US Stocks (IE the Long Euro Algo) Bounce…Here’s The Trade

July 19, 2011 nsl Macro Economic Viewpoint So with all of the “good” news out there, or lack of news and with the headlines reading “Greece Defaulted, the Bottom Is In” I have to respect the tape and tell readers to narrow their 30% short position with their covered puts sold against it here if you want to take profits now.

Yesterday, I suggested taking profits and/or selling puts against your remaining short position and also taking some silver profits as well as gold profits, but if you missed that and are in it for a longer term trade, you could start adding to the equity short side a bit via buying back your short put option positions. Metals need to come in some more here before buying back your positions…. Taking profits along the way is important because each time we make new highs, the chart gets overbought and we move lower for a little while… Longer term investors with a much lower cost basis or physical metal can simply sit through this on a huge cushion of profit.

 I will post an after market chart study tonight, but essentially I don’t like anything here at all… I took some SGOL, GLD  (155.93 ↓-0.41%) and SIVR  (40.03 ↓-0.52%) exposure off the table today to preserve gains, but the ramp job in equities is pretty obnoxious to say the least.

In the end, stocks are overvalued but that doesn’t matter to anyone on Wall Street — the “EPS” numbers are “Beating” estimates… So as long as the Euro goes up and remains over $140 you can’t stay too short for too long and should buy dips and sell rips (IE today). Once we break meaningfully below $140, short away…

Anyways, that’s why you hedged your 30% short position with puts AND with your 30% position in RJI  (9.68 ↑1.47%)…. Hopefully you close out at a nice profit and go to cash OR you can get aggressive, realise that GAPS GET FILLED, and up your short exposure back to 50% net short QQQ and IWM  (82.75 ↑1.56%)…

Those are my gut feels here, which are right about 65% of the time… (my estimates)

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Current calls: 30% RJI, 30%-50% short IWM and QQQ mix (was 30% with short puts until today where we are either adding to the short or staying at 30% with covered puts), 10% Metals notional via calls (sold 20% notional position to take profits and waiting for pullback to reestablish positions), 10% long DIA via call spreads (notional, not the value of the options but the stock they represent)

Personally, adding to shorts and would be shorting FXE with a tight stop…

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