Hedging into the week of August 2nd, the Dark Horse Hedge (DHH) is in a BALANCED tilt (long to short ratio) with 8 LONG and 8 SHORT positions. We used Phil's BUY/WRITE strategy to enter two of our LONG positions (IM and GCI) at a 10-20% discount to the market. As you can see from the chart, the SPX wandered between the 50 and 200 day moving averages (MAs) all week before whimpering towards the bottom of the channel Thursday and Friday. The 12-26-9 MACD which is the faster of the 2 technical direction signals we follow has flat-lined at just above +6 and the slower RSI 14-day still remains just below 50.
Without some impressive economic reports coming this week or much better than expected earnings reports, we believe the market will drift down towards and test the 50 day MA. If a bullish tone sets back in, it is doubtful that it could easily push through the 200 day MA. Resistance points as well as the 50 and 200 day MAs all which fit into a fairly narrow trading channel.
[chart from FreeStockCharts.com--click here]
We are happy with the positions we put on in DHH's first 30 days of existence and we look forward to capturing more profit as the companies report earnings this week. We will continue to take profits "after the news" and rotate into newer, fresher positions while keeping an eye on the overall market to adjust our tilt for maximum Alpha,* which is why we write and read DHH.
Summary of DHH positions in the virtual portfolio
LONG: XRTX, WDC, GCI, IM, DLX, GME, FRZ, and TEO
More on Phil's option strategy for buying stocks at a discount to market. >
*We are aiming to be hedged in our market exposure by being long stocks with the greatest potential to rise and short stocks with the greatest potential to decline. To identify these winner and loser stocks, we use Sabrient’s Value Change Up (VCU) assessment system. Sabrient’s VCU system is a multi-factor quantitative ranking system that scores over 2,000 stocks and allows us to enter LONG positions in the best ranking stocks and SHORT positions in worst ranking stocks. This method enables us to achieve greater Alpha (return over market return) and Sharpe Ratios, while maintaining a near zero Beta for Absolute Return.