Sabrient Select Opportunity Virtual Portfolio

August 16, 2010

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Sabrient Select Opportunity Virtual Portfolio

August 16, 2010 – The Week Ahead

The support line on the bearish rising wedge on the SPY that had been forming since the beginning of July finally gave way last Wednesday in a big way. Many blamed it on Bernanke, but the fact is that a formation like this usually (but not always) breaks down bearishly. The only questions are when will it happen and what will be the trigger.

While 2008 and 2009 settled into bear and bull trends, respectively, 2010 has decided to remain in the chop suey. The S&P500, Russell2000, Nasdaq, Nasdaq 100, and S&P400 mid caps have all fallen below both their 50- and 200-day simple moving averages again as the market continues to confound trend riders. Only the Dow Jones Industrials remains above its 50-DMA.

I am maintaining a mostly bearish posture in the Select Opportunity Virtual Portfolio, with three shorts and two longs. Last week, I closed a half position in GDP because it was showing relative strength and violated my mental stop, but it sold off with the rest of the market, bringing the open half position back into the black. I closed half rather than the entire position because the market seemed ready for a fall. I also opened a new short in TXI and a new long in copper/gold miner FCX, which should perform okay whether the market recovers or falls further.

Open Positions

Going into the week, we have two long positions and three short positions.

LONGS:

We are still long half of the original position in Humana (HUM) from $48.75. The stock closed Friday at $49.33. It is rated STRONG BUY in the Sabrient Ratings Algorithm, and carries an Outlook Score of 99.7, a Growth Score of 90, and Momentum Score of 93. HUM offers a desirable combination of solid fundamentals and defensive characteristics. I am moving up the mental stop to breakeven, i.e., I will likely close this position if the stock violates the entry price of $48.75 on a daily close.

We are long a full position in Freeport McMoRan (FCX) from $70.20. The stock closed on Friday at $70.07. It is rated BUY in the Sabrient Ratings Algorithm, and carries an Outlook score of 74, a Value Score of 80, and a Growth Score of 73. I have a mental stop for a closing price below $66.06, which was the July 21 closing price at the start of the recent run.

SHORTS:

We are short a full position in First Horizon National (FHN) from $11.23. The stock closed Friday at $10.34, which is nearly an 8% gain. I plan to take partial profits (on 1/3 of the position) at the 10% gain level, which corresponds to a price around $10.10. This could happen on Monday. FHN is rated SELL by the Sabrient Ratings Algorithm and carries a Company Outlook Score of 4, Value Score of 35, and Growth Score of 30. I will put my mental stop at a close above the entry price of $11.23.

We are short a half position in Goodrich Petroleum (GDP) from $12.70. The stock closed Friday at $12.68. GDP is rated STRONG SELL by the Sabrient Ratings Algorithm and carries a poor Company Outlook Score of 1.7. My mental stop is going to remain at the same spot that triggered my stopping out of half of the position, i.e., a close above $13.60.

Watch List

LONGS:

Some stocks that I have on my Buy watch list include the following: