Where to from here? Good question. In 1 day, the S&P500 already made back all of its lost ground and now sits right below its 200 day moving average. So we are back to "in can go in any direction from here" just like that. My plan was to sell into strength to lighten up, build some cash and start rebuilding these (currently tiny) UltraShort positions, but I did not expect this all to happen in one day. Talk about a traders market...
It will be interesting to see if the market can follow through tomorrow to the upside. For now my bias is we continue to the downside (maybe not "tomorrow") until proven otherwise but for the near term. That said, usually Thanksgiving week is very light on trading but most years it always seems to be up for some reason. However, my cash and hedge positions are too low so I need to increase both. On the short ETFs I am debating what to go with going forward - since August I've been going with Financials, Real Estate and the Russell 2000 (small caps) which has been the correct way to go. While still bearish on all of them for the mid term, they have been really hammered of late and probably washed out for a while, whereas the NASDAQ only fell (really hard) for the past 3 days. So perhaps a broadening of short exposure might be necessary.
How did those UltraShorts perform today?
Financial -9%
Real Estate -6.5%
Russell 2000 - -6%
Nasdaq 100 -7.5%
Technology - 8%
Consumer Services (closest thing to retail) -6%
Oil & Gas -4%
So I am considering everything above; if we can get 1 more really nice day like today that would provide nice entries to begin rebuilding some of the positions above as hedges against my very heavy long exposure. I am also looking at gold/silver as a hedge - one stock I have used in the past is Silver Wheaton (SLW) which seems to have more beta (movement) than the Silver ETF (SLV) - Silver Wheaton has pulled back 15-16% in just a few sessions so I might begin a stake tomorrow, as yet another way to hedge continued dollar weakness (which is taking a break for a few days)
I did lighten today by completely closing 4 smaller positions. Generally I try to keep positions for the duration and cull them here and there, but I decided for reasons outlined in earlier entries, to go cold turkey on these 4, along with the 2 I closed out yesterday. The fund was approaching 60 names so it was getting too broad for my intentions. While many names are parts of "sector" baskets (i.e. fertilizer or infrastructure, or foreign ETF indexes) I still want to be closer to 50-55 names.
The quandry one faces now is it appears when people wake up to the reality that the US is slowing, there is nowhere to hide. Up to yesterday the infrastructure and agriculture complex held up - but even they fell yesterday. So there truly is no harbor when it gets really bad. However as seen today, those areas also rebound the most. I still think the fundamentals are great in the sectors I am overweight even in a slowing world economy - but the market won't care some days...
So for now, the best scenario would be a bit more rally to lighten up, get some cash, get some more short exposure and see what happens from there. I still would not be surprised to see a test of August lows or at least S&P 1400-1410. That's still 5% down from here after today's rally. Unfortunately we are in a similar environment to when the fund first started; the first 5-6 weeks (August to mid September) everything in the market was up, or everything was down. When there is no discerning from 1 stock to another or good sectors from bad, it is very hard to outperform. Everything is either trash or gold. So we are now in a similar time. Hopefully it passes relatively soon.
It is interesting to see all the crowded trades I spoke about this weekend as needing to reverse doing so - I think the long term issues are still in tact but every website, every author was saying the same thing, short dollar, long crude, long gold blah blah. Even supermodels and rappers.... sort of like the short retailers and financials trade. There will be a time (probably very soon) to get right back on those bandwagons. Despite jaw boning I still see yet another cut at the next Fed meeting... and another... and another....
- Gold prices fell more than 3.5 percent to a 10-day low on Monday as sliding oil prices and a rising dollar prompted investors to cash in on bullion's recent lightning rally to 28-year highs.
