Just a quick note to say I think the market has had its major top.

I am going to wait for a pullback tomorrow (Wednesday 25th July) and have an open order to go short SDS at $51. Hopefully this will get filled in the next day or two.

My reasons for going short via SDS are two fold. Firstly, I am happy with my current gains and wish to lock them in. At this level, rather than sell positions and incur the taxable gains, I can retain them and go short via one ETF. Secondly, SDS gives me exposure to twice the movement of the S&P500. The S&P500 is the weakest of the major indexes currently and is well off its high of 1555. I would hate to be in this ETF when the market is moving up (just take a look at a 1 year chart!), but in corrections or where you want to hedge against a fall, this ETF is perfect.

I have suggested previously that investors raise cash, which I have now done, and prepare for a correction. In buying SDS, I hope to ensure I receive some protection for the stocks I have retained.

Good luck,

Philip John

This post is for entertainment purposes only. No part of this post should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.

I’m away on vacation now and was checking in on the market using my phone every once in a while. Everything looked pretty decent a little pullback… then when I checked after the market close: BLAM!

Just about all of my mutual funds and index funds are throwing sell signals for me. About half of my stock holdings are. I think I’m with you. I’m going to try to jump out of everything at a decent level today. If all goes well, I’ll be about 75% cash (vs about 15% cash right now).

I hope we’re not over-reacting. I don’t think this is the end of days, but I do think we’ll see more follow through with this pullback than some previous. Simply for the fact that we’re up a bit higher, and some real technical levels have broken.

BTW, the SDS play is ballsy. (is it 2x leveraged too?) I don’t know if I would short the market.

I’m tempted to “lock-in” about a 20% gain for the year, but I’m not too big a fan of “locking-in”. I mean, when are you going to put your money back in? January 1st. Are the trading opportunities going to be better then than now. Unless you are a hedge fund (who gets paid based on annual performance) or have some plans for your money, it doesn’t make sense to lock in.

That said. If I looked at SDS as a normal stock. It looks like it’s due for a buy. It’s trading at about $52 now, and I could set a short-term target of $56. Nice gain. Maybe I should add index-based shorting to my repetoir.

One last follow up. Maybe I should post the SDS chart, but looking at it the 30DMA was broken through yesterday. Ideally, I would look for an open and close above it to confirm… then load as much money as possible into it. That’s if this was a normal stock.

The problem is I can’t really make any fundamental or value decisions about a short of the S&P (can I?). What’s a good price for this fund? How do I know if it’s over-values or under-valued. All I know is in general this fund is going to lose about 4-9% per year on average (or twice that if it’s leveraged) because that’s the historical gain of the S&P.

So, needless to say, this fund should only be traded in the short-mid term. It’s kind of like buying a stock of a company that you know is going to go out of business, but might have a shorterm bounce due to overselling. Strange stuff that doesn’t fit into my quasi-investing quasi-trading technique.

I’m in at $54.

It’s not where I wanted to get in, and the market may rise again tomorrow, but I think the break down below 1590 is a bad sign for the S&P500 from here on in for the next few months.

The 6 month chart to me says “market top in”.

You are exactly right in what you say about SDS. I try not to look at it technically, but work off the S&P500 chart. I have watched it for about a month – it doesn’t always move 2x, sometimes it is more like 1.5x.

Also, I wouldn’t want to hold this for longer than 2 months. In the long run, this is going to flatline close to $0. I am not sure what they will do then (reissue it at a new index price of $100 and let it fall all over again? Or leave it so that we are buying in at 50c).

In either case, it does serve a good purpose in times like these. Overall, I’m not short the market, I’m very close to neutral, which is exactly where I want to be. Whether I am right or wrong, I am out of the market for the next 2 or 3 months. 🙂

Phil

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