At the beginning of the year I listed 633 as my 2009 target for the S &P 500. We came close to that last week. My plan all along has been to lighten up on my short positions as I get close to that target. On Friday, I reduced my short exposure from 90.1% to 68.2%. The pessimism bandwagon was starting to get too crowded.
The latest S & P 500 earnings estimate has dropped from 42.26 to 32.41. With a conservative PE of 15 that puts the index at 486. I still think the stock market will continue to fall, but nothing moves in a straight line, so I decided to take some chips off the table. And if the market has a brief rally, I can always fully reload on the shorts.
Jim
Mar 18, 2009 — 10:06 pm
If you want to add more short back later, here is my recommendation…
1a) Short when price on the S&P crosses the 50 day moving average …on the way back down. I repeat …on the way back down.
1b) Check the market every day or you may miss your entry point!! Sometimes the prices drop so fast you will have to wait months for your next entry!
2) Put a stop at your entry point, so if it breaks back up you are out and can re-enter the next time it breaks the 50DMA on the way back down.
3) If the 50DMA crosses the 200DMA it may be the start of a new bull …take your profits and get out of your short positions! A double bottom may also be a good indication.
This method results in very high upside potential, but low downside risk (essentially the price of your trade and the fine levied by the mutual fund for early withdrawl).
The only flaw I can see is that there are rules around buying and selling the same thing too often in a 401(k). I’ve heard Karl Denninger speak of it in his videos, but don’t know the details…
GRZZX will be my mutual fund of choice, since it follows the S&P inversely quite well and has no slippage like the 2* or 3* ETFs (SDS, QID, etc.).
Anyway, I plan to increase short exposure after this bear rally ends …let me know if I missed something in my thinking!
Finally, if you want to analyze, just put a simple 50DMA on the S&P and look at the 2007-now and 2000-2003. It would have made money on every bear rally with little risk or psychological pain.
MAS
Mar 19, 2009 — 6:12 am
I am a big fan of GRZZX. My one problem with them is you need to have the sell order in BEFORE 2 PM ET to get out. BEARX allows you to sell right up until the closing bell.
I’ve had Ameritrade block me from selling and buying QID in my 401K on the same day. When i was doing more trading, I would move my target from the NASDAQ to the SPX to the RUSSELL. Same enemy – aim and fire!
MAS
Mar 25, 2009 — 9:05 am
Sadly I noticed the same thing as well. I am so glad that I sold half my BEARX.
I don’t actively trade these. I’ve been setting and forgetting. I’m like you. I’m waiting for the break. Then I’ll do a quick 3x ultra short. Hit my targets, move to cash and then live happily every after. 😉
Even though I’m on the right side of the bet, I really am getting burned out on watching the destruction of the American economy.
Jim
Mar 25, 2009 — 8:59 am
It looks like there is some price slippage on GRZZX …and BEARX to a lesser degree.
When I look at the S&P and see lower highs, I would expect to see higher lows in the same spot on GRZZX …and I don’t always.
For example, YTD the S&P is down about 10% as of yesterday’s close. I would expect GRZZX to be up at least +10%, but it looks like it is around -2%! Am I missing something?
BEARX looks to be at about +5% for the same period …a little slippage also, but not nearly as bad.
I know you actively trade these, so I was curious if you have any thoughts about this MAS. I am mostly in cash and plan to add short exposure when the S&P breaks the 50DMA back down.
In my cash account I can just short the S&P futures, but in my retirement account everyone seems to want their pound of flesh in exchange for short exposure…
Jim
Mar 25, 2009 — 9:51 am
>> Then I’ll do a quick 3x ultra short. Hit my targets, move to cash and then live happily every after.
Sounds like a plan. Just be careful of expenses … almost 1% of your principle I think…?
I couldn’t agree more on the economy. Remember that the incompetence and greed that caused this was done years ago though.
I would gladly lose money in the event of a real economic turnaround, but I think we still have alot more pain ahead unfortunately. 🙁