Stock Portfolio Updates: Fasten Your Seatbelts, Bumpy Ride Ahead
By: Christopher Mistal
August 11, 2015
Following yesterday’s solid, one-plus percent across-the-board gains, today’s across the board loss of nearly equal magnitude is a clear reminder that volatility tends to really begins to pick up in August. In the following chart, weekly bars of CBOE’s Volatility Index (VIX) are plotted with its 1-year seasonal pattern plotted below. In an average year, VIX typically reaches a low in July and then begins to steadily climb toward a high sometime during October and then begin to decline once again. Note how over the last year VIX has tracked its seasonal pattern rather closely.
[VIX Daily Bars and Seasonal Pattern since 1990]
Since VIX does not measure actual volatility (daily price moves), let’s compare it to actual daily price swings of the S&P 500 since 1950. In the following table, the number of trading days where S&P 500 closed up or down greater than or equal to 1% appears next to the month. In the third column the total number of trading days in that month appears. Lastly the percentage of days greater than or equal to +/- 1% is calculated. August has the third highest percentage of days +/- 1%. October has the most which matches the 1-year seasonal pattern above. This historical data suggests the market has just begun its most volatile four-month span of the year, August through November. There are likely to be many more days like today, and yesterday, in coming weeks.
[S&P 500 Table of Daily Moves +/-1%]
Stock Portfolio Updates 
Over the past two and a half weeks since last update, through the market’s close on August 10, S&P 500 slipped 0.5%. Russell 2000 was down 2.8% over the same time period. Collectively the three Almanac Investor Stock Portfolios declined 0.4%. Our Mid-Cap stocks performed best, gaining 0.7%. Large-Caps brought up the rear with a 0.8% loss, just a tick worse than Small-Caps which declined 0.7%. Small-cap stocks in general have been having a tough summer this year, but one bright spot in our portfolio is Global Brass and Copper Holdings (BRSS). It traded at a new 52-week high last in late June, spent July consolidating and then blasted through monthly resistance last Friday following a respectable second quarter earnings report that included an increase in full-year 2015 guidance. BRSS is on Hold.
At the other end of the small-cap performance spectrum is Omnicell (OMCL). After running from the mid-twenties last September to over $40 per share in July, it sold off hard when it released earnings on the 30th. Year-over-year revenue was acceptable however; sequentially it was slightly lower than the first quarter and margins also shrunk. OMCL is also on Hold.
SkyWest (SKYW), a short-trade idea, reported better than expected earnings on July 30 after shares touched briefly touched $13.61. The initial pop of the beat stuck and shares continued to climb to close above SKYW’s stop loss. As a result, SKYW was closed out of the portfolio on August 5 for a 5.2% loss.
Long holdings in both the Mid- and Large-Cap portions of the Stock Portfolio continue to perform well with two exceptions. Allstate (ALL) was stopped out on August 4 for a final gain of 47.8% following a dreadful earnings report. Although Southern Copper (SCCO) did not get stopped out on July 23 it did close below its stop loss the following day. Broad materials sector weakness due to tepid global demand and a firm U.S. dollar were the main culprits.   
Earlier in July a basket of 14 stocks that we believed were excellent candidates to short was presented. All stocks in this basket have now been traded, but a few have already been stopped out. In addition to SKYW, Colgate Palmolive (CL) was stopped out on July 28 when it closed above $68.10. CL looks like it is ready roll over, but its familiar name and dividend are likely comforting to some traders and investors limiting any substantial downside moves.
Bluebird Bio (BLUE) is the best performing short trade idea to date with a 9.0% profit as of yesterday’s close. It was also the most overvalued of the basket with a market valuation of over $5 billion on just $24 million of revenue over the past year. All it took was a bit of broad biotech weakness coupled with a second quarter earnings report that suggested the company would be mostly just burning through cash from now through 2018. BLUE could easily be cut in half from current levels and still be overvalued. BLUE is on Hold
All other positions, not specifically mentioned above, are on Hold. See table below for updated Stop Losses.  
[Almanac Investor Stock Portfolios – August 10, 2015 Closes]
Disclosure Note: At press time, officers of the Hirsch Organization, or the accounts they control, did not hold any positions in the stocks mentioned in this article.