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Sitrep: Update On Our Trade Positions

Last week I highlighted that as we approach the commonly volatile and weak period of May through to October hence - “sell in May and go away” – investors should begin to reduce risk in their portfolio and begin to rotate out of certain sectors that are vulnerable to an ever changing landscape.

We have now started to see further support for this as the Nasdaq (and other US indices) have started to stall. Many of the high growth, high p/e stocks that make up much of the Nasdaq index have clearly peaked with some very disappointing earnings results. The likes of Netflix, Google, Apple, Microsoft, Twitter etc have all been heading south even as the S&P 500 made new highs last week. This to me reflects that the market is unwilling to support the prices at which many of these stocks trade at.

We can see below that the Nasdaq has now broken under 30 day moving average for the first time since the lows in February. As a result this is the clear point where momentum is now shifting to the downside and risks are further underperformance of high p/e stocks.

When investors begin to question the validity of the owning high p/e stocks they begin to look for value in low p/e and more stable earners. This explains much of the revival in the commodity stocks and in some of the auto related companies like Ford and General Motors. We are seeing improvement in agricultural and mining services companies as well.

Gold Update

So, update on our long gold positions – stay long. Gold and silver prices are breaking out once more and this is triggering another wave of buying interest in local producers. Last year I started to turn bullish on gold as I turned negative on the major global equity indices. The most encouraging sign has been the ability of gold stocks to continue to rally even though equity markets have rebounded in the past two months. As we enter a typically weak period for equities, gold stocks and gold prices could be given the next catalyst for a major move higher towards $1400/ounce. Perfectly the gold price has been hugging and respecting the 10 week moving average providing a perfect springboard higher. We are also seeing strong moves from other precious metals as well including platinum.

Structural Monitoring Systems Update

My clear favourite stock which I have discussed several times here for readers. First mid-last year around the 50c mark, then again late last year at 80c and finally in March at $1.50 where I reaffirmed my $5.00 target on the stock for 2016. With a share price at near $2.40 I continue to be a long-term holder – the only stock I hold long-term – and have been adding to my holding on dips.

The company is yet to announce their forthcoming deal with Delta Airlines which will underpin the reasons I have been bullish. The best summation I can give is that SMN has a technology that is patent protected and years ahead of its competition. It saves their customers tens if not hundreds of millions of dollars and if one airline adopts the technology, they all have to just to stay competitive. As a result they have a monopoly on any product that is a “must have”. Completely funded, no debt and well managed. Not often does such a combination of circumstances present themselves but when it does, as George Soros says “go for jugular”.

Long McDonald’s and Short Chipotle Update

Several weeks ago I used my long McDonald’s and short Chipotle trade as an example of how profitable trades can come from personal experiences with companies and their products. Since then McDonalds continues to hover at fresh record highs while Chipotle is still suffering from their food poisoning outbreaks as I discussed and their share price has fallen another 11% and on the verge of fresh multi-year lows. McDonald’s has gained 2.5% over the same period. Stay with this trade, the outperformance of McDonald’s to Chipotle has a lot more room to run.

View More Articles By Greg Tolpigin

Greg is the Head of Proprietary Trading at Gleneagle Securities and has over 20 years of experience as proprietary trader and high level strategist for the major investment banks including Citigroup, Bankers Trust and Macquarie Bank. He has been involved across all asset classes including commodities, bonds, currencies and equities right across the globe.

After a 10-year career within the comforts of the large investment banks and research firms he branched out on his own to form his own proprietary trading firm successfully building the business into a multi-million dollar trading operation that turned over a billion dollars a year. This same team now runs the proprietary trading desk at Global Prime, risking their own money in line with the firm's and client's capital.

Greg has appeared on CNBC, Channel 9 - Business Sunday programme, a guest columnist for the Australian Financial Review, a regular author for Personal Investor, Wealth Creator and Shares magazine and is the former Treasurer of the Australian Technical Analysts Association.



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