Cautious Territory...

Portfolio Breakdown:
KFN - 88.8%
YRI - 3.2%
BAC - 3.7%
PRGN - 20.8%
APP - 7.9%
JPM - (4.5%)
BWR - 1.7%
CAD Cash - (0.5%)
USD Cash - (21.1%)

Portfolio Performance:
Return Since Last Update - 4.88%
Return Since Inception - 129.72%
S&P 500 - 1028.93
S&P 500 Return (June 30) - 11.97%

USD/CAD - 1.0925

The Prior Week of Trading:
Not much has changed since my last update, well more accurately that is, in terms of the composition of my portfolio. I would like to take a moment to express my trepidation regarding the current levels of the US market and the probability of its sustainability. From a purely empirically qualitative perspective, the market has seemed to have lost some of its ability to close significantly higher following good news and yet has been unable to be pushed down when we receive worse than expected economic tidbits; Thus, we must look to what other factors may become relevant enough to shove the market in one decided direction or another. I would first like to point out the Investors Intelligence bull-bear chart posted by http://www.market-harmonics.com/ showing a large percentage increase in apparent bullish sentiment in the market. Although, to paraphrase Keynes (write this moment down in history, as I so rarely even mention Keynes...) the market can stay irrational longer than we can remain solvent is poignant to remember when considering any indicators based on sentiment as that is fleeting at best. To the contrary, on a quantitative level, a Fibonacci retracement of the S&P 500 from its high of 1565 (10/09/07) to its closing low of 676 (03/09/09) puts the 50% level at 1120. As we approach this level, I become more and more cautious given that the S&P 500 has now rallied 52% of its closing low in less than 6 months; if this doesn't at least give a cautious investor pause, I don't know what will...

In this spirit, I will be looking towards next week with the following in mind: On those positions that I find to be undervalued and/or poised to outperform their peers I will look to write front month calls on my position; in general I would like to seek out more opportunities to execute pair trades or at least, add a short market position.

I should finish off this segment by mentioning my outlook for the 3 largest holdings in my portfolio. KFN has had another good week and seems to be headed straight towards my price target of $4. This is an intriguing position for me because I see so many options for dealing with its future in my portfolio. I have noticed that KFN seems to exude considerable strength pre-market, selling off mid-morning, only to stabilize and move higher towards the end of the day; as KFN is now moving close to my $4 target, I may try to capitalize on this occurrence while keeping myself protected with either a tight stop or an options collar. PRGN has been a relative laggard, as the Baltic Dry Index has remained weak; I think given the eventuality of a global economic recovery this shipper is still the best, and most undervalued, way to play this move. APP seems to be range bound between $3 - $4 and given the possible froth in the broader market, may sharply retreat to $3 in a correction, I will look to take profits here either through a sale or an equivalent options hedge.