Looking at a Small Selloff After Earnings Season

It would seem that our 2% weight in (SH) Short S&P 500 was a bit premature. As noted earlier, we took a small position with room to move up. Our current position is down 1.4%. The S&P 500 (non-total return) is up 10.35% YTD.

Here is the the crux of the situation. Has the market rallied too much before earnings season? From all we can gather, everyone expects earnings to be excellent and propel the market forward. Said another way, earnings will be great and the market will be perceived as cheap. Also, the market seems to be baking in further interest rates, which deviates from the credit markets view.

Should the market continue to rally another 1%-2%, we will add another 3% to (SH) Short S&P 500 Position. We are looking to a small sell off after earnings with a rally toward late December.

Comments

[Al Rob:]

You have 2% of you portfolio short the SP 500. Why even bother? It won't protect you in any meaningful way. Plus you have to pay mgmt fees on SH and on the 2% of you long portfolio that you are hedging.

And if you are bullish until Dec. Why are you short now? Your position doesn't seem well thought out at all.

2007 Oct 11 07:42 PM