3SOF

Good morning, according to the strategic orientation I wrote today, I'll buy 10% of equity of the Main Portfolio in SDS today, which is an ETF that reflects the inverse of the S&P 500 with two times leverage.

I'm going to use the SPY chart for these updates because I'm having trouble with the SDS chart and the SPY reflects the candlesticks better. You know the SDS has a -2 correlation with the SPY.

The general market yesterday had the biggest rise of 2007 (right on the day I initiated some bearish positions, my hand is definitely cold now) and it even closed back above the ascending trendline that had been broken in Friday's session.

The main reason for yesterday's rally was short covering because of today's FED meeting and interest rate decision. I think the FED will keep rates on hold but it will move the so called bias towards "neutral", instead of "tightening" like it had before.

This "slight" change may provide some rally on the news, however, I think it will be short lived. It will take at least three rate cuts for monetary policy to have a long term effect on the market, and a lot more before the economy responds, if indeed it does.

If the economic scenario in the US unfolds like it happened in Japan, interest rates can go to zero and that won't boost economic growth, because there's just too much debt outthere, and possibly the time to pay down the debt has arrived. In my view this isn't a matter of interest, but of the amount of debt outstanding.

Anyway, in practice and over the short term, since the market had a very strong rally I'm losing 2.82% on SDS, which means a loss of 0.282% for the overall Main Portfolio. I'll keep this hedge in place for some more time.

The FED was incredibly clever yesterday, as usual. Knowing that the market is all but confused about what's going on in the credit markets (myself included), the FED basically opted to say: "you're worried but we're not, the credit problems are no big deal, we still see economic growth ahead and we remain focused on fighting inflation".

Initially this seemed like the worst news possible: "The FED is not coming for the rescue, not even a change in bias towards a more neutral stance, nor a signal of a future rate cut", and the market sold off.

But then investors thought: "Well, if the FED isn't all that worried about banks and credit defaults, why should I be worried?" and they bought.

Today the futures are also higher, due to better than expected earnings from Cisco. It seems like the clouds have dissipated and the market will head higher and challenge the highs. This is my first impression, but I have doubts, some of my indicators tell me the worst is not over yet.

I thought about lifting the Main's hedges (since they're damaging the overall performance of the Portfolio), but I decide to wait some more time before doing it.

I'll hold SDS.

The S&P 500 had a phenomenal three days bull run, so my SDS hedge contributed only to hurt the Main (more than it was already hurt). But several of my indicators are telling me this will end up in tears and I fear a dramatic shift in the market ... volatility remains very high and the number of new lows and new highs expanded a lot, but primarily, Europe didn't confirm the US rally, in fact the DAX wasn't able to breakout and is going down sharply to new lows this morning. The DAX has been leading the US averages - I think this happens because the DAX is composed of just 30 stocks so whatever the money is doing, it shows up there first.

I'm still confused about the general market direction, but I'll hold my hedges for some more time.

The S&P 500 tumbled yesterday, so the SDS rose 5.88% and worked as an hedge to the Main's fall (but it fell 1.72% anyway).

The market is incredibly volatile now. I'm confused about the general market direction, but I'm seeing something now that I only saw in the DAX absolute bottom in March 2003, which is, the S&P 500 futures falling further and the DAX holding in an extremely tight range with very high volume, outperforming the other European markets.

Here's the deal, the SDS showed me a significant loss in just three days of trading. I now have the opportunity to get out without a loss or a tiny profit. I see too many bears and bearish evidence outthere, the start of a bear market absolutely doesn't feel this way.

I sense the general market will open sharply lower but then it will bounce strongly and close positive for the day. Perhaps that's going to be the rock bottom, I don't know, but I feel the market will reverse course.

I opt to sell SDS today around the open, leaving the money in cash.

Right. I also don't think this is the start of a bear market.

Quote from: David Randolph on August 10, 2007, 07:53:39 AM
I see too many bears and bearish evidence outthere, the start of a bear market absolutely doesn't feel this way.

Quote from: realcoolhead on August 10, 2007, 08:03:07 AM
Right. I also don't think this is the start of a bear market.

Quote from: David Randolph on August 10, 2007, 07:53:39 AM
I see too many bears and bearish evidence outthere, the start of a bear market absolutely doesn't feel this way.

What is there to hold this economy up.?

Quote from: usedcasting on August 10, 2007, 11:01:03 AM

Quote from: realcoolhead on August 10, 2007, 08:03:07 AM
Right. I also don't think this is the start of a bear market.

Quote from: David Randolph on August 10, 2007, 07:53:39 AM
I see too many bears and bearish evidence outthere, the start of a bear market absolutely doesn't feel this way.

What is there to hold this economy up.?

Exports, manufacturing, business investment.

Quote from: David Randolph on August 10, 2007, 01:19:28 PM

Quote from: usedcasting on August 10, 2007, 11:01:03 AM

Quote from: realcoolhead on August 10, 2007, 08:03:07 AM
Right. I also don't think this is the start of a bear market.

Quote from: David Randolph on August 10, 2007, 07:53:39 AM
I see too many bears and bearish evidence outthere, the start of a bear market absolutely doesn't feel this way.

What is there to hold this economy up.?

Exports, manufacturing, business investment.

It's always good getting your feedback. Thanks Dave

My observation of the bear market was also that stocks begin to slide a bit at a time. No panic, people feel a small decline is normal, no spike in volume, no agitation. After having lost this way 10-30%, there may be a violent bullish run, then subsiding again to the previous friendly downtrend. Look at SDS - this is how bear market would move, JMHO.

David, on a separate note:

You've done a very good job with your technical trading before. I like the Main Porfolio the way it is, just better timing for the entries and some protection to the losses strategy would be helpful.

What I'd like to see here more is that the 3SOF portfolio is not comprised of the best 3 picks, but rather momentum plays that come and go as profits pile up. Traded with stops and moved to trash once worked out. You can simply make a post on the best 3 current picks from the Main and thus recommend those to people with small investing capabilities.

Running active 3SOF portfolio may also help the Main Portfolio be more dynamic when bad corrections happen. This way we may be more cautious to situations like JAKK or CIMT - both fell on worse than expected ER and continued sliding down ever since. If you trade actively on the 3SOF portfolio, that may give you more resolve to bolster your decisions on the Main portfolio holdings. There are some that I would hold longer though, like ICOC and NVTL, I think decisions must be individual to stocks, like you do.

Thanks, and keep up great work!
Berloga 

Some never notice the bear until it bites them in the butt...This bear won't snarl in earnest until this fall,when many more ARMs bump up ... SDS,QID,SRS,andSKF will present some buying opportunities until then...

The SDS Threads in Previous 3SOF Picks
Have been merged.
Got the go ahead to do so from Ramsburg.
I will be working here on this board to merge other threads also.

I will leave you Friday's closing chart while I'm in this thread....... 

Good trading to all !   

Regards,
Your fellow trader @3SOF
setravis