Stock Portfolio Updates: Tighten Some Stops and Cut Underperforming Positions By: Christopher Mistal | May 19, 2015 | Email | Print

One of the six basic tenets of Dow Theory states that market averages must confirm each other. When major indices diverge, it is a potential warning sign. DJIA and S&P 500 have broken out to new all-time highs once again this year, mostly on tepid economic data and the rather low bar set for first quarter earnings. NASDAQ and Russell 2000 recently reached new all-time highs, but are not yet participating in the breakout by DJIA and S&P 500. This lack of support from techs and small-caps is worrisome. When the Transports (DJTA) and Utility (DJUA) indices are added to the mix, the broader picture is even more concerning.

In the above chart, DJIA, DJTA and DJUA have been plotted since last October’s market bottom. All three major indices moved in relative unison from mid-October through the end of last year. In January, DJIA and DJTA both struggled while DJUA average soared on to new highs on hopes of zero interest rate policy lasting even longer. DJIA and DJTA rebounded in February while DJUA crumbled and since the end of February DJUA has gone nowhere, the DJTA has drifted lower as energy moved higher while DJIA moved sideways and finally on to new highs.

Although timing is rarely perfect, the duration of time that DJTA and DJUA has languished is becoming significant. This week’s new highs by DJIA and S&P 500 are not likely to last long without the support of tech, small caps, utilities and/or the transports. 

Stock Portfolio Updates 

Over the past five and a half weeks since last update, through the market’s close on May 18, S&P 500 climbed 2.3%. However, Russell 2000 was down 0.4% over the same time period. Collectively the three Almanac Investor Stock Portfolios advanced 1.0% while 57% of the portfolio is in cash. Our Large-Cap portfolio performed best, nearly matching the S&P 500 by gaining 2.2%. The Mid-Cap portfolio was second best up with a 1.7% gain. Our Small-Cap stocks did outperform the Russell 2000 by climbing 0.6%.

Repligen (RGEN), tied for longest holding in the portfolio, was responsible for the bulk of the Small-Cap portfolio’s gain. RGEN is now up a whopping 375.3% since presentation, adjusted for the automatic sale of half the original position when it first doubled. RGEN’s near 36% jump since last update was due to a first quarter earnings homerun. Revenues, earning and margins were all solid, but the icing on the earnings cake came when management raised its guidance for full-year revenues, earnings and margins. Share performance says it all as this upbeat earnings report was obviously well-received.

Insteel Industries (IIIN), Park-Ohio Holdings (PKOH) and Rocky Mountain Chocolate Factory (RMCF) had a tough past five weeks. All suffered declines. PKOH was the worst swinging from a gain of 6.4% last month to being stopped out and sold for a 5% loss on April 30 when it closed below its stop loss. IIIN’s was down last month and weakness persists. RMCF was a trade based upon declining cocoa price at the start of March. Cocoa has since bottomed and is at a multi-month high. As part of our “Worst Six Months” strategy of selling weak or under-performing stocks, Sell IIIN and RMCF. IIIN will be closed out of the portfolio using today’s closing price. RMCF is up nearly 3% as I write this sentence and can be sold into any strength at or above $13.40.

Our Mid-Cap portfolio’s four holding are looking solid. JetBlue (JBLU) just missed doubling on May 13 and is currently showing a gain of 76.3% on the two-thirds position that remains. The laggard of the group is Group 1 Automotive (GPI) up just 33.4% since February 2014. All stocks in the Mid-Cap portfolio are on Hold.

In the Large-Cap portfolio, all but two stocks are on firm ground. Polaris Industries (PII) seemed to be poised for a rebound last month, but the rebound did not materialize. A late-April “death cross” (50-day moving average crossing below the 200-day moving average) is the final blow to this position. Sell PII. For tracking purposes, PII will be closed out of the portfolio using today’s closing price. Avis Budget Group (CAR) is the second struggling position. Its current bounce is looking like it will be short-lived and will make a great exit. Sell CAR. This position will also be closed out using today’s closing price.

The “Best Six Months” for DJIA and S&P 500 have officially ended. NASDAQ and Russell 2000 seasonal strength can last until June. All other positions, not specifically mentioned above, are on Hold. See table below for updated Stop Losses.