Covestor model: RHMI Evergreen
Disclosures: Long CONN, GKK, IEP, KOF, TPCG, ZLC, COOL, DK
Very seldom do we see six straight weeks of market weakness, especially without a notable bounce in the indices. This has caused many to question the validity of the bull market and ponder the possibility of the commencement of a full-blown bear market.
In my view, odds remain high – despite the pain – that we remain in a bull market and that we’re experiencing a normal, garden variety pullback. The latest pullback means our short, intermediate and long term sentiment indicators have moved into positive territory for the first time since late last summer. Corporate earnings growth remains very strong and unlike what we’d expect to see if we were entering another recession. While the risk exists that weaker than expected economic reports could result in disappointing earnings pre-annoucements, any rush to presume this risk could be premature.
While the economy may be going through the proverbial soft patch, with intermediate term Treasuries moving below 3% yield, the primary causes appear to be resulting from the flood in the Midwest, rise in the dollar, Greece/Euro, the earthquake in Japan and the serious move higher in oil prices. While the floods and earthquake are temporary in nature, the rise in oil is potentially reaching the point of demand destruction. However, I believe that these issues are now absorbed into the prices of most equities and bonds.
Risks remain though. Inverted yield curves are showing up in many countries: Greece, Ireland, Portugal, India and Brazil. Historically speaking, inversions almost always lead to recessions.
During this period of weakness, we’ve sold several holdings that had fallen in our ranking system and have begun to add new names as I believe that the odds are growing that 1250 on the S&P 500 will hold.
Deletions (positions sold):
- Park-Ohio Holdings Corp. (NASDAQ: PKOH)
- Primus Telecommunications (OTC: PMUG)
- Stage Stores, Inc. (NYSE: SSI)
- New York & Company, Inc. (NYSE: NWY)
- Capital Trust, Inc. (NYSE: CT)
- Cost Plus, Inc. (NASDAQ: CPWM)
- Exide Technologies (NASDAQ: XIDE)
- Gramercy Capital Corp. (NYSE: GKK)
Additions (positions bought):
- CONN’S, Inc. (NASDAQ: CONN)
- Gramercy Capital Corp. (NYSE: GKK) (bought back after sale)
- Icahn Enterprises, L.P. (NYSE: IEP)
- Coca-Cola FEMSA, S.A.B. de C.V. (ADR) (NYSE: KOF)
- TPC Group, Inc. (NASDAQ: TPCG)
- Zale Corporation (NYSE: ZLC)
- Majesco Entertainment Co. (NASDAQ: COOL)
- Delek US Holdings, Inc. (NYSE: DK)
As always, be careful out there.