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 overall
-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.

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 overall
-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

Update on Portfolio (further in both directions)

I did add to new-leadership in the second half of the session, but I increased my SRS-hedge at the same time. I'm similarly hedged then, as far as weightings, but now hold a larger position underneath (trade-fills are on Twitter feed on right).

If we crush further tomorrow, I'm going to be exposed some, unless I can finagle a larger hedge at an opportune time (I'll be up early tomorrow, looking at sales tags around the world). But at the same time with one simple cover I can be fully long and sufficiently large; by unloading SRS. Being able to position immediately fully long would be advantageous in the very small chance the market doesn't continue straight down here and make so many professionals so brilliant for saying so.

Today was not watershed in terms of Advances vs. Declines, Up/Down ratios, and certainly not in the number of new 52-week lows. But volume was significant on the negative reversal.

Total Position: plays roughly 2-to-1 net-long (considering levered SRS); 55% invested

Currently Long (according to size): CTSH (7.4%), RJI (6.3%), CLW (5.2%), CYOU (5.1%), GNW (5.1%), CORE (5.1%), SWM (5%), MRVL (4.4%)

Currently Short (according to size): SRS-long (US Real Est. Dbl-short; (11.9% position)
(Note: inverse-ETF SRS represents being dbl-short the respective index)

Futures Accounts: no position