Stock Portfolio Update: Cash is a Position By: Christopher Mistal | February 09, 2016 | Email | Print

Before rehashing the following S&P 500 Corrections During Bull Market table, I’d like to take a moment and send a hat tip to our colleague Joe Childrey, head honcho at Probabilities Fund Management LLC, for bringing it to the attention of the investment committee we sit on as this spurred me to update the table. It also reinforced my opinion about the current market rout. This seemingly full-blown market panic has not even reached the average S&P 500 correction since 1949 yet.

 

 

At yesterday’s close of 1853.44, S&P 500 was 13.0% off its May 21, 2015 closing high of 2130.82 (shaded slightly darker grey in table above). The average of the prior 22 corrections since 1949 is a 14.2% decline. The only metric the current correction has satisfied is the average duration in calendar days. The current correction will be 263 calendar days old at today’s close compared to an average of 140 days. However, there have been two corrections that lasted even longer than the current one, back in August 1959 to October 1960 and September 1976 to March 1978.

 

Since every bear market in history began as a correction (using either current standard of 20% or Ned Davis definition), a bear market remains on the table. To officially end the current cycle the S&P 500 would need to eclipse its previous high which is also still a possibility no matter how unlikely it may seem. 

 

In the near-term we continue to expect market volatility to remain elevated as the market wrestles with economic data and the Fed. Fundamentals are still mixed and the technical picture is bleak, but DJIA, S&P 500 and NASDAQ have not all violated their respective October 2014 lows.

 

 

Over the past four weeks since last update, S&P 500 has dropped another 3.7% and Russell 2000 is off a further 7.0% as of yesterday’s close. Mid- and Large-cap portfolios declined 2.4% and 3.7% respectively over the same period. One of the few remaining positions from December’s Free Lunch Stocks, Virnetx Holding (VHC), was solely responsible for a modest 0.6% gain in the Small-Cap Portfolio. 

 

VHC was awarded $625.6 million in a patent case win against Apple triggering the leap from under $4 per share to nearly $10. Victory euphoria has already begun to wear off and VHC is currently trading just above $7. Sell VHC. For tracking purposes, VHC will be closed out of the portfolio using today’s closing price.

 

Within the context of the market’s miserable trading thus far in 2016, VHC is the sole bright spot this month. In total, 22 positions closed below their stop losses over the past four weeks. Some bounced, some sank lower, but the majority was lower at yesterday’s close than when they were stopped out. Excluding VHC, there are just eight open positions remaining and are on Hold; BRSS, SMRT, SMG, UNH, CNC, CVS, TSCO and SCCO. The largest position in the portfolio is cash at 81.9% of total value. We will maintain this level of cash for the next opportunity whether it is on the long or short side. In the meantime, continue to heed all stop losses. It is always easier to sell a position and decide when to get back in than it is to continue watching a position sink and losses mount.

 

 

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held positions in CNC, CVS, DHI, HBI, NTRS, PLOW, SUN, TMH, TSCO and VSR.