Wednesday, July 7, 2010

Bookkeeping: Adding Some Long Index Exposure

Yesterday's downside reversal was quite a bad sign for the market, at least by historical standards.  Thankfully, the stock market no longer has memory from day to day and each day is its own situation (I say that tongue in cheek).  This morning we had a hallmark of the rally from March 2009 to April 2010, that is the negative S&P futures at 7 AM that turned into flat or gains by 9 AM.... a -5ish handle turned to flattish.  On no news.  That was a signal to me that maybe "we're back baby".... at least for a short time.

We are now over yesterday's highs so for very short term purposes I am making long side index bets with TNA ETF and SPY calls.  My objective is a print near S&P 1070.   I am going to be relatively aggressive here since we have a lot of cash to play with - about a 7% allocation into TNA and 4% into SPY 104 July calls.  Downside "mental" stop is of course S&P 1040ish.

As an aside small caps had a horror of a day yesterday, the Russell 2000 was actually down 1.5%ish as the other indexes showed green prints.  So hopefully they have some 'catching up' to do, which should benefit TNA.

I always find it rare for the market to repeat itself 2 days in a row, which is why I have some confidance we will not see a downside reversal 2 days in a row.  Remember, these counter trend moves are swift and extreme.  We have had multiple +3% days during this downtrend since late April (I believe five 90%+ days) - it means nothing in the long run but it can make you some money.

I am not bothering much with individual names here because I am still short side oriented (even though I have almost zero short exposure) in the intermediate term.  I want to be in... and out... on this trade.  Much of my new long exposure was bought in S&P 1010 to 1020 range and as I said then I'd either sell that up at 1040 or assessing how the market was acting at that time, at the next level up which I think is 1070.  The stretch target for this move is 1100ish but I will leave that for the more nimble than I.  I plan to be selling there, and begin a course for the short side up there.

If the market can jump over 1100 then I will consider this a chink in the armor of the shorts and re-assess.  But that is longer term planning.  For now, I drink Kool know what time it is.


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