Strategy for Next Week - Part I

Many people started to accumulate short positions Friday and they might be right but here is what I think will happen. Wells Fargo really put some "mess" in the game, so I am anticipating that Bank of America, Citigroup, or JP Morgan will preannounce earnings Monday morning. Frankly, these bankers have egos the size of Texas, they are pissed Wells Fargo beat them to the punch, so they will be waiting in line to preannounce (RF prediction). If they drill, this will shoot the market to 875+ 0n the S&P and clear more shorts. (Please note, the voices in my head are telling me this).

I pulled back to 50% cash in case this doesn't happen; however, if we catch a pull back, I will buy select names. I will focus on various sectors tied to cyclical business operations, as well as the consumer. There is a particular restaurant I will buy in SIZE Monday morning, so get ready. Names that have been beaten, can bounce hard, so look hard. If I ran a hedge fund, and was net short, I would cover only select names, to raise cash and short at high levels. Many shorts have cleared but I expected that last week; however, more can go.

I like DKS and planned to buy it Friday morning but totally forgot to put it on my watchlist Thursday night, so by the time I remembered, it was up .80 cents from the open (classic RF moment).

Below are my top 5 portfolio holdings, ranked in order based on % of portfolio contribution:

1. JJC (Market Cap - don't apply it, traces the commodity)
2. PCU (Market Cap - $16.88 Billion)
3. EMC (Market Cap - $26 Billion)
4. IBKR (Market Cap - $640 million)
5. FEED (Market Cap - $92 million)
5. JAVA (Market Cap - $4.97 Billion) - (have strong put protection)

Lastly, let me discuss something, relating to portfolio positioning, particularly with market capitalization and stock selection. Lets say I have a stock portfolio, with 5 stocks. I make sure the market capitalization of my portfolio has proper "weight". For example, if I owned 5 stocks, I would not have all stocks under $500 million in market cap. That is highly risky in a downward market and could really hurt my gains. If you want to be overweight in stocks, I would a have top stocks with strong market capitalization, to reduce "sizeable" risk in the portfolio. So if you look at my top 5 holdings, excluding my Copper ETF, I have 3 large caps, 1 small cap, and 1 microcap. I personally believe the instrinsic value in FEED and IBKR are highly than current market levels; however, analysts don't believe in IBKR. In my view, they are really underestimating the profitable market maker business and the beautiful margins of the business. This quarter may not be great but as the market stabalizes, no firm can touch them. I have done some extensive research on the firm and comparables and IBKR's business model is brilliant. The only reason I have bought more is because I am unsure about the quarter. If we get a bad quarter, I will buy the dip, for the long-term. As for FEED, this thing has monster juice. They reports in March and the stock went from $1.08 to $2.50 in two days. Stick with the stops on Chinese microcappers. Anyways, this is not a general rule of thumb, but rather something that I personally do and thought of. Small/Micro caps provide the best "juice" but incase of pullbacks or "burns" have some solid large caps.

So in conclusion, think cyclical.