Not Yet Spring but It Might Be Time for 'Shorts'

Includes: DIA, GIM, PBA, QQQ, SDS, SPY
by: Old Trader

I was as surprised as anybody by the activity of last week. I had long ago stopped marveling at the seemingly relentless rise in the market, so when we had the first down day, I paid it little heed. It seemed that any previous slight faltering was quickly erased by the "buy the dips" crowd. I did spend some time after the close, going over my positions, and started formulating some defensive measures.

Like many others, most of my holdings had enjoyed decent, and in a few cases "indecent", run ups in price. Although I didn't (and still don't) feel that I hold any "dogs" in my portfolio, some holdings were derfintely in what I consider to be somewhat "overvalued" territory. Adding to my sense of discomfort was that the run up had resulted in what I considered to be serious "imbalances" in the portfolio.

I know there's a lot of controversy regarding portfolio balancing/rebalancing, and I tend to be somewhat agnostic on the process. To the extent I think about it, rather than rebalancing on any sort of regular time interval, I lean more towards the view that rebalancing should most likely be done when allocations get seriously skewed.

By that measure, having over 30% of a portfolio in a single security counts as "unbalanced", which is where I found myself. Starting on Wednesday, I started putting limit orders to sell off a portion my holdings in GIM and PVX. I felt, and still feel, that there's nothing wrong with either stock; my actions were purely based off of valuation/price. I still own some of both, and would not be at all averse to adding back to the positions at more favorable prices.

I now find myself holding over 30% cash, along with a smallish position in SDS, which naturally has done well. My Sunday evening was spent poring over charts, and watching the Asian markets, commodities, and currencies, specifically, the USD, Euro, and Loonie. Depending on what I see in the charts, and what info I'm able to glean from Bloomberg, I might well be adding to SDS, especially, if there appear to be signs of a bounce in the market, at the opening.

Disclosure: Author holds long positions in GIM, PVX, SDS