The trend is your friend

A lot has happened since I last posted. The weakness in global financial markets that was just beginning at the end of August has spread. The main stress indicators have increased: EUR/JPY now around 151, 2 year US treasuries at 2.2. The CP discount rate is still in the 80 bps range. VIX has increased to about 25 but that is still not signalling severe pain in the equity markets. Clearly there is still some more downward moves ahead. As I mentioned in June/July, I am looking for somewhere around 1000-1100 on SPX as a near-term bottom. That should set-up a nice rally over 3-6 months.

My portfolio has performed very well since end-August, with nice gains coming from EAFE weakness (EFU) and the weakness in commodity prices has finally pushed down the S&P/TSX. Falling energy prices gave a shot in the arm to my short energy equities position (HED), which is up about 60-70% from my first purchase. On that, $100/barrel oil keeps getting mentioned as a 'line in the sand' that should not be crossed. There are still some energy bulls out there, although the numbers are dwindling. I like situations like that. Once the line is crossed, it should lead to a strong, final drop as the last of the weak longs capitulate. I plan to cover at that point, although if I see some good prices early I might liquidiate half the position.

I mentioned in my last post that I wanted out of the long gold equities position. Unfortunately, I did not sell HGU at 17.25 in this portfolio a couple of weeks back due to a technological problem. I decided to wait for the bounce, and eventually got stopped out last week at 14.25 The price is currently 10.60, so I am happy at being stopped out, but annoyed that I gave up a nice profit and ended up with a $1.30/share loss. This was always intended to be a short-term trade. I learned that such trades need to be managed very closely and acted on quickly.

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); cash (2 units)