TU#165 - an air pocket

TRADING UPDATE

The stock market finally decided to make a move, and it was a big one – down.  The S&P500 closed on its low tick for the day at 893.04, down 28.19 points for a 3.06% loss.  This after it had paused for a couple of days on the way down from 953.  I was fortunate to have acted on my mounting bearishness of two weeks ago by adding some short ETFs just in time.  My analysis wasn’t terribly scientific.  It was partly based on observing that at previous market rally peaks volume tended to decline (and that was happening as the market stalled at 950),  and also my feeling that this recession wouldn’t be ending any time soon.  I certainly didn’t go hog-wild short, as the market could just as well have broken higher, but enough to take the edge off a downdraft – and that part has worked well enough so far.

After the initial sell-off from the rally peak, the sudden severity of today’s decline didn’t surprise me.  I felt that we were close to a point where people would want to snatch their money off the table, with tight stop-loss orders or whatever.   My take on the psychology of it is that the longs (most of the world) were hugely relieved to see their equity recover in the recent rally, and with the scare they got when the S&P500 dipped under 700 would most definitely not want to go through that again. 

My decision to increase the short hedges is only as good as being able to actually take advantage of it, and that began to happen today.   The volatility triggered two REAP trades, with double-short ETFs taking the sell side for the first time since the March low.  At least now if the market rallies, it would not have been for naught.

These trades re-establish the position in the Claymore Global Solar Companies ETF, and add a fairly big chunk of precious metals exposure back to the portfolio.  Although I’m wary of the double long and short ETFs, I’m going to phase them out slowly, and kept the silver one going for now.

The portfolio equity has held up not too badly in Canadian dollar terms, down at the close still only by 2.0% on the year and gaining a little on the S&P500 at 4.0% ahead.  The commodity positions have been hit pretty hard, but the matching fall in the Canadian dollar has mostly offset that.  Here are the stats as of today’s close.

I spent the whole evening researching airfares and vacation rentals for our upcoming trip to Hawaii.  My brother-in-law Eric has arranged a house in Kauai for one of our big family get-togethers, which will be great fun judging by our past gatherings.  But since the airfare is rather hefty to get out there for the 5 of us, we’re bolting on another week and planning to spend it at the other end of the Hawaiian islands on the Big Island - amongst the volcanoes, observatories, and tide pools.  So I think its going to be Ottawa to Lihue (Kauai) to Hilo (Big Island) to Ottawa.  There are some truly beautiful places to stay on the Big Island, and we’re having trouble choosing (right now they are available and pretty reasonably priced.)  All this assumes I don’t vaporize my equity in the markets before then.

Mahalo
Allocator
a.k.a George Parkanyi