Thursday, October 12, 2006

Black Box Thoughts

The Black Box continues to see negative divergences in semis and tech as we make new highs. In addition, it's questioning the total market as we continue higher as well.  I made sales on Sept 14th and Sept 20th in semiconductor and tech names, and went into lower beta holdings and cash.  How is this decision holding up?  After all, it seems as if the market is racing to all new highs every single minute.  It would seem rather foolish of me to heed the Black Box back in September.  Using SMH and QQQQ as a proxy for higher beta semiconductors and tech, and DVY for a  lower beta holding (.89 beta), lets take a look.

Sept 14th. Closing prices

    • QQQQ:  39.99
    • SMH:  34.41
    • DVY:  66.48

Sept 20th Closing prices

    • QQQQ:  40.43
    • SMH:  34.32
    • DVY:  66.95

Current prices:

    • QQQQ:  41.76
    • SMH:  34.67
    • DVY:  67.51

Analysis?  The QQQQ is up 1.04% and 1.03% from my sell date (respectively).  The SMH is up 1% and 1.01% from my sell date (respectively).  The DVY is up 1.01% and 1% from my buy date (respectively).  And cash is up (assuming a 5% rate/yr for a month), .41%.   All just rough numbers, but good enough for analysis.

I'm slightly underperforming my previous high-beta portfolio, but by taking much less risk.  In addition, I continue to maintain a core position in the total market index.  I have also nibbled and traded a little along the way in various things, but I don't mention those specifically here.  I also have some cash on the sidelines to deploy sometime into something, once some of the frothiness evaporates. 

Despite the feeling of "missing out" by having some cash on the sidelines, turns out the Black Box is doing the job and the key in the weeks ahead will be patience.  Slow and steady.  Be the turtle.

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