Get Darwinian on Your Portfolio!

Of all the many battles on Wall
Street, the one that strikes us as peculiarly absurd is the recent sniping
between Economists and Technicians. Each of these specialties digests
different data, and operates over widely diverse time frames. Dismissing each other’s
work as if neither discipline has any value strikes us as exceptionally foolish.

Resolving the dispute is a relatively
simple matter of carefully considering timelines and expectations. Technicians tend
to respond to shorter term market moves (like today’s!), while Economists ply
their trade over much longer time frames. By combining these two dissimilar
disciplines, we can develop a view towards both the immediate and distant
futures.

Despite the Red on today’s
screens, the Technicals favor an upside bias over the next month. We are in the
seasonally best period for equities, Indices are near new highs, and despite
recent sector rotation, Momentum remains strong. However, the Macro-analysis
suggests an eventual slowing of the
economy is more than likely. Housing Sales are softening, the Yield Curve is
Inverted, and the Consumer is slowly tiring. Inflation, at both the retail and
wholesale level — core and non-core alike, — is still rearing its ugly head.

In between these two time
periods, we see numerous technical warning signs: Low volume on Up days versus
heavier volume when the market is down; An increasingly narrow advance, with less
issues participating in the gains, and a small number of 52 week high list
despite the indices being at or near multi year highs – all suggest that a high
degree of caution is warranted for equity investors.

What’s an investor to do?

Darwin’s answer is to Cull the Herd. Now
is the time to get Darwinian on your portfolio. The weak, the sick, the lame,
the infirm – they will only hinder your portfolio’s ability to survive. Your
holdings must evolve, your stock selections must prove their adaptability. Its
a case of relative strength – which is essentially the Technician’s version of Survival of the Fittest.

Any stock you own which has failed to participate in the recent
rallies should be aggressively sold.
This is both a defensive
maneuver, as much as it is a way to raise cash for the inevitable buying
opportunity – whenever it may show. My guess (and its only a guess) is
September/October.

As this "long in the
tooth" cyclical Bull market continues to age gracelessly, your best bet is
aggressively shoot those cattle who cannot keep up with the herd. The market is
a cattle drive, and for the good of the herd, you must get rid of those who
fail to keep up.

Adapt. Evolve. Cull.

If
you have a philosophical problem with a Darwinian
approach, then consider this a dose of Intelligent
Design
for your portfolio.

Category: Economy, Investing, Markets, Technical Analysis, Trading

Chart of the Week: Seasonally weak period for Small Cap and Tech

Category: Investing, Markets

YAiK (Yet Another iPod Killer)

Category: Technology

Do Amercians Support a Gas Tax?

Category: Commodities, Consumer Spending, Financial Press, Politics

Cuban to The Donald: Blow this for a million dollars

Category: Television

Home Foreclosure Surge

Category: Consumer Spending, Data Analysis, Economy, Real Estate

Non-Core CPI (known elsewhere as “Prices”)

Category: Inflation

Home Depot CEO: Stunningly Clueless Regarding Employment

Category: Corporate Management

Greg Ip Discovers Data Manipulation

Category: Data Analysis, Real Estate

New Homes Sales: 4th Drop in 6 months

Category: Fixed Income/Interest Rates, Real Estate