Hi this is my first article, I am an Italian investor/analyst. To begin I am going to draw what happening in this moment on the markets worldwide.
Beginning from Europe I can see that Eurostoxx 50 is in a down trending channel started in January. At the begin of May it broke the moving average 30w thanks to European crisis who stroke Greece, Spain and the risk of contagion in Euro area. In the last month volatility rose with many whipsaws: happy time for swing traders, tough for medium/long term followers. Basically if you have already a portfolio (or buy signals on single stocks) I’d hedge it selling stoxx50 index. The size of hedging will depend by beta of your stocks, but approximately, until level 2248 holds, I’d hedge the 50%-70% portfolio value. Below that level you can consider open shorts, hedge 100% or liquidate and buy lower. On the topside, hedge would be eliminate above 2800 and new strong performing stocks purchase would be considered (I like those close to break the 52W highs). Banking and basic materials stocks could lead the run.
On the Usa side, the situation on Nyse Composite is similar to Europe. Chart is similar to Europe and strategy would be the same with support 6355 and resistance 7090. Nasdaq seems stronger than Nyse, looking like other indexes in early May. It could do better if markets break the supports but don’t move on his own direction.
China local market is still going down…this is another leading indicator I see, showing me economy is going to slow (but I don’t think double dipping)
On the forex, recently we saw the return of Euro strength versus dollar, a signal of less tensions on the markets. This would be good, but I want to tell you something that make me think. In this contest where euro/dollar rose from 1,20 to almost 1,30, euro/yen didn’t go above 113,30. Euro/yen is the “real thermometer” of tensions in the market. Well, if market break resistances, I want to see yen above 116, that would be a very very good signal that “risk propension” return in great shape! On the other side, euro/yen going towards 105 could mean market is betting for a double dip and stocks will tumble.
SUMMARY: we are in a situation that reminds me summer 2007, investors starts to fear a slowdown but you can still read optimists and pessimists opinions, almost with the same intensity. At that time I liquidated all my multiyear position because I saw the inversion of trend (just a simple moving average 12months. Do you know the KISS rule?keep it simple stupid). When it happens I know that signal could be also a false one, but I go on the defensive side and try some small-size long and short trades. If I have a portfolio of stock for longterm investing (I have one with a Greenblatt adapted strategy, I could tell you after earning season is over in Usa and later in Europe) I begin to hedge it, hoping that my stocks will over perform in the long-term (even if usually underperform in the first stage of the bear market).
Now my trading portfolio is almost all cash ( I made a small bet on playboy stock (PLA) betting for a control battle, waiting for some very short term trades and the breaking of one of levels above written. Keep your bullet ready for the right moment, you don’t need to shot to every dark shadow you see in the wood guessing it will be a good prey.
Mirko
Disclosure: PLA
What's going on in the markets?
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.