Week 8 2012 Performance.....Things keep rolling along

Another week down another up week in the markets.  The fund continued to push higher once again beating the major market indices.  Week over week the fund was up 1.8%, S&P 500 up 0.37%, DOW up 0.30%, NASDAQ up 0.41%, and the Russell 2000 down 0.19%.  This week we saw probably saw the most movement in the fund in some time.  We exited positions, reduced others, and even added a few new names.  Here are the details;

• Rather than continuing to get run over by this tape I reduced the Ultrashort S&P500 $SDS position in half.  This position gives us double the inverse action within the S&P 500.  Example if the S&P500 goes up 1% then this position is supposed to lose 2%.  It a way to be able to add protection to the downside.  But as you can tell from this new year there just hasn't been the down days nor the volatility that I expected. 
• With the above play in mind I also exited out of our two short positions Groupon $GPRN and LinkedIn $LNKD.  We were actually favorable with the Groupn position but lost big on LinkedIn as they reported a stellar quarter this earnings season.  I still think the premise behind these trades works long-term possibly still this year, but I wanted to cut our loses now in case this market continues to rally.   
• We added two new option positions in Boston Beer Co $SAM (otherwise known as Sam Adams) and Lowe's $LOW the home improvement retailer.  
• The Sam play is a continued response to consumers trading up to craft beer and a recovery in discretionary spending.  I also watch a company like Buffalo Wild Wings $BWLD which continues to outperform as a barometer of how a name such as $SAM can do.  
• Lowe's is a stock that I like based on the rebound not in housing but the remodeling boom that has taken place, see story [February 23, 2012 Home Sales Below Expectations].  Lowe's reports earnings on Monday and if they come anywhere close to what Home Depot $HD reported last week then we should be in good shape. 

Our cash position now stands at 54.7% which is the lowest it has been since we launched the fund.  Don't get the wrong idea that we have suddenly become bullish, quite the contrary.  These latest moves to add positions especially option positions gives us a little bit more protection than just owning the outright names.  That being said this rally could still march onward for some time and I don't want us to get left behind nor do I want to crash and burn if things start to head south.  Participate with a cautious eye is the stance we are taking.

Concerns on the Horizon

I'm sure by now everyone is starting to feel the pinch of higher gas prices.  It seems as though we continue to move from one crisis to another with European debt problems hanging out there and now tensions continuing to run high between Israel and Iran.  Although US oil consumption may be lower the rest of the world has increasing needs such as China and India.  We have seen time and time before that once we hit that $4 per gallon mark in the US it is the breaking point with consumers.  If you pay any attention to the nightly news or daily papers you have no doubt seen reports of gas in the $5 to $6 range by the summer driving season.  If we get anywhere close to that it will bring the economy to a halt. 

But as the price of oil has continued to rise, markets in some ways have been resilient and shaken off the news.  The DOW hit the 13,000 intra-day mark on a couple of occasions this week.  The S&P 500 is the highest since 2008.  What is concerning is how other indices are breaking away from each other.  Take the Russell 2000 index this week down while the other major indices were up.  When indices begin to diverge it is often a signal of rougher waters ahead.  Just something to keep your eye one.

Also to be mindful of is the European debt situation.  Although it appears and feels like we are not trading explicitly on Europe news as we had been at the end of 2011 don't kid yourself as all is not well in Europe.  This latest bailout of Greece in my view is yet another temporary band aid on a patient who is not going to make it.  The ECB keeps finding ways to keep Greece on life support when they have no chance at paying off their debts.  

The Week Ahead

This coming week is packed with economic data that is a) sure to move the markets and b) give us a better indication of how the economy is performing and what direction we may be headed.

• Mon - Pending Home Sales Index, Dallas Fed Mtg Survey
• Tue - Durable Goods Orders, Case-Shiller HSI, Richmond Fed Mfg Survey
• Wed - GDP, Chicago PMI (Purchasing Mfg Index)
• Thu - Feb Vehicle Sales, Personal Income & Outlays, ISM Mfg Index, Construction Spending
• Fri - N/A

Have a great week!

Full disclosure I own shares of SDS and SAM in my personal account