A reader asks;
For the trapped longs that is still lets say 90-100% long, what do you suggest is the best action to hedge currently?
So if an investor has done nothing yet to get defensive what should they do now? That is tough. It might be reasonable to think this person may not be very good at predicting the market which does not have to be an obstacle to success. I also wonder whether this investor had any sort of exit strategy devised. I think no plan is an obstacle, but one that can be overcome by, um, devising a strategy.
My strategy for this, written about many times, is the market level vs. its 200 DMA. When the market is below its 200 DMA there is a problem with demand for equities. Currently it is below the 200 DMA so there is a problem with demand so I think some sort of defensive positioning is warranted. However, I can't tell someone else what they should use to be defensive.
One reason I use this type of indicator is that it is a gage of supply and demand. It may not be the best gage, something like that is debatable but it is simple.
The person who takes defensive measures now has to realize they may be a little late and that they may lag a big rally if today is the bottom. I don't believe it is the bottom but I don't know. A lot of this is repeat from recent posts.
Lastly let me reiterate my idea defensive action is not 100% cash. That is a very big bet.
Wikinvest Wire
13 comments:
The new Blogger Poll has moved from 31% to 42% bearish, time to buy?
OG
funny, it may be even less reliable than the other investor sentiment polls, being wrong some times and being right others with no pattern.
maybe??
Am thinking along the lines of OG...most of the posts here are negative.....raising cash....hedging...
Usually, the market does not accomondate the masses who think they have it "figured out".
When the sky starts falling, somehow, the sun comes out.
g
The market still has another 20-35% move to make to the downside. Went 85% cash on June 1 with my portfolio. My take of course.
m
Wouldn't want to speculate on whether or not posters here represent the masses but, according to Investors Intelligence(http://tinyurl.com/fb2bu), industry insiders are still selling heavily even as, contrarily, bullish sentiment among newsletter writers has dropped to 40.2% (8 weeks ago bullish sentiment was 52.2%). In that same survey, bearish sentiment rose to 31.5% from 29.8% but those calling for a correction (representing an opportunity to buy on the dip in most cases) rose strongly to 28.3% indicating that many bulls haven't become bears at all.
From the standpoint of sentiment as a contrary indicator I'd say the message is still very mixed although IIS certainly seems to think a shrinking bull/bear ratio is positive for equities. Frankly it just looks to me like there's a whole mess of crypto-bulls out there who are begrudgingly taking a fade but are not even close to throwing in the towel; adding together the 40.2% outright bullish and the 29.8% merely calling for a dip makes for a different picture altogether.
Personally I wouldn't bet on any of it. A rally of sorts certainly seems possible, maybe even a fairly strong rally, but the real rub for me is that I have no idea where the buying power for a sustained upward market is supposed to come from; that's what I just can't get past. Love to be wrong though, I'm still net long albeit more strongly hedged.
nothing wrong with that positon RW.
M, you may turn out to be correct, although I don't agree with the magnitude, but that is a big bet.
Husmann's weekly commentary has been of great interest to read. I doubt that there many other managers that have such a good record and routinely offer fairly concrete analysis.He could almost be a guidepost of when to be long and stay long. He comments on what he sees as a not yet bullish environment for bonds:"Until we observe credit spreads widening, indicating a skittishness toward credit risk that would create a demand for safe government liabilities (cash and Treasury securities)..."
Roger could you clarify this? What then has to happen for being a bond bull? Sounds like something you have said before. Thanks.
If you like Hussman's commentary, you should check out Hoisington Investment's web site at www.HoisingtonMgt.com.
Their Second Quarter Review and Outlook is now posted.
They are bond bulls, so if you are long equities, they can be a bit intimidating.
Their research studies are very informative, especially the one that indicated periods of increased world trade have always resulted in lower than average interest rates.
They are a great resource for getting an opposing viewpoint to the prevalent run-of-the-mill commentary.
Like Hussman, they do not cater to novice level investors.
OG
Yup. It IS Too Late.
Gotta weigh in. Been in/out/in and bailed early. Went agressively back in with oils after bottle rockets flew one way and nuclear bunker bunker busters got trhe ready on the other side.
Sold the gold and metals at the peak. Retried TIE and got toasted.
Toasted 5% on the iols, but holding.
PM stocks down 5% today. Glad I sold most at the peak. TCK holding it's own. However with LCD's down TCK for Indium is not lookin' good. (Why I bot)
When I get killed on CCJ BTU PCU COP NBR AUY and a number of the "slam dunks", it's time to rethink.
After the foolish flight to quality, my cash will be split between FXE and GLD.
We've spent the last of the "4-yr" upleg in the secular bear and we are poised for a crash. And I didn't make a hissy fit cuz goog was off 10 pts, I said crash!
Laugh if you want. Like I care.
I'm bailin! Cash and T-bills are not safe. When you're not too busy Golfing, you might want to study why you will be broke in 10 years in real dollar terms.
(Or if you are too busy there is an Indian or Mexican CFP who will help you)
God help us all.
Technical damage is immense. Dow theory projects a huge decline. VIX (that I bought calls on) will approach infinity.
My puts on the homebuilders and the HXB have made me McDonalds rich. I still have LEAPS puts on XHB, FNM, and FRE, but I'm not entirely how will they settle when the entity is bankrupt? WCI PHM are toast. And the rest IMHO.
Alone the RE market would have killed us. Not for Uncle Ben's upside, but for Alan's too low too long. Ice berg hit... yes lets work on the deck chairs.
My parent gamed RE and beat the system in SoCal. I get the deal. However they are toast now.
USG (feds) behind closed doors recognizes the impending destruction of the dollar. They have secret negotiations in place with Mexico and Canada to expel the dollar at the most expedicial moment and disctate our conversion rate to the Amero over the very long term. Why pay back in a currency that's worth anything in terms of Gold.
One way to hide the irresponsible spending, out of control medical costs, unfunded liabilities, failure to control the borders while frisking Grandmothers at airports, and a whole nother slew of mindless government debackles under the Bush watch.
Sorry, if you read this far, you have balls (or whatever the females whant to call the gusto).
Gave my heart and soul to understanding the world situation and the markets for the last two years. Either I'm a dufus or we are all screwed royally. Either case, suggest you reevaluate the current situation.
I live off my choices, and if I'm wrong, I don't eat.
Good reference to provoke thought is:
http://www.financialsense.com/Market/daily/friday.htms
There are quite a few tinder boxes looking for a spark on this globe.
Fact is GB picked one and spent just about all the money resources and resolve we have on one, that probably wasn't the right one and has produced NO net gain for the US. So how many of the other dozwens of these potential iraqs do you want to go after. If our powder was dry, Iran would have a whole nother posture.
Fact is I voted for GB, twice, and few things have disappointed me more in my miserable lifetime. No more, total reversal. Pissed.
thanks for the comments.
DaveB, welcome back and thank you for the details of your experience and process that is very generous.
I tend to be more of a glass half full guy but, and I am not being a wise guy, if a crash is coming, it is not too late to "assume crash position."
Daveb If you voted for GW twice you should do the world a favor and off yourself. You are the problem with America..
that last comment was a bit much.
Assume the crash position.
Twice. No gear down.
Roger, I applaud your tolerance for my ideas that might be considered bearish at the moment.
We gotta do what we gotta do.
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