Week 21 Performance....The Oversold Bounce Back

Even though it was a bounce back type of week for the equity markets the gains were not easily made.  Facebook and Europe (specifically Greece) were the headline grabbing stories all week which seem to dictate market direction.

As noted in previous weekly performance posts it feels as though we are back to all or nothing trading days.  Meaning we are all up or all down.  Bespoke had some supporting detail to back this theory up here.

Chart courtesy of Bespoke

What needs to be pointed out regarding the chart above is that this type of market action is nothing new.  We have seen a dominance of this all of nothing mentality since the early 2000's.

This makes stock picking that much more challenging as companies do not move on their own fundamentals rather they move with a herd mentality on macro news such as the European debt crisis.  One day everything looks bleak while the next day the sun is shining bright.

Trying to time the markets in these types of situations tends to lead to more losses than gains.  At DWCM we are dealing with the current markets in the following ways:

1. Staying with our long-term thesis holding agriculture names, solid companies with great fundamentals and a dividend yield, and selected technology which we believe will be growth leaders in the coming years
2. Scaling into positions and using options as a way to protect capital
3. Maintaining a relatively high cash position both as a defensive measure and as an opportunity to pick of positions at discounted prices.

This week in the DWCM Fund we took advantage of the market bounce by selling a few of our winning trades and scaling back a few of our larger positions in order to build back our cash reserve.  The whole situation with Europe and Greece has reached unsettling proportions with me so I want to try to protect our capital as much as possible.  Our cash position now stands at 45.5% up from 36% the week prior.

Although the recently added technology positions have not yet paid off, we are going to patiently wait them out over the summer and may add to some positions on further weakness.  I believe that we own the right companies that will lead to further growth down the road.

The agriculture names although up this week are still in the red in our Fund.  Again these are positions that I believe over the long-term will be the bedrock of our Fund.  I will be steadily adding to these positions on any continued weakness.

One group of stock that have held up rather well in the spring swoon has been the dividend paying stock such as AT&T, Eli Lilly, and to a certain degree BMW.  We especially like this group of stocks with solid fundamentals and a good dividend yield that helps whether the storm.

The Week Ahead

Even though this will be a short week with the Memorial Day holiday in the US, it will pack quite the punch being a jobs report week.  Typically this week has historically been quite volatile as well going both ways up and down.  Put it this way we are glad that we had the opportunity to increase our cash position last week because we're not sure if the opportunity would present itself this week.

• Mon - US Memorial Day
• Tue -  S&P Case-Shiller HPI,  Consumer Confidence,  State Street Investor Confidence Index
• Wed -  MBA Purchase Applications,  Challenger Job-Cut Report,  Pending Home Sales Index
• Thu -  ADP Employment Report,  GDP,  Jobless Claims,  Chicago PMI
• Fri -  Motor Vehicle Sales,  Employment Situation,  Personal Income and Outlays,  ISM Mfg Index,  Construction Spending
• Sat - CFA Level II Exam

As you can see there is much more this week than simply waiting for the jobs report at the end of the week. We can still foresee Europe and Greece dictating allot of the market action this week up until Friday when the jobs report will get all of the attention.

On a personal note you can see above this Saturday is the annual CFA exam day.  You may have noticed that the posts had been hit or miss the past few days and this is why.  I am currently dedicating more hours last week and this week in order to finish prepping for the Level II exam.  Writing may be my only break this week so please bear with me.

I hope that everyone in the US has a great Memorial Day holiday.  Make the opportunity to thank a veteran  and their family for their service because without them we would not be able to do what we do.

Thank You Veterans from all of us at DWCM.

DreamWorks Capital Management Update
REGISTER NOW for the quarterly seminar "401k & 403b Rollovers, You have Options" on Monday June 18th at The Community House located in Birmingham, MI.  The event is free and you can register by calling TCH at 248-644-5832 or you can email me directly at pfenner@dwcmllc.com.  We hope that you will consider this great event and learn more about the services we offer here at DWCM.