Sometimes everything goes down and today is one of those times obviously.
Gold, most other commodities, foreign stocks, foreign currency and fixed income are all down today. If one day can trade like this so can a week or a month.
The point is that a portfolio designed to capture some zig-zag may not be working very well unless some sort of inverse product is held.
Today is a great example of why focusing in the short term, which a lot of people do, makes the job of participating in market much more difficult.
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13 comments:
SRS up 4.4% at 3P EDT. "There goes the neighborhood."
QID up 2.8%.
What a bunch of nonsense real estate data today. I can't believe the market is so gullible it moved on that.
I saw an economist (maybe you saw this too) attribute the housing number to weather the previous month.
Kind of interesting how silent the CNBC crowd was on the tumble in average home prices. Hey, if you have to move inventory, you get out the Sharpie and slash prices.
Now Bob Pisani was saying how great this was for the economy. Selling inventory is not great for the economy, the building of homes is great for the economy--and I believe permits stumbled badly last report. But, selling inventory is great for cash flows and the banks have to love to see that given their contractor loans on constructed by unsold homes.
I'm not dismissing the number. I think that it is terrific, but it is by no means warrants bringing out and blowing the trumpet of good fortune.
IYR stumbled badly and SRS did well. SRS can be deadly if IYR gaps up though. The bid ask on open is often a fistful of dollars gap.
By the end of the day bonds were flat.
Leisa,
"fistful of dollars..." is the line of the week, i laughed out loud
Time for study...
Looking at how the double inverses react to minor glitches can help form your approach for the long ride down. Take the data whist the gettin' is good.
Hedging in an up market is one thing, profiting in the blowoff is another.
No expert here... I closed my FXI 155 put, sold the SRS at about a 5% gross gain for a 3% net. Sold half the QID.
Believe it or not, today was another phi-mate turn date from mc hugh. Thur, Fri and +- a couple days. He says it could be a ST minimum. Or something else.
I think I'm going to have to post some of these in advance so you quit thinking I'm making them up after the fact. It defies my logic that Fib Series "dates" has any relevance. But it's been dead accurate to almost the day. He has the PhD and I only have an MBA. Go figure.
That shoulda been "closed FXI 115 puts", and yes I closed a bit early.
And I think there is wayyyy more to go. Buy back on a bounce.
Always leave something for the next guy, lest you be the bagholder at the inflection point.
..."The heavy inflow of Chinese retail funds, strong corporate profits, and double-digit economic growth combined to drive up the market value of the Shanghai and Shenzen stock exchanges to a record 17.43 trillion yuan (US$2.23 trillion). And for the first time in history, their market value surpassed the country’s savings deposits of 17.37 trillion yuan, thus making the stock market a major aspect of China’s wealth and a key psychological driver over other Asian stock markets.
If the US Congress does slap China with import tariffs, it could be the smoking gun that Guru Greenspan is looking for, triggering a shakeout in Shanghai that rattles Asian and global stock markets. On May 24th, US Senator Graham urged Beijing to significantly revalue the yuan to avoid major damage to US-China relations.
And who knows what type of volatility lies ahead. On May 21st, the Bank of Int’l Settlements said the face value of over-the-counter derivative contracts for global bonds, currencies, commodities and stocks, rose 39.5% to a record $415 trillion in 2006, the biggest annual jump in history. Undoubtedly, leveraged positions have mushroomed since then.
Gary Dorsch 5/24/07"
I'm getting mental video playbacks of the exhibits at the national atomic weapons museum in Las Vegas.
Roger,
You have talked about how, in preparation for a bear market, you would make a few trades. What would those trades be?
(Luv' your blog).
Roger, the fistful of dollars equated to just that--about $5 (one per digit!) between bid/ask at the open.
Dave B--good for you. I've ceased being regretful of selling too early.It's always better than selling too late.
re bear market prep, I don't know exactly what I would do because I don't know what happens between now and then.
The tipping point to start to get defensive is the market going below its 200 DMA. Specifcally if it closes below on a day and the next day is down I would do something on that second day.
The easiest thing would be to sell half of a couple domestic stocks that were up a lot.
The key for me is to reduce exposure a little at the start (because it may not turn out to be a bear) so buying more double short might be the thing.
Roger,
Is this what you mean by an exit strategy?
Rick C (not the Rick C who left a somewhat nasty comment last week)
exit strategy-- when markets go down a lot it makes sense to reduce exposure. on the way to going down a lot the market goes down a little. the 200 DMA is a trigger point that down a lot is a possibility.
There are some other markers that warn down a lot is a possibility that I have written about many times previously. I tend to move slowly here becuase down a lot doesn't happen very often.
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