Smooth Sailing

Today was perfect. Everything I'm dabbling in was on the up and up, except for the Swiss Franc FXF. SLV and IAU continue to make new highs, and I started a position in DGP. Even the double inverse funds made new short-term highs. DBA rebounded above 42, even though UDN failed to close higher after a very strong open. GDX, SLX and EEB recovered some of their losses, and remain technically sound, but close to danger.
The skinny of the story is, I'm having cake and eating it, and there is plenty more to go around if the trend towards hard assets remains intact. Financials took another step towards failure today, and if the home builders follow suit, this will be a panicky drop to the January lows.
Pairs idea: Double Gold w/ DGP (26.36) and Double Short Financials w/ SKF (121.50). Equal weight.

Blamo!

The market shat on the bulls Friday, which made tons of cheddar in SRS, SKF, TWM, DXD. UDN, FXF and FXY are trading at all time highs, and continue to show strength as the markets weaken. Commodities were mixed as DBA moved lower w/ USO, and the precious metals IAU and SLV remain unchanged. GDX, EEB and SLX collapsed today, falling between 2 and 4%.

If the emerging market continues to weaken, I suspect we will visit the January lows, so keep the long trades hedged, or on a short leash. If EEB stays below 50, I will either exit or reduce my position. I'm still market neutral with a short dollar bias, but if the XLF can stay below 26.20, I will increase my position in SKF. Banking indexes have fallen roughly 7% in the last 2 days, and look poised for further deterioration.

IAU and SLV continue to offer a safe haven in this fiasco. Even though they are trading at lofty nominal heights, adjusted for inflation, there is plenty of room hard assets to run. Right now the Dow @ 12300 is worth ~13oz of Gold @ 960. I suspect this ratio will continue to favor gold, considering that sometime in 2000, the Dow was worth more than 40oz of Gold when it traded ~300. Peter Schiff predicts that the fall of paper equities will bring the ratio to a 1:1 parity, and points to the 1970's as a similar phenomenon. This implies a DJIA trading @ 5000 w/ Gold @ 5000. While I'm not quite as optimistic (pessimistic?) as Peter (not yet anyhow), 5:1 seem achievable without much difficulty. Dow @ 10000 and Gold @ 2000? Sounds good to me.


On another note, what happens when a civil judgment is entered against you in NYC for public urination?

Before the Open

It has been a helluva week... Finally found a good pot dealer in the neighborhood, some super duper smoke, so I've been doing a lot of photo editing and not too much trading. I have a comment from a wise trader who caught the huge reversal in financials trading UYG, a solid counter trend move that I have much respect for, and seek to emulate in the future. My macro perspective of the market (weakening American economy in real estate, finance and discretionary) hindered my ability to see the obvious out performance of the aforementioned sectors in the recent mess. I got burned shorting real estate in the reversal, SRS from 130-122, though I've bought it back ~107, SKF ~102, and SCC ~94. What really caused my surprise was not the correction in SRS, but rather, the lack of upside in GDX (which proceeded to happen the next day), which gave me a helluva scare. Needless to say, I'm short the usual suspects via SCC, SRS, SKF and long precious metals via GDX, GLD and SLV yet again. Yen and Franc will continue to strengthen over the next few months as the mess spreads. IBKR had great earnings once again, but continues to struggle in the lower 30's, I guess it is hard to swim against the current. I'm still keeping a small position in BPT, huge dividend, and solid looking chart touching support. I'm also a tiny bit long energy and basic materials via UYM and DIG, but I expect to close these positions Monday, seeing as I was using them to hedge my bets over the weekend.

The Good, The Bad, The Ugly

Didn't spend much time watching the markets today, settling instead for an informal lunch, matchmaking a friend from overseas with my father... but that is hardly why you read this site, so here is today's news.
It has been another bad day for the longs, with some extra face stomping, as the SPY gently broke through last weeks support. China (FXI, GXC), which I hoped to be making a bullish pennant, broke to a new low in its 4 month consolidation range, increasing the likelihood of some more selling pressure, though I wouldn't say the bullish case is over quite yet. GXC/FXI are an excellent example of why it is safer to wait for a pattern to confirm itself, before jumping in early with the expectation of some extra points.
Inverse Real Estate, Financials, Consumer Discretionary and Small Cap Value (SRS, SKF, SCC, SJH) had a great day, and surprisingly, agricultural commodities held up rather well (DBA). The Yen and Swiss Franc show excellent strength, and the Yen actually broke its 1 year high (FXY). Disappointingly, GLD was down a hefty 1.7%, but considering its remarkably fast run in the last two weeks, I would say some consolidation is to be expected. GDX took a market under performing hit, with at +3% loss that outta shake out some of the weak hands, as this too has had a rather dramatic rise over the last 3 weeks. Newmont Mining (NEM), though down on the day, was quite strong, as was Humana (HUM), both of which I expect to outperform in the coming months. I'm sad to see I was stopped out of BPT... I hope to reenter the position on strength, though the short term technical picture isn't all that great.
The horrific numbers from Citigroup come as no surprise, but the negative retail numbers are certainly worrisome for those expecting to find value in the retail sector. Thus I remain short consumer discretionary, financial and real estate sectors, with an expectation for precious metals and defensive stocks in general to outperform.
Fundamentally: The markets are beginning to see information indicating a spillover of economic malaise into otherwise untouchable sectors (the American consumer), and this will continue to weigh stocks down until lower interest rates buoy the economy. This will only increase the value of commodities, especially as Asian consumption rises.
Technically: The market seems far from oversold, and thus any trades to the long side seem extra risky... That said, be prepared for anything as the overall volatility continues to rise (as seen on the VIX) and the shorts get ahead of themselves, leading to the inevitable dead cat bounce squeeze.
Sentimentally: Investors should be starting to panic and traders will be able to take advantage of their misery.
Recommendations: Keep the portfolio market neutral, shorting under performance and buying out performance in the aforementioned sectors, always with a nice tight trailing stop to avoid any nasty surprises.