Ultra Financial, Ultra Real Estate and the Moody Market

Includes: URE, UYG
by: TraderMark

People always email me - why do you own Ultra Financial (NYSEARCA:UYG) and Ultra Real Estate (NYSEARCA:URE) when you own the Ultrashorts and are not fans of those sectors?

It's for times like this (or near to this); the mood has amazingly turned on a dime. Not 7-8 days ago the market could do no wrong, the government would save us, and negativity was a sin. Now, all pandas have been shot.

I owned Ultra Real Estate (in scale... i.e. >5% position) for literally 1 day off the November lows [Nov 21: The Best Casino Ever - Restarting Ultra Real Estate] - that was a Friday, and I began selling it off the following Monday [Nov 24: Bookkeeping - Taking some Ultra Real Estate off the Table] ... for a 40% gain (+$20,000 by the time I sold the majority of position down). Obviously it was a high risk trade but we only applied 5% of the portfolio and the negativity was intense so risk/reward seemed in our favor. It doesn't work that perfect each time (I think we caught the exact low), but it's starting to feel like a similar situation.

Surely we could fall 20% straight down in a straight shot - Sep - Nov 2008 showed us that. But more likely there will be some oversold bounces along the way. In a perfect world, people would throw up their arms in disgust and we'd sell off right to S&P 820 into the last few minutes of the day. But 11% down in just over a week is enough to make this a tempting area to try such a play. If we can sell off here to close and then open up poorly tomorrow morning, that would seem a "perfect" set up to attempt such a trade in scale.

For now I am looking to make small increases in both positions into the close, taking them up (as a pair) from 0.6% of portfolio to something in the mid 1% range. Both names have been sitting at the bottom of the portfolio waiting for an opportunity. Now both have lost a third of their value in a week.

A very bad open Thursday morning (S&P 820 or below would be perfect) would have me interested in trying a short term foray of larger proportion just from a "wow, the mood is foul" contrarian point of view or a "reclaiming" of S&P 850 (I'd prefer the former however). It just seems we've fallen too far too quickly. Nothing changes about my longer term outlook (lower) - but I'd enjoy trying these in bigger scale if they hit the $3s tomorrow.

These are of course, not investments but more speculations to try to add a little icing to the cake of performance. We've avoided this entire move down and are at the same NAV as we were when the stock market was 10% higher a week ago Tuesday - i.e. we've lost nothing while the market has been in free fall - so we can play a little more aggressively here (again we STILL have just over 50% cash despite some purchases of our favorite stocks as they fall). As of 3:30 PM Wednesday..

On a personal note - for the past 2 months pretty much everything has been turning up roses in terms of trades, positioning, being long at the right time, being in cash at the right time - hence I am getting nervous because Mother Market does not like it when you trump her for long periods of time. So I expect her to apply a beating to me at some point soon. Another reason I am sitting on a load of cash. I don't want to give away what's been earned the past 60 days.

Disclosure: Long Ultra Real Estate, Financial in fund; potentially long in personal account late today or early tomorrow