As a technician, Iâ€™m a firm believer in watching what folks do rather than trusting what they say.
After all, sales reports are often â€śrestated,â€ť profit reports can be fudged, and forward earnings guidance is frequently not worth the paper itâ€™s printed on.
But stock charts are a wonderful compendium of what folks have actually bought and sold.
No smoke and mirrors, no rationales, no excuses. Just the facts.
But sometimes, even charts have their downside. Sure, they tell you what was bought and sold, and for how much. But, you really have to work them over to get a picture of whoâ€™s doing the buying and selling.
Or, is it Phase 2 or Phase 4 price action thatâ€™s moving shares?
Fortunately, once a quarter we are given a magic window into the private affairs of these whales when the SECâ€™s legally mandated 13F reports reveal what these major players currently own.
One particular report has now confirmed a deep-seated suspicion weâ€™ve had for a while.
Weâ€™ll discuss what it says and what you should do about it in todayâ€™s newsletterâ€¦
What are the Whales Eating Now? The $100 Million Window Opens
Youâ€™ve got to love these old-school regulations. For example, 13F still makes mention of using the mail to do business (as if that really mattered any more). Donâ€™t believe it? See for yourselfâ€¦
The Securities and Exchange Commission (SEC) requires any institutional investment manager who uses the U.S. mail (or other means or instrumentality of interstate commerce) in the course of its business, and exercises investment discretion over $100 million or more in Section 13(f) securities to file a 13F report revealing the exact nature and value of their holdings no later than 45 days after the close of a quarter.
In addition to this mail requirement, it also fortunately requires anyone who deals in $100 million chunks of stock to tip their hand once a quarter. If you know what to look for and where to find it, this information can be quite lucrative.
What is Buffett Selling?
In last weekâ€™s Bottarelli Research LEAPS alert, we looked into some fascinating changes in the holdings of George Soros and John Paulson, as revealed by their 13F reports.
Today, Iâ€™d like to draw your attention to a dramatic shift in Warren Buffettâ€™s Berkshire Hathaway (BRK.A â€“ NYSE) portfolio.
The Oracle of Omaha Has Had Enough KFT
At the end of Q1 2012, BRK owned 78,017,165 shares of food giant Kraft (KFT â€“ NYSE), worth approximately $2.9 billion.
By the end of the second quarter, BRKâ€™s Kraft holdings were down to 58,826,390 shares â€“ worth roughly $2.2 billion.
Why did the Oracle of Omaha, frequently referred to as the wisest long-term value investor on the planet, deal off a whopping 25% of his KFT holdings?
The chefs at Kraft do miraculous things with meat, milk, and wheat. There isnâ€™t a parent in these United States that hasnâ€™t resorted to Kraft Mac and Cheese to feed their ravening hordes on short notice.
But, thereâ€™s a problem these days with any business that relies on beef, chicken, milk, and eggs.
The U.S. drought is setting all sorts of uncomfortable records for both outright heat and lack of rain.
Thereâ€™s even talk of a new 30s-style dust bowl, with an entire layer of critical topsoil blowing away.
Americaâ€™s Corn Fields Are Burning Up
The price of corn (below) continues to skyrocket, and corn sits at the hub of most all of what Kraft works with. Corn feeds the cows that make for beef and milk, and the chickens that produce eggs and end up as chicken fingers. And then of course, there is corn syrup, Kraftâ€™s favorite secret ingredient for enticing your kids to sit at the table for twenty whole minutes at supper time.
Nothing Hurts Value More Than Skyrocketing Costs
As mentioned a moment ago, Warren Buffett is primarily a value man. That is to say, he watches cost, sales, and profits more than most any other line item in a companyâ€™s forensics.
When he sees an unavoidable cost spike threatening a companyâ€™s bottom line, he bails â€“ no matter how much he loves management.
Corn is presenting exactly that sort of cost spike, and Kraft simply canâ€™t avoid it.
They either have to pass it along and watch sales dip, or eat it and watch profits fall.
Big Fish Trigger Phase 3 Distribution Warning
Buffett isnâ€™t alone in his desire to get out of KFT. But, you have to look real hard to see the critical action in this stock.
Indeed, KFTâ€™s technical chart (illustrated below) shows that price hit its all-time high just three short weeks ago. But then, when you look to the oscillators on the lower chart, you see a peculiar twist: The Accumulation/Distribution line is indicating a marked reversal to share distribution in the face of climbing prices.
KFT A/D Shows Phase 3 Stealth Selling
To our eyes, this indicates Phase 3 Stealth Share distribution, wherein the wise guys and big fish quietly exit before the herd even realizes whatâ€™s going on. Once the masses get wind of the exit by the bigger players, they pile on which then triggers a Phase 4 Public Participation Sell-Off.
This indication has now been confirmed â€“ in spades â€“ by Warren Buffetâ€™s 13F declarations.
How to Play It
If youâ€™ve been in KFT for any time now, youâ€™ve made a mint. Do yourself a favor and take your profits off the table before the great drought takes them for you. Sell Kraft (KFT â€“ NASDAQ) now.
Source: Bottarelli Research