More Nice Than Naughty
I’m sending you this week’s issue early, as I know many of you will be busy with holiday activities later in the week. Just a reminder, the markets closed early today, are closed all day tomorrow, and then reopen for a full day Friday, which will likely be a very quiet day. I will be watching our stocks and be in touch if we need to make any moves, but I do not anticipate any.
After an atypical early December, the typical end-of-year rally came back to life. Before Wall Street could finish digesting the sublime gift of patience Janet Yellen delivered last week, the oil market and macro economic environment are giving traders who believed in Santa Claus plenty of additional evidence.
Whether you attribute the extra lift to end-of-year portfolio rebalancing, tax-related adjustments or simply underperforming fund managers desperate to dress up their final numbers, the S&P 500 has now regained all ground lost earlier this month and is now flirting with new records. The gains have been relatively subdued in the last few days, but I do not think index fund investors are complaining.
With only scattered exceptions, our Absolute Capital Return stocks are joining the party and even once again leading the broad market to glory. Through yesterday’s close, the average gain in our long trades was 0.8% from Friday’s close, outpacing the S&P 500’s 0.6% increase. Our hedge has fallen again, but with many of the same issues that caused the early-December turbulence still present, I feel very comfortable holding UVXY into January. As we’ve already seen, it can move explosively.
In the shorter term, the broad benchmark seems close to a near-term ceiling once again, but keep in mind that fourth-quarter earnings are right around the corner, with Alcoa (AA) starting the next reporting season on January 12. Even if money simply rotates between now and then, I suspect many of our stocks will continue to benefit from that. We’ve already locked in our biggest winners, and if anything, the imperative to roll capital from richly valued shares into relative underperformers should favor our remaining stocks over the next few weeks.
With only a handful of 2014 trading days left, I expect things to be mostly quiet. Still, I want to give you a heads up that we may do some selling in order to capture tax opportunities and possibly lock in what we’ve made on Semtech (SMTC) and Channel Advisor (ECOM). The best time for that may be Monday. At the moment, it looks like both of these names can give us a little more, so I am reluctant to sell into the holiday quiet unless the situation changes dramatically. As you know, we have had a strong month, already harvesting five nice winners so far this month, bringing our net average exit in December to 9.38% so far.
Stocks in Classic Rally Mode
We’re in a nice spot where several of our stocks have moved into the privileged position of having defeated all near-term technical resistance with plenty of upside momentum to spare. These are classic rally charts, and some are now buyable at higher prices.
General Cable (BGC) has been a hit for us so far, practically gaining 1% per day since we added it on Friday. Now that the chart has decisively broken out, it could run toward $20 before hitting a near-term ceiling. If you missed out, you can now buy BGC below our raised limit of $15.75.
Crown Castle International (CCI) is now confronting its own technical ceiling at $79.44, and I think it has the momentum it needs to smash it. In that event, this stock could run back to $84 in very short order.
Finisar (FNSR) was in a holding pattern for us while we waited for it to rally back from its summer swoon. That rally seems to be upon us now with a 7% move in the last five trading days and a 15% run so far in December. We will not be holding on much longer, but I see a chance to perhaps capture a few more percentage points while this once-battered stock looks for a peak.
FXCM (FXCM) has set up a convincing base here at $17 and is only now signaling a rally underway. The upside looks open at this point, so once again, I am raising the buy limit in case you want another chance to get into this trade. Buy FXCM below our revised buy limit of $17.25.
Castlight Health (CSLT) is another of our older trades that I’ve had marked to hold until we find a decent exit. If this stock can climb above $11.96, I think that exit will be in sight.
We’ll wrap up for now and I’ll let you get to your holiday activities. I hope you have a safe and happy holiday season, and best wishes for a healthy, happy and profitable 2015!
Sincerely,
Hilary Kramer
Editor, Absolute Capital Return Portfolio
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