You Followed Our Suggestion To Hedge - Now What?

In my last article (August 12,) I wrote “Indeed, unless we can mount a rally in the next six to eight weeks, it may be a long cold winter that follows this long hot summer before we can get back to moving forward.”

Those words may seem prophetic now but they were really nothing but common sense.  When a plant grows bushy and full, it usually means it is healthy.  When it grows straight and willowy, it usually indicates a problem of some sort.  It’s the same with markets.  

As long as all sectors are moving along — at different speeds, of course, but still moving in the same direction — then things are likely to continue in that direction.  But when some 20% of all stocks in the S&P 500 (SPY) are down 10% or more, and most others are flat to a little down or a bit up, trouble is brewing.  Yes, Apple (AAPL), Amazon (AMZN), Google (GOOG) and Netflix (NFLX) were still roaring ahead providing, because of their large market cap, an inaccurate picture of “the markets.”

As a result of this dichotomy I wrote, "We're reallocating our portfolio strategy to reflect what we believe to be the likelihood of a dull market that vacillates between heightened expectations and dashed expectations. That means lightening up on developing markets, energy, industrials, materials, utilities and even some technology firms.”  That meant pretty much everything!

I advocated buying a couple unique situations as well as "shares of ProShares UltraShort S&P 500 (SDS), which moves inverse to the S&P 500 at double the rate of movement, as well as shares of the iPath S&P 500 VIX (VXX), which is a reflection of the volatility I imagine we'll be seeing more of in the coming weeks and months.”  Via client and subscriber e-mail, we’ve since added shares of AdvisorShares Ranger Equity Bear ETF (HDGE) to this mix. 

But our best purchase decision of 2 weeks ago was not as a hedge for our long positions but as an outright short on hubris and autocracy, shares of Direxion CSI 300 China A Shares (CHAD). CHAD is an unleveraged short on the 300 largest and most liquid Chinese A Share companies. 

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Disclosure: The author wrote this article, and it expresses his own opinions. The author is not receiving compensation for it. The author has no business relationship with any ...

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