Tuesday, October 20, 2009

Bearish Interruptus (getting smaller here)

Irony being what it is, I returned home last night to my normal trading desk and now with nothing to distract I've cut back and nearly neutralized exposure early in the session today.

Pulling out a bit of twig, so to speak.

We're selling off on mostly positive news again today, on rising volume and broadly negative breadth. Commodities are taking body shots and the Dollar has suddenly snapped to life.

That and root canal reminder message from my dentist will get me to retract every time.

I suspect that bears are frothing today (yet...again!), seeing so much red, but there is nothing yet which suggests I need to get short, pull up pants or anything like that. As long as the market has a reasonable degree of volatility, I prefer acting one (slow step) behind, when accounting for a change in direction. I've trimmed most of the growth names on my list now and hedged-off most of the remaining exposure (not fully accounting for a discrepancy in beta - longs here are a little more volatile than TWM, for instance).

That is the extent of my bear brilliance and I gave back only about 0.55 percent from higher-highs in accounts to get here.

That last line is not to brag but to illustrate that being behind the trade in this market is not necessarily so nasty. Certainly not when compared to being ahead of the trade, which has been deadly.

Fresh 52-week lows remain sterile, something which contradicts the idea of this being any major top. And, as always these days, I like to look at AAPL on one side and GS on the other for broad leadership guidance. With the market turning lower now, and the end of the world still nigh, these two should be leading the charge.

Goldman is flat and Apple is still trading higher.

I don't mind the sidelines, or even playing light, but I hate the idea of making more out of the tape than so far exists. You guys with the bear breath can make that money without me; for the moment.

Regarding the SRS (Ultrashort Commercial Real Estate ETF) hedge added today (to go with a larger degree of TWM from last week): Trading into SRS seems counter intuitive perhaps (finally!), but the IYR Real Estate index has notably diverged lately, trading well below its previous high while the major indices managed higher-highs. This is only a trade and potentially quite brief in duration. But as long as I have something negative to chew on the tape and the commercial real estate brine is in fact trading lower, then I see no reason not to hop on and off the one and ugly death wicket, SRS.

I don't plan on getting pants down and holding SRS in my book at the same time that the IYR is rising; not in this episode.

-Total Position: ~1.2-to-1 net-long, considering levered TWM and SRS hedges
-62% invested
-Pure-longs = 43%

Currently Long (according to size): ASIA (5.2%), DGW (5.1%), RKT (5%), CFSG (5%), HRBN (4.8%), WATG (4.7%), ININ (4.4%), HMIN (4.3%), CLW (4.3%)

Currently Short (according to size):
-TWM-long (Russell 2k Dbl-short, 15.3%)
-SRS-long (US Real Estate Dbl-short, added today, 3.9%)
(Note: inverse-ETFs TWM and SRS represent being dbl-short their respective index).

Futures Accounts: no current position

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