The past week in the markets has been a meatgrinder for investment portfolios. I think that most people probably lost money. I managed to eke out a small gain, thanks to my large short gold position. This was a great position and was very profitable and essentially bailed out my long equity index positions. But I am now completely out of it. Gold may fall further in the short run but a bounce is looking more likely and it's not worth the risk.
The price action in the equity indices on thursday/Friday was pretty bullish, by my reading. A crash was widely expected and it did not happen -- instead we bounced off the approximate lows of 2 weeks ago. I think a lot of people that were playing for the bounce are now out and scared. There is still talk of a crash.
It is difficult to remain bullish in this environment but I think that the large rally may finally start tomorrow. Sentiment is very negative. But if there was going to be a crash, it would have happened by now. Crashes are very unlikely when all the fast money is already positioned for it. Plus, the seasonal factors are against it. Most of the big crashes happened in Sept/early Oct. We already had 2 in that time frame. Anything more is wishful thinking on the bears' part.
What I would like to see is a slow, steady grind upwards -- climbing the wall of worry. The economic data is likely to remain very bad over the next few months and this will keep sentiment from becoming too positive too quickly.
But I still believe that this will only be a bear market rally. There will be lower lows at some point next year.
My new favourite position is long energy equities. With the collapse in oil prices over the past few weeks, these stocks are pretty beat up. But they formed a nice bottom last week, and now look like they could jump significantly higher in the short-run. I added to this position on Friday.
Market positions: EQUITIES: LONG CDN EQUITIES (2 units); ENERGY (3 units); US (3 units); EAFE (2 units); CASH (8 units)
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2 comments:
Without solving the insolvency issues at large banks - we're unlikely to have even a bear market rally.
If you're a hedge fund investor - and you think many of the banks are broke - are you still investing in equities hoping for the mirage like rally or are you hiding your money at a private bank in Zurich?
My money is about 2/3 in equities. In fact, yesterday morning I added even more. And that was the right thing to do.
It appears that the bear market rally began yesterday. It could last some time.
There are always lots of continuing problems (economic and/or financial) when the market bottoms. The market leads. It is called "climbing the wall of worry" for a reason. If one waits for the problems to be solved, the rally will be mostly over.
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