July 18, 2011 nsl Macro Economic Viewpoint So the big move today was the gap down in equities and the gap up in commodities. As many readers know I prefer gradual sell offs to gap downs, but since we are only in a (hypothetical) 50% short position in equities and a 30% allocation to metals we can move our stops closer to the current market prices and continue playing the trend.
As for the IWM I would place stops at $82 though personally I have moved from a heavy index short position to a more equity (momo plays) specific short position for the 50% short — still in the QQQ and IWM puts, but traders should consider a put spread…. IE buying the QQQ August $61 puts and selling the QQQ August $57 puts…. If you are hedging an existing book of longs, you should likely just stay in puts and not spreads, but if in a full cash position the spread trade makes a little more sense as you can always buy back the short puts for profits on a spike in equity prices….
One strategy that has worked in the recent past has been “buying rips and selling dips”… I personally like such a strategy when QE is in the market, but without QE right now I feel a more cautious longer term bearish stance on the overall market is appropriate.
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