Monday, March 20, 2006

Going back for more

Despite the less than illustrious record on shorting I’ve had so far, I re-established a short position in BZH today (200 sh @ $66.59), as it was repelled from the top of the Bollinger Band. The stochastics were overbought and showing a bearish cross-over. The MACD was flattening out. As mentioned before, I was squeezed out of my short position in BZH near the start of the year and failed to re-short near the $82 peak. Now that the down trend has been established (is there anyone one out there still not aware of the housing bubble?), I’m willing to leave it on a longer leash. BZH finished the day down 3%. The volume was lighter than I would have liked, but it’s a good start nonetheless.

I’m suspicious of the recent rally in the stock market on account of the slowing housing economy and the indebted American consumer. The following two pieces from the Northern Trust and John Maldin spoke on the subjects more eloquently than I could. For now, I stand ready to increase my hedge position via URPIX (ProFunds Ultrabear fund, twice the inverse of S&P) if and when there is a hard down day in the market, i.e., a day with overwhelming downside volume and large number of declining shares over advancing ones.

Just to clarify, I see an economic slow down and a bear market coming, but this is hardly going to be the day of reckoning that many doom-and-gloomers are predicting. That day may yet come, but odds favor the global economic order to persist for some time yet. More on this topic later.