Go placidly amid the noise and haste, and remember what peace there may be in silence. Exercise caution in your business affairs; for the world is full of trickery. But let this not blind you to what virtue there is.
Max Ehrmann, ‘The Desiderata’, 1927.
Ecinya Comment
Over the past two weeks the market has not surprised us, but we have entered limbo-land waiting for the next move. It is easier to relate to our published portfolio (Cactus) to explain our mood and reflect on where we might be.
We are holding 50 stocks costing around $726,000 and currently worth around $683,000. These stocks have been funded by circa $466,000 of cash, realised gains of $246,000 and dividends and interest of $14,000. The Cactus Fund started on 6 January 2009 and progressed until March 2009 in a relatively passive way. Activity accelerated after 31 March, 2009. The returns have been very good and exceeded our benchmarks.
For the past 7 weeks Cactus has stood still with unrealised losses averaging about $41,000. All of these losses are contained in 7 stocks – Ceramic Fuel Cells, CMA Corporation, Primary Healthcare, Galaxy Resources, Clean Seas Tuna, CSR, and Redflex Holdings. Apart from Clean Seas we remain comfortable with these holdings whilst appreciating that ‘the market’ is disinterested.
Technically, the XAO enjoyed a 7.5% advance for the 51 days to 19 January 2010, folllowed by a 6.5% retracement for the 19 days to 15 February. The current XAO upwave is now 15 days old and the advance has been 5.4% or some 249 points, equivalent to an average of 36 basis points per day. This is all good, steady stuff.
Why then in limbo? We guess the answer lies in the fact that we cannot identify a catalyst that will dramatically drive the market higher in the short term, but a few things are possible. Firstly, we are about to enter the northern spring and economic activity in that hemispere traditionally picks up as the snow melts and the sunshine appears. Secondly, in Australia and elsewhere house prices seemed to have ceased their dramatic fall. Our local banking system is only wounded, but not broken, and lending is slowly on the mend… we emphasise slowly as banks seem to have A, B, and C class customers. The reporting season was, overall, satisfactory. So it all comes down to takeovers. That would give us a boost!
So we are watching, waiting, and wary.
Technical points of interest.
Our global proxy, SP500, reached an intermediate, post-crash high of 1150 on 19 January and XAO reached 4936 the day prior. SP500 is within 1% of that intermediate peak and XAO is within 2% of its intermediate peak. Keeping it simple, watch 1127 and 1115 on the SP500 and around 4725 on the XAO.
Context
Economic stats are getting better, but they are cum-stimulus and coming off low bases. Sustainability remains elusive.
Brevity
This is a brief article, well outside of our normal offering. Sometimes it is better to do nothing. Sometimes it is wise to remain silent.