John Cofran's  Instablog

The market is down over 6% from it's May 2nd peak. All indications are that we are likely to see the market enter official 'correction' territory (10% or greater retraction) as we approach Summer. I have used volatility over the last several months to produce stellar short-term returns and to reposition the portfolio defensively.

Year-to-date, we are now outperforming the market by 0.5% and our more targeted, defensive portfolio weightings have boosted the current yield to 8.2%.

Several hold-over technology trades from April, including (CSCO), (MSFT) and (HPQ) have weighed on performance and currently comprise a larger than target weighting.

As we enter a seasonally weak period for the markets, I expect the S&P 500 to retest the 2011 flat line of 1,258, ultimately flirting with the 10% correction level of 1,234. With a clear weakening of the economy showing up recently in all economic data, I expect bullish responses from politicians and the Fed, especially heading into an election year. With so much political capital at stake, I expect policy moves to excite the markets, pushing us back up to the 1,500 level within the next 12 months.

Overall Sentiment:  Near-term cautious. Long-term bullish.
Portfolio Yield: 8.21%
Projection: Flat down in the near term. S&P to 1,500+ in next 12 months.

Top 5 Positions:

1. SPDR Barclays Capital High Yield Bond (JNK)- 8.69%
2. iShares S&P U.S. Preferred Stock Index (PFF)- 8.06%
3. iShares High Yield Corporate Bond (HYG)- 6.76%
4. Energy Transfer Partners (ETP)- 5.21%
5. Hewlett-Packard Company (HPQ)- 5.16%

No better day than my birthday to provide a portfolio update, so here goes...

February and early March has continued to produce increased market volatility as oil prices have spiked due to mid east and Lybia tensions. The wide intra-day price swings in stocks have created great trading opportunities in many individual names, however we have remained largely on the sidelines awaiting a more clear direction to the market. Toss in a 2 week Disney World vacation, and February was one of the least active trading months in the portfolio.

Year-to-date, the portfolio is up 2% and continues to trail the overall market. Decreased trading activity, combined with weakness in telecoms, utilities and REITS has contributed to the under-performance.

I expect continued volatility and sideways market trading over the next few months. Barring a major geopolitical event, I remain comfortable with our target of 1,500 for the S&P 500 index.

Within the portfolio, I have increased my focus on current income. Idle cash has been used to increase positions in (JNK), (HYG) and (PFF). In addition, I have initiated new positions in (OLP), (CYS) and (ETP). The current portfolio dividend yield sits at 7.99%.

Overall Sentiment:  Near-term neutral. Long-term bullish.
Portfolio Yield: 7.99%
Projection: Flat market in the near term. Increased volatility. S&P to 1,500+ in next 12 months.

Top 5 Positions:

1. iShares S&P U.S. Preferred Stock Index (PFF)- 8.2%
2. iShares High Yield Corporate Bond (HYG)- 7.01%
3. SPDR Barclays Capital High Yield Bond (JNK)- 6.66%
4. Cash - 5.84%
5. First Energy (FE) - 5.46%

Disclosure: Long: PFF, HYG, JNK, FE, LLY, PPL, EXC, PBI, HCN, CIM, VZ, PSEC, AGNC, ADC, HPT, WWE, NLY, FTR, CWH, NYB, ETP, MRK, T, LPHI, OLP, CYS

Thusfar, 2011 has been marked by increased volatility, with the Dow posting an average daily trading range of over 168 points, or 1.44%. Expect volatility to continue through February, which has been a weak month historically.

Year-to-date, the portfolio is up 1.38%, trailing our benchmark by just over 1%. Primary contributors to the underperformance include our 13.5% cash position, a relatively light January dividend calendar and severe weakness in a few of our small-cap names (WWE, RSH, WINN).

Longer term, we remain confident in our 2011 S&P 500 projections of 1,550 - 1,570, which represent a retest of the 2007 all-time highs. As such, any significant near-term market pull-backs should be seen as buying opportunities.

We continue to position the portfolio conservatively, with a 13.5% cash position and a 7.73% yield on cost. Favored investments include utilities, telecoms, large-cap pharma, REITS, preferred stocks and high yield bonds. Greater selectivity is warranted as yields on many equity and REIT investments have come down over the past year, and increased competition from bond yields is expected later this year as interest rates rise with the recovery in the economy.

Overall Sentiment:  Near-term cautious. Long-term bullish.
Portfolio Yield: 7.73%
Projection: Short-term correction of 3% - 5%. Initial S&P500 support at 1,257, further support at 1,225. Breakout to 1,400 - 1,440 in the next 6 months and 1,500+ in next 12 months.

Top 5 Positions:

1. Cash - 13.5%
2. First Energy (FE) - 5.8%
3. iShares S&P U.S. Preferred Stock Index (PFF)- 5.1%
4. Exelon Corp. (EXC) - 4.9%
5. Eli Lilly & Co. (LLY) - 4.6%

Disclosure: Long: PFF, FE, EXC, LLY, WWE, RSH, WINN