy conducting themselves as ‘non-gentlemen’, cavorting about the market place with noses filled with cocaine. Sometimes you have to endure a little pain; and that’s just part of life.

If FEYE wasn’t already down 50%, I’d sell it now. There isn’t a reason to hold a stock that is down on an up day. Then again, it could be going lower due to another hedge fund blow up or some other sort of liquidation. I am convinced it is a mechanical mess, not fundamental. I am owning the stock for the month of May. I believe the downside is limited to 5% and I shouldn’t rush towards the exits now, after being so very patient with it over the last, tortuous, six weeks.

We have ourselves a 3 day rally, albeit a quiet one. Let’s build upon it tomorrow, refresh ourselves over the long weekend, then kill all of our enemies on Monday.

I am dead serious. Find a bear; throw him/her off the cliff.

Into the closing bell we go: showtime.

With breadth at about 70% to the upside today, three out of four of my “horsemen of financial insolvency” are lower today, with YELP being a flaccid example of strength. For the most part, today’s rally is being mailed in. I am not seeing a lot of commitment by the bulls and the battlefield stocks, like the ones I am long, are still under pressure.

In order for this market to take off we need a spectacle, something so crazy and outrageous it will send the bears running from the battlefield with pikes in their stomachs and fear in their hearts. But this, this is nothing more than child’s play. They will brush it off and get back to work on these stocks in the morning, or maybe even later on today.

Remember who you are dealing with here, deviants, twisted, dangerous people, who harbor ill-will towards man and would like to see the human race suffer–from starvation if possible. These people need to be defeated, else all that is good and righteous, democracy, will be lost forever. Your grandchildren will grow up to eat shoe leather and their kids will most likely be deformed from malnourishment, join local militias, and become murderers.

But all of that can be stopped here, right now, if the stock market could gap higher by another 5% or so in a period no more than 1 week. With that, we can send these evil sub-humans back into hibernation, to play amongst the rats, as we bask in the sunlight of freedom.

I bet you’d expect to come here and see “The Fly” bragging about his barking dogs. Well, you’d be wrong. This is a new Fly, one who doesn’t brag over barking dogs, or any dog for that matter. Men of distinguished honour know to keep quiet and to not jinx when fortune smiles upon them. I’d be the first to tell you how awfully wrong I’ve been here, over the past 6 weeks. I hope that doesn’t take away from the fact that I’ve navigated these waters, live on the internet, almost flawlessly, since 2007.

I am always going to have enemies. A great many of you gorillas will throw feces at me, no matter what–misfit malcontents who’d burn the planet to a cinder if given the chance. It’s the nature of man to commit sins, which is why I carry a knife at all times, to better stab those people in the faces, should I find it necessary.

I RESERVE THE RIGHTS TO BAN ALL OF YOU FROM THIS VENUE. However, instead of doing that, gracefully, I’ve let you partake in a bit of “chin-wagging” at the site, so that we all might benefit from the humor. If one cannot cry, then he must laugh. It is law and it is written.

So, I hope to recover some of my losses today. I have a very long road to travel. And, I am mindful of the fact that it will take an absolutely epic sequence of events to save my 2014 from being a disaster. Nonetheless, you ought to heed my advice when I say “be humble” and to “shut your jaws” when the market is speaking. At some point or another, it makes us all look like jackasses.

[youtube:https://www.youtube.com/watch?v=5mEHXYW1W6A 603 515]

I looked into the depths of hell and decided to spit in its face. The end result is what I deem as a ‘best case scenario’ with today’s ‘key reversal’ washout. Some weaker men will take this respite as cause to sideline themselves, like crabs. However, I think we have at least 15% upside in most growth stocks during the month of May.

I have written off April. I am not counting on this rally to continue forever. I expect to exit April with egregious losses, but not too much lower from here.

Bottom line: Ditch the dividend old man stocks, man up, and go long growth.

NOTE: My losses for the year stand at -24%

https://www.youtube.com/watch?v=ysWRb9bqB-Y

Courtesy of The PPT‘s flawless track record in measuring YELP, I added to my position.

If I keep buying and buying, eventually I’ll be right. All that aside, this is the first time since YELP’s drop that the algorithms flagged it as OVERSOLD.