Author: Clinch Capital
Covestor model: Select Equity
Despite the recent negative news flow, the S&P500 has maintained an upward sloping trading channel that began after the brief decline in May.
As can be seen by the chart below, the SPX has been making higher highs and higher lows after bottoming in early June.
Any seasoned market follower would agree that this is a bullish pattern, as it suggests buyers are willing to step-in at increasingly higher prices and sellers are waiting to take profits at even higher prices.
It will certainly be interesting to see how this pattern resolves and where the market goes throughout the month of August.
Chart: Freestockcharts.com
The Select Equity model lost 0.5% during the month of July, which underperformed the 1.3% gain in SPX. The model closed out 24 trades during the month, half of which were profitable (12/24). The model took a short position in IWM several times throughout the month and collected a small gain.
Below is a three month chart of Horizon Pharma Inc. (HZNP), which happened to be our worst trade for the month of July. We got long HZNP at an average of $8.06 on 07/06. It wasn’t long before we were stopped out of about 40% of the position at $7.32 on 07/09. We ended up closing out the rest of the position at $7.19 on 07/13. We lost 10.2% on the position and 1.8% of portfolio capital. Our initial stop loss help prevent additional loses, albeit modestly. (Note:The Covestor replication process does not utilize stop loss orders in client accounts, but will replicate trades resulting from such orders when executed in managers’ accounts.)
Chart: Yahoo Finance
Our most profitable trade in July was in Omega Protein Corp. (OME). Our trades are highlighted on the three month chart of OME below. We bought a full position in OME at $6.67 on 06/26. Later that day, we scalped 25% of the position at $6.96 for a 4.3% gain. The rest of the position continued higher until the stock had a minor pullback on 06/28. During that time, we added back the 25% position at $7.17. The shares marched higher over the next few days at which time we traded out of the position at $7.53 and $7.78. We gained 14.8% on the position and made 2.1% of portfolio capital.
See our model page for a more comprehensive view of our portfolio.
