Not as fun as it should be

This gradual collapse in the markets is not as fun as it should be. It is what I have been predicting for months. Yet now that it is happening, I am finding it stressful. Portfolio performance continues to be very good -- it is probably up about 10% over last week. Yet as I am still holding many positions, and the market is very volatile, it is too early to consider these gains as permanent.

After yesterday's swoon, the market opened today rather weak and I liquidated my short energy equities position at a good price. Oil got close to 90$/barrel, which was my target price, and the ETF spiked up through its previous high. Later in the day, I purchased the gold equities ETF HGU (again). There were a few reasons for the purchase: 1) it had fallen significantly from the price I was stopped out a couple of weeks ago. The chart was also good -- a bottom last week followed by strong gains, and it did not get near its previous lows yesterday as the broader market sold-off. 2) The same reason I bought this ETF last month -- risk management. I was worried that the FEd might goose equities again by cutting interest rates, and I wanted a position that would act as a partial hedge for my index shorts. At close the position is uip about 5% from my purchase price, so it has helped in that regard.

Of course, the big remaining question is: when to cover my index shorts? I have been holding on to these positions for what seems like forever (some more than a year), waiting for the market to finally reach my target price range (1000-1100 on SPX). The window is getting smaller -- seasonally, the market tends to bottom in Sept/Oct and then rally into the new year. After today's rally, I am slightly worried that the market may not get to my range this year. On the other hand, today is only one day, and based on the preliminary advance/decline stats, it was a rather narrow rally. Yesterday we had a large, broad drop through previous support. In this case, the technicals are unclear. And there is little value in fundamentals when the market is primarily driven by sentiment.

The best option is probably to gradually reduce shorts on weakness when possible, with a view to having them all closed within the next month or so.

MARKET POSITION: EQUITIES - short SPX (5 units); short S&P/TSX (3 units); short EAFE (3.5 units); long gold (1 units); short real estate (2 units); cash (3 units)