Wednesday, October 21, 2009

Looking Lower (shift to net short)

What I really meant earlier today, when I alluded to conflicting cross currents and I didn't want to speak, was that the market was setting up for a dramatic late day reversal ;)

I've got a special talent. Something causes me an uneasy feeling before the hammer actually hits and this has saved me from more than a few drubbings; as I am ready to scramble as soon as somebody sneezes. Seriously, I get irritable for no apparent reason, I start breathing irregularly, sweating palms while singing 29-psalms and my spleen begins to hurt. Friends and family nearby do not know what to make of me.

I didn't want to say anything about it earlier, as this happens pretty much daily!

For better of for worse, I am net-short now, holding fewer names (7 tidy-longs and 2 large-shorts) and I do not consider today's action anything less than...nasty.

That's right. I'm as good as bear tonight. I'm in the lifeboat with the rest of you suckers now. I picked up several whole salmon from Whole Paycheck and I'm looking to gnaw raw on these amazing, tasty creatures while watching my favorite Herzog movie on HD.

My downside target for this leg down is - Oh, piss off. Targets are for losers. I'm inclined to trust that some amount of downside is now in store, but I don't even like that much conviction. Let's just say it does go lower, for the sake of argument. It will go lower and lower and even lower, until it stops going lower and then it will go higher or sideways instead.

End of target.

I'll try to be more or less in-line with this (letting you heroes make the calls and such). I'll give you bears this, though - There was something altogether worse about today's higher-volume failure than anything we've seen in, well, weeks!

Seriously, I didn't like it.

But I want to make this clear: I've shifted beyond neutral and into net-short territory for the primary purpose (thus far) as to afford taking on new entry-stabs long as new set-ups develop. In this fashion, I can initiate, add or re-load leadership longs without worrying so much about the overall market; as I will try my best not to get too far again into net-long camp until I think the bull is back, or at least until I perceive selling as tepid (since this is a bull market I am aloud to get a little in front of the trade, going long, as that is trading with the larger trend. When I make fun of you geniuses for getting ahead of the trade it is because you are anticipating a change in the larger trend and going against the larger, existing trend; which is wreckless if not stupid).

If we see but a brief correction, then I've managed to accumulate leadership names for a new swing higher (simply covering short hedges then once the market improves). Whereas if the market continues taking lives I hold onto my short position(s) and simply play damage-control with the longs (dumping accordingly and trying again until it is clear these set-ups are mostly failing).

These new set-ups usually have a reasonably close benchmark underneath, which makes the risk vs. reward favorable. For example, an extended leadership name can be bought slicing down to support (buying near previous highs from earlier consolidations, near key moving averages, or by using other entry-tricks of the trade maniacs like me have accumulated) and I can use that level as a benchmark then for stops (normally I use benchmarks on a closing basis, unless volume is heavy enough to clearly signal a breech; in that case I don't wait for the close to unload - i just take lumps and move on).

I'm heavy into SRS now, so there will be no nodding off during the session tomorrow. Someone once(!) said the next shoe to drop is commercial real estate. Well, the previous generation of SRS fans are long dead and buried now, but I post the below video in their honor.

If you're going to drink that much vodka it is better not to sleep on your back.

-Total Position: ~1.5-to-1 net-short, considering levered TWM and SRS hedges
-54% invested
-Pure-longs = 31%

Currently Long (according to size): RKT (5%), HRBN (4.9%), WATG (4.6%), OWW (4.5%), ININ (4.3%), HMIN (4.2%), CHBT (3.4%)

Currently Short (according to size):
-TWM-long (Russell 2k Dbl-short, 15.7%)
-SRS-long (US Real Estate Dbl-short, 7.6%)
(Note: inverse-ETFs TWM and SRS represent being dbl-short their respective index).

Futures Accounts: Short 30% Dec BR Pound, from 1.64785 ave.

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