Today was not the best possible day for us. SDS swallowed almost all our gains and instead of outperforming S&P we are up just 0.4%. Market does not trust this bullish action last 2 days. All growth comes from big caps, while micro caps we are holding and trading are up very selectively. Without SDS we would be up about 2% due to some very strong runners today: EMMS, FTWR, PRXI. We have only core holdings in each and I don't have any specific plans to liquidate those. In fact I was going to add EMMS yesterday but thought that media craze is over and it's too late to initiate new positions. I noticed that EMMS is lagging SBSA and it should catch up with it. Today they moved in opposite directions and probably reached the parity. Next time when one of those runs up or down, keep close eye to the other.
So, the morale of today's action is that we should either increase long positions or reduce SDS hedging. Otherwise, we will underperform S&P. In fact, I am thinking about even further long positions reduction and more aggressive cut of SDS protection by 1/3 at least during the next leg down. If we don't have a leg down and market continues move up, after breaking previous highs we should upload more long positions. Honestly I don't feel it is likely (new highs) and I don't feel comfortable holding more longs. So, the best case scenario for us and gradual bull buble deflation to the "normal" ~1000 S&P levels, reduce SDS hedging by 1/3 or 2/3, stay in cash and gradually increase long holdings either on way back up or further down. That's the game plan for near term future (this week).
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