Short energy and gold

(I am late with this post -- I made the trades several days ago.) As I mentioned in my last post, I am negative on energy after the quick snapback in oil prices last week. On Monday I purchased some HED, which I sold a couple of weeks ago at over $20, at a little over $16. There still seems to be a lot of long-term bullishness about energy prices, despite the rapidly slowing global economy. Oil prices over the past few days have been stable but it feels like they are struggling to keep their head up. I except that once the $100 level is breched again we could see oil fall to $80 or even $75.

After much humming and hawing, I decided to go short gold equities too a few days ago. The chart is rather compelling -- the jump up to $900 from $780 marked a rough 65% retracement of the previous decline from $1000. With growing evidence of a global slowdown and no sign that deleveraging is going to halt anytime soon, the short-term fundamentals for gold are also negative. On the other side are risks that gold could jump higher again if the crisis deteriorates much more, plus, with all the money and government spending that is being thrown at this crisis, inflation is bound to become a serious problem in the long-run. But who knows when that might be. In the end, I decided that the short-term factors won out. I think the big OMG moment for gold was last week, and now it will decline again, probably below the $780 low.

On the broader markets, I am starting to get nervous again. As expected, a large proportion of the big rally last week reversed on Monday and Tuesday. Yesterday stocks surged higher on hopes that a bailout plan would be released, despite terrible economic news and a profit warning from GE. I still expect that SPX will go lower before it goes higher, but I am losing confidence in my long-standing prediction of a bottom in 1000-1100 range. There is not a lot of time left -- the bottom should happen in the next couple of weeks (if you look at bear market lows in history, most of them have been in September or October). So I will probably lighten up my shorts again on any sharp declines, and may even look at going long. But it is foolhardy to try and pick the exact bottom.

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