Wednesday, January 14, 2009

The Mood is Foul; I'm Kinda Sorta Short Term Bullish

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People always email me - why do you own Ultra Financial (UYG) and Ultra Real Estate (URE) when you own the Ultrashorts and are not fans of those sectors?

It's for times like this (or near to this) - the mood has amazingly turned on a dime - not 7-8 days ago the market could do no wrong, the government would save us, and negativity was a sin. Now, all pandas have been shot.

I owned Ultra Real Estate (in scale... i.e. >5% position) for literally 1 day off the November lows [Nov 21: The Best Casino Ever - Restarting Ultra Real Estate] - that was a Friday; and I began selling it off the following Monday [Nov 24: Bookkeeping - Taking some Ultra Real Estate off the Table] ... for a 40% gain (+$20,000 by the time I sold the majority of position down). Obviously it was a high risk trade but we only applied 5% of the portfolio and the negativity was intense so risk/reward seemed in our favor- it doesn't work that perfect each time (I think we caught the exact low), but it's starting to feel like a similar situation.

Surely we could fall 20% straight down in a straight shot - Sep - Nov 2008 showed us that. But more likely are some oversold bounces along the way. In a perfect world people would throw their arms in disgust and we'd sell off right to S&P 820 into the last few minutes of the day. But 11% down in just over a week is enough to make this a tempting area to try such a play. If we can sell off here to close and then open up poorly tomorrow morning, that would seem a "perfect" set up to attempt such a trade in scale.

For now I am looking to make small increases in both positions into the close; taking them up (as a pair) from 0.6% of portfolio to something in the mid 1% range after 3:45 PM. Both names have been sitting at the bottom of the portfolio waiting for an opportunity. Now both have lost a third of their value in a week.

A very bad open tomorrow morning (S&P 820 or below would be perfect) would have me interested in trying a short term foray of larger proportion just from a "wow, the mood is foul" contrarion point of view ... or an "reclaiming" of S&P 850. (I'd prefer the former however) It just seems we've fallen too far too quickly. Nothing changes about my longer term outlook (lower) - but I'd enjoy trying these in bigger scale if they hit the $3s tomorrow.

These are of course, not investments but more speculations to try to add a little icing to the cake of performance... we've avoided this entire move down and are at the same NAV as we were when the stock market was 10% higher a week ago Tuesday - i.e. we've lost nothing while the market has been in free fall - so we can play a little more aggressively here. (again we STILL have just over 50% cash despite some purchases of our favorite stocks as they fall) As of 3:30 PM today...


On a personal note - for the past 2 months pretty much everything has been turning up roses in terms of trades, positioning, being long at the right time, being in cash at the right time - hence I am getting nervous because Mother Market does not like it when you trump her for long periods of time. So I expect her to apply a beating to me at some point soon ;) Another reason I am sitting on a load of cash... I don't want to give away what's been earned the past 60 days.

Long Ultra Real Estate, Financial in fund; potentially long in personal account late today or early tomorrow

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