TWM

[David Randolph]

According to the strategic orientation I wrote today, as a defensive move, I'll be buying 10% of the Main Portfolio in TWM, which is the Russel 2000 Ultra Short Fund. This Fund is almost perfectly negatively correlated with the Russel 2000 Index (-2 correlation) with two times leverage, that is, if the Russel 2000 falls 1%, TWM will rise about 2%. If the Russel 2000 Index (which is a small cap index) rises 1%, TWM will fall 2%.

[David Randolph]

The Russel 2000 underperformed the S&P 500 in yesterday's very strong market rally, and this has been happening for some time now, with small caps going down more than large caps.

In fact, as I reviewed hundreds of small cap stocks yesterday, I was amazed by how much they have fallen in such a short period of time ... we've had a small cap earthquake.

The problem is that when this happens probably we'll still have the large caps going down and then up before small caps start outperforming again, as a group. Only very specific and attractive small cap stocks will be able to rise in this environment, and I expect to have two or three of these in the Main, which hopefully will more than compensate the potential decline of the others.

The TWM failed to close at a new high and retreated some yesterday. I attribute this to the S&P 500 rally, which in turn happened because of short covering before the FED meeting. But unfortunately the trend for the Russel 2000 is bearish, and therefore the trend for the TWM is bullish.

I'll keep holding TWM.

[David Randolph]

Because of what I wrote in the SDS thread, I'll hold TWM some more time. The FED was extremely smart yesterday, doing the "no big deal" act but I have some fear that this time the market may oblige the FED to face the issues and do something about them.

We'll see what the future holds. My timing on putting up the hedges was bad and I'm in doubt, but I ultimately decide to hold TWM for some more time.

[David Randolph]

The Russel 2000 had a 3 days surge of 6% or so, and therefore the TWM went down sharply.

However, these are very volatile times and, because Europe didn't confirm the US rally and is in fact breaking down to new lows as I write, I think sentiment will shift in the US again and the Russel will come back down and make new lows.

Unfortunately I think that this time the FED won't get away without facing and dealing with the credit woes it helped to create.

Volume and volatility are extremely high at this moment, I sense we're entering a severe bear market phase which can take the S&P 500 down by 30% or more

So I'll keep these hedges in place for some more time, we'll see what the future holds, I hope I'm wrong.

[David Randolph]

TWM rose 4.54% yesterday, underperforming the SDS, that means the Russel 2000 Index fell less than the S&P 500. The Nasdaq also fell less than the S&P 500.

As you can read at SDS's thread, I have some hints that the market will recover from today's sharp sell off at the open. That can be the bottom, as the current market environment doesn't feel like the start of a full blown bear market ...

I'm sorry for being so short term oriented, but I'm going to use today's morning break to sell TWM, lifting the hedges of the Main Portfolio.