So there I was, yesterday – driving back down the mountain into the the soupy LA smog and the wonders of cellular signal. I’d had no idea what my portfolio or the markets were doing for a whole week, and was rather interested in where things stood now.
The good news is that my portfolio actually increased in value during a very dynamic week. I hedged with a substantial number of July calls slightly out of the money against a 2x leveraged inverse technology fund, REW. These were cheap insurance to buy. The strategy was that I expected one of two outcomes for last week: either quiet to slightly bullish, or dramatically bearish. In the former scenario, the calls would have decreased in value but that loss would have been more than offset by the appreciation in my long positions. The latter (which obviously is how things turned out), required a big move down for the (inverse) calls to work. The worst case scenario for me would have been a wimpy downtrend, which would have sapped both my hedge and the long positions. This did not occur – in fact, my account as a whole improved by a little better than 2%.
Those regular readers will notice a change to the logo at the top of the site – there’s a big red arrow indicating that supply is now in control of the markets as a whole. Sellers are overpowering buyers, an imbalance that can only lead to lower prices over time. I’m making this call on the basis of two charts as evidence.
#1: The NYSE Bullish Percent is in a column of “O”s. This reversal occurred after Tuesday, 29 June 2010 – starting last week Wednesday the focus shouldn’t be to buy the dips, but to sell/short the peaks. I’ll be looking to move out of my longs and add short positions.
#2: The NYSE Advance/Decline breadth confirmed a downtrend by moving below its short term moving averages. This confirms the bearish conditions and motivates moving out of long positions as soon as possible.
I’ll post a follow up later during this long weekend on my specific plans of action for each of my holdings, plus a plan to reallocate my TSP funds.
Disclosure: No positions