Hedging some bets

Last week was a good one. Despite the fact that SPX rose fairly strongly, and I have a strong bearish bias in my positions, my portfolio rose in value, reaching its highest point since early March. With this in mind, and with SPX moving higher again in early trading today, I thought it might be a good idea to hedge some bets. The primary reason for my good performance the past few weeks has been the fall in energy and commodity stocks (I am short both the S&P/TSX index, which is heavily weighted towards commodity plays, and the S&P/TSX energy index).

Looking around for a cheap hedge, gold stocks seemed like a good candidate. The price of gold has fallen by about $150 over the past month or so, and gold stocks have been crushed. HGU, the Canadian ETF that tracks gold stocks, has declined by almost 50% since July 14. I previously owned HGU earlier this year, but sold my positions at levels about 50% higher than here (which was tough at the time, as it then went up about 25%, but I feel vindicated now). Although I am usually wary of trying to "catch a falling knife", a small gold position seems like a good way to offset some of the risk that my short S&P/TSX and energy positions might turn around after strong runs. Enhanced risk management is also part of my new strategy. I reduced S&P/TSX to partially fund the purchase, raising a bit of cash in the process.

MARKET POSITION: EQUITIES - short SPX (5 units); short S&P/TSX (3 units); short EAFE (3.5 units); short energy (2 units); short real estate (2 units) ; long gold (2 units)