10/27 Portfolio Update

So...  uhh.... if you have been paying attention, the October 3rd portfolio changes have not really panned out.  In fact, they seem to be dead wrong.  The S & P has made a drastic 'about face' from about the 1080 level to 1240 in just under one month.  Roughly a 14% gain.   I am holding fast to my positions but I fear that the relatively positive news out of Europe's debt problems this morning will be enough to force changes in the technical picture once again and as a result, I will likely have to sell the short positions at a bit of a loss.  But I will not be happy about it because I don't believe we are out of the woods just yet.  When I see jobs being created, I will feel more confident about the state of things.

This type of market is the one market in which relative strength has a difficult time performing.  Very volatile markets with prolonged swings up and down can create "false positives" so to speak and it does nothing in the way of tracking real time global events.  So what has happened in the past month to make markets change their mind so dramatically and what portfolio action needs to be taken?  Technically the markets were very over-sold around October 3rd so I was expecting to see a bounce up, but shortly after that, several fundamental positive news items (or better than negative news) started coming in which compounded the upside activity.  Libya was liberated, Wall Street was Occupied, fewer people are filing for unemployment (which is a bogus stat), earning season is not all that terrible and the biggie, the EU bailout plan seems to be shaping up in a way that makes markets feel better.

(Sidebar: It is hard to believe that we are still talking bailouts and debt restructuring three years later, but it is even harder to believe that markets are eating it up once again.  Show me jobs and show me growth and show me fundamental change in the way things are done.  Then I'll really feel a bit better about things.)

Regarding the portfolio... Despite recent positive market activity my indicators have not yet switched.  For now, I am keeping the portfolio at 50(ish)% cash, 25% investment grade bonds, 10% gold and despite the pop to the upside, 15% short the market.  When the time comes, I am in a position to pounce but for now, still very defensive.  Here are the portfolio results YTD and positions since the switch in early October.  Not very impressive compared to a month ago, but all things considered, not bad...

Benchmark Comparisons

	Jan 24, 2011	today	% Change
My Portfolio	$99,994.75	$96,018	-3.98%
S and P 500	1282	1242	-3.12%
FTSE 100	5943	5683	-4.37%
Commodities Index (GSG)	33.99	32.79	-3.53%
20 Year Treasury (TLT)	92.43	112	21.17%

Holdings Since 10/3/11
Cash	Type	Ticker	Weight	Shares	Starting Price	Total Starting Value	Current Price	Total Current Value	% Gain (Loss)
Money Market			48.74%			$46,800		$46,800
Bonds
Investment Grade	ETF	LQD	26.36%	222	$113.47	$25,190	$114.02	$25,312	0.48%
Commodities
Gold	ETF	GLD	10.80%	62	$161.25	$9,998	$167.20	$10,366	3.69%
Short	ETF	PSQ	7%	193	35.42	$6,832	30.4	$5,864	-14.17%
		DOG	9%	189	46.47	$8,784	40.6	$7,675	-12.63%
			102%
						$97,605		$96,018	-1.63%

Major Market Technical Changes

Every few years at there is a turning point in every major market cycle and the relative strength relationship between the stock market and the money market switches.  In bull stock markets, the arrow points towards favoring stock ownership and in bear stock markets, the arrow points to holding cash.  There are several other pieces of information critical to successful portfolio management but this one, in my opinion, is the most telling.  This is the final and most important technical measurement I follow and the one that in many opinions dictates a critical tipping point for the longer term direction and momentum in the markets.  Market activity on October 3rd, finally tipped the momentum to holding Cash, a very defensive portfolio position. The last time this indicator changed directions was when it turned bullish in April of 2009 with the S&P 500 at 865.

Now, a logical bounce has followed so I am considering any up day in the market a good day to add to my position of short side ETF's.  DOG, PSQ and FAZ (3x's financial bear) are a few of my favorites in a market environment like this.  I will not usually go over 25 or 30% of the total portfolio into the short side as I am not that risky but, I will indeed short the market.  If you are investing inside of a 401(k) and do not have the ability to own short side vehicles, don't worry. If you are on the sidelines and protecting your principal, that is enough defense for now.

I have not yet updated portfolio holdings or performance in some time as 'daddy duty' has taken over my life, but I plan on deploying about 25% of my cash on the sidelines into an equal portion of the three previously mentioned inverse ETFs over the next few days.  The portfolio will have about 40% Cash, 25% Investment Grade Bonds, 10% Gold and 25% inverse or "short" ETFs.

I'll update the charts and scorecard in a bit but for now, if you have not gotten defensive in the past few months, there is still time and I highly recommend it.  Better to be safe than sorry.

Good luck and happy investing.