Tuesday, November 09, 2010

Breather or Top?

With my portfolio being up 14% since 10/22, not entirely surprising to have a 2% pullback that we had today. My Chinese stocks were down 4% driven largely by NEWN dropping 11% after their 18% increase yesterday.


I did sell 1/2 my position this morning in CEU as I found their earnings to be just okay (China Education Alliance, Inc. Announces Record Third Quarter 2010 Financial Results). CMFO reported their earnings this evening, I also felt they were just "okay" (China Marine Reports Record Third Quarter Revenues of $22.7 million and Adjusted EPS of $0.16). I will likely pare back my position with them as well. I suspect this will be a theme with my chinese stocks. They have generally had a very good run and have really gotten outsized in my portfolio. I will not be selling them entirely, but in the 50% vicinity... and then I will be plowing $ into the less risky side.

At The Top?

Of course the big question is whether today was a "breather" or if the market has put in the high for 2010. Doug Kass, who has been eerily accurate (he called the 2009 low and the low this year in July) says this is the top (Kass Sees Market Topping). The Fast Money guys also think it is time to have some insurance. I am back to 8% cash and will be about 10% if I sell 1/2 my CMFO tomorrow.

My MFI "barometer" has gone a bit negative again. Recall a few days back that of my 12 open monthly portfolios that 7 were beating the benchmark? It has dropped to 5. The flip side is that M&A activity continued today with CVX buying Atlas. Oh well, I certainly will not be doing anything drastic, rather a little fine tuning.

Food for Thought

One thing that does "worry" me a bit is thinking about the "flash" crash we had in the 1st week of May. Our markets have become very fast, levered and "insured". I sometimes feel like the whole thing could become unhinged. I also feel that people get a false sense of security from their insurance. 60 Minutes did a spot on the High Frequency Traders (High Frequency Trading on '60 Minutes') and while the argument is that high frequency trading increases liquidity, I would also suggest it increases risk if a big chunk of the HFTs get on the same side of a trade, which could cause a severe "air pocket".

The second thought along these lines was put out in a recent study on ETFs (Greenberg: New Report Blasts ETFs for 'Systemic' Risk). It is good reading and raises some very valid concerns. At the end of the day, I think ETFs are a great opportunity for people using specific stock picking techniques like MFI as ETFs paint many stocks with the same brush. But there could be short term pain for longer term gains.

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