I mentioned last weekend in my weekly review that there was some VERY crowded trades out there:
There are some extremely crowded trades (meaning a lot of people are *in* them), such as short US dollar, short financials, short retailers, long oil, long gold, etc.... While Big Ben is painted into a corner and must continue to cut rates in my opinion (watch what they do, not what they say) due to our over leveraged financial society, and this will only serve to weaken our dollar further, you'd expect some counter trend rally in these areas soon. When everyone is doing a trade 1 way, usually something snaps and you have a counter rally (however brief). But I still think these trades work for a long time to come because as we continue to cut interest rates, other countries such as Australia are actually raising rates (just last week) to fight inflation so capital will flow to those currencies - the world realizes inflation is real and rising.
So this week those trades reversed very nicely (good timing! pat self on back)
- Oil is weaker
- The Gold ETF (GLD) is down from $82s to $77s = 6%
- The Silver ETF (SLV) is down from mid $150s to $144 = 7%
- And the 2 currencies I favor, Australia (FXA) and Canada (FXC) are down quite a bit too, the Canadian peaked last week at $113 and is now $103, and Australian peaked at $94 and now is roughly $89.50
I actually was going to buy the Australian dollar as a hedge because they are actually raising interest rates, but the Canadian dollar fell so much this week, I bought the Canadian dollar ETF instead (FXC). I bought 175 shares around $103 or a $18K position. Full disclosure - this is my first currency trade ever. :) [that might be marking a top!]
While I do think Canada will be affected by the US slowdown (more than Australia), both are 'strong commodity' countries, and relative to the US have a brighter near term. So it's a simple play on us continuing to bail out the financial system and more cuts to the system.
Instead of buying the gold or silver ETF I bought Silver Wheaton (SLW) which is a company I have traded in the past - very interesting small company, which trades with more volatility than the silver ETF. Earnings are not something I am too interested with; they are profitable but the value of their company simply rises and falls with the value of silver. So its a proxy on silver prices which again, have fallen severely this week. The stock is sitting nicely right above a key support level ($14.70), it's 50 day moving average; and was as high as $18.20s two weeks ago - so it's had a >15% pullback.
I bought 1400 shares right above $15, or $21K for a 1.9% position.
I will be using these 2 similar to hedges with the Ultrashort ETFs. (more active trading in these type of names as they ebb and flow). I do think the long term trend is up for both but a global slowdown could hurt the commodity based economies as well as demand for silver since its used for industrial purposes - those are the risks.... aside from a strong dollar. The next Fed meeting is mid December and while the consensus has been they will be holding rates steady, especially right after the Halloween meeting, I disagree. And if not this meeting, a cut will come next meeting. But I think it will come this meeting, Merry Christmas! :)
Long Canadian Dollar ETF (FXC), Silver Wheaton (SLW) in fund; no person positions
10 comments:
I've been trading since 1997, so I have lived thru one bear market. What I did not understand before going thru the bear market was how leaders start to break down, and how afternoon rallies means that big money is getting out. I will not make the mistake of losing money again this time around. I don't like putting my hand in the light socket more than once. :)
No doubt
they scary thing is when I read message boards and such I find myself to be one of the few that actually went from 1999-2003
a lot of inexperience
but you are right to be cautious
like I have stated in the past, I run the fund similar to limitations of a mutual fund - i.e. I am not going to 70% cash or anything like that - because that is not what they do. The goal is to beat them at their own game, even if their game has severe limitations. I basically try to keep cash in a 0-15% band, and short ETfs in a 0-10% band. If this were more of a trading account I'd be a lot more aggressive on the short side, and with individual names to create a more hedged scenario in times like these. So I am trying to put limitations on myself similar to what a mutual fund manager is 'stuck' doing!
High level discussion :). I am relatively a newbie as I just have 2 years in my belt. Pik and Mark, are you suggesting that since the leaders are breaking down hard, this is the first step towards forming a bear market? .. I think some sectors, e.g., solar will be hot for some tiem to come still.. What say?
Overall though, the market could get bearish as the housing and financial mess will eventually affect the economy I speculate.
If you get a year like 2002, you have no safe harbor
Economy is slowing no doubt - question is how slow.
A typical correction, the leaders fall last. Thats why I was saying early last week, I don't believe it until the teflon stocks fell. Then they fell, but the solar stocks still held up. Then they fell. Last were my puppies in agriculture and infra. Which apparently were more teflon than the teflon. So everyone has been hit now. The question becomes do we start forming a bottom (could still retest 1410 or so and be ok) or do we break down further. I dont see the leaders breaking down at this point... BIDU, RIMM, AAPL, GOOG are whom I watch and they are holding ok. RIMM dipped the worst but is suddenly back to 105. If you see the ones who have held 50 day break down then its time to get extremely bearish for near term. That said we've been down 11 for past 13 days. Even in bear markets you get lifts... :)
If we are in store for a year like 2002 in 2008, trust me, you will not return to the market until like 2012. It was terrible.
Correction to what I said earlier...not after noon rallies, but breakdown of afternoon rallies.
Mark, you are right in saying that you could not be all cash as a MutFund so I understand your position. But Heebner seems to do a fine job shorting in his funds which is something you may want to consider.
When the leaders start to break down and you see crappy stocks breaking out, you know the bullmarket end is near. I can't say for sure that we are there, but I am seeing the Dollar get a little sparky which if it continues will certainlu lead us down......unless helicopter Ben comes to the rescue and prints more money.
FXA, is not a bad position to have
pik I can't short individual names per Marketocracy.com rules
Heebner's Focus fund allows him to short (not sure if the others do) - its one of the VERY few mutual funds who do it. Most are 100% long. Or cash and long only. I am only shorting through ETFs which are not considered 'short' by the rules. Since they can go into IRA accounts and hence Marketocracy.com allows them.
If i could short I listed many ideas since August which would of worked out great - Coach, Polo (heck any retailer), Under Armour after earnings, Dry bulk shippers in mania, MAcau gambling stocks, and restaurant outside of CMG etc, any financial! (I've had UltraShort Financials since mid August) - all ideas I posted but not something I can act on. Even my real estate Ultrashort is a play on commercial, not residential, so I am not getting the benefit of these homebuilders imploding that I would get by shorting individual names. That would of helped gains on the way up, and helped buffer losses on the way down. So its sort of like playing with 1 arm behind your back, but this is the typical structure so it's expected and part of the game.
When I start FundmyHedgeFund.com blog I can play both sides of the market more. hah
I am using the Profunds' Falling U.S. Dollar fund, FDPIX, which gives you the opposite of the daily performance of the U.S. Dollar Index.
Do you think this is a good play on the falling dollar? The advantage I see is that over time I can add smaller increments to my investment vs the price of the FX ETFs.
The Canadian currency ETF is FXC rather than FCX (you wrote FCX in your blog).
Since the FXC pays out a monthly dividend, how do you take dividends into account when you publish your returns? Does Marketocracy also give dividends just treatment?
doubled, never heard of it, but it probably is exactly what I want - but Marketocracy does not offer it as a security I can trade - I will watch it versus the Aussie and Canadian dollar and see which provides the most oomph over the next few months. Could be good for personal account especially if dollar rallies further.
Lawrence, sorry about that - I typed FCX once and FXC twice - I still have Freeport McMoran on the mind ;)
Marketocracy.com provides all returns, so whatever they say I just publish (p.s. their commissions are way more than I'd be paying with flipping Ameritrade for god sakes) - I assume dividends would get rolled into cash when they are issued. I usually don't own (zzzz) dividend type of stocks ;) growth stocks generally are not of that ilk in their life. I will keep an eye on it to see how its treated, as I stated, first time with this security (FXC)
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