Stock Chart

SPY - Trying a different tack

06/12/2010 10:21 PM by Dave Pinsen

After getting stopped out of a few recent short positions fairly quickly , I am thinking that, although I still believe we are at the beginning of a cyclical bear, the market may be too choppy right now for short positions with single-digit stops. So I am going to try a different tack next week.

I am going to go back to pairing my short positions with equivalent dollar amount long positions in the same industries, but with one significant change from the way I did this earlier this year. Back then, I used high single digit stops on both sides of the pairs trades (which is what I have been doing on my unpaired long positions). Given that pairs trades are inherently less risky than unpaired shorts, since most of the market risk and industry risk is canceled out, I should have used wider stops on each end of the trade.

That's what I'm going to do next week: I'm going to widen the trailing stops on my remaining shorts to 16%-18%, and pair them with longs in the same industries with similarly wide stops to start with. I may modulate them as I go.

One challenge here will be to find a bank I actually want to go long here.

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  • 06/14/2010 01:01 AM by Dave Pinsen

    The day after I wrote that, Tim Knight posted something along similar lines ( http://slopeofhope.com... ). Excerpt:

    "The evidence that the bear party is yet again put on hold has piled up. Some of the evidence is technical. Some of the evidence is anecdotal (such as the level of Kooky Kommentary I've been noticing on my own blog, some of which is perhaps comprehensible only to its own writer).

    [...]

    I don't intend to go "all bull", but I do intend to push for a market-neutral (at least by my own measurements) portfolio to ride out what I think could be a five-hundred-plus push higher on the Dow's part."

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