Tuesday, April 18, 2006

Market review; Carnival of investing #18

If volume lends a voice to price action, today the market was squeaking “buy”. I thought there was going to be a high volume reversal in the general market this week, I was just wrong about the direction :( The Fed minutes does imply the end of the rate raising cycle is near, although I think it’s still 50-50 between one or two more raises. What I think doesn't count though, the Dow, S&P, and Nasdaq all rallied 1.5-2% despite oil prices over $70. I still think the US economy is vulnerable to a housing-led slowdown, but the market action must be respected. I duly decided to exit my URPIX (S&P 2x short fund) position today as stated at the end of this post. I incurred a small loss only after the commissions are taken into account, so there is no harm done. But if a lesson is to be drawn here, I ought not to have jumped into such a leveraged short vehicle when the down turn is not clearly in place. It’s time to re-read O’Neal’s How to make money selling stocks short (see left side bar).

My harping probably makes it sound like I was net short the market in a big way. In fact, my portfolio had been stellar the past couple days which you can deduce from the headlines on gold/silver/oil prices. It’s just that my hedging moves on the margin are more closely tied to the higher frequency signals from the market, thus intrude more into my consciousness. It’s also infuriating because I KNOW that a correction is due here. I guess I like being right more than making money – how screwed up is that?!

Elsewhere, the Nikkei put in a valiant defense of the 17,000 level last night, and looks to be up big again tonight. I probably should have jumped in MTU today but I wasn’t paying close attention. BZH (Beazer Homes), which I’m shorting, bounced 7% today, erasing seven consecutive days of losses. I still don’t buy the housing story though. As far as I’m concerned, the direction of the 10 yr is still an open question even if the Fed stops raising rates tomorrow. More importantly, the real estate speculators have left the building. I’m maintaining the short position.

Carnival of investing #18
This week’s carnival is being hosted by Blueprint for Financial Prosperity, and my guide to investing in gold and silver bullion is included. There is an interesting article on the Kelly Criterion for stock trading size by a new blogger, 1st Million at 33, that I commented on. It’s the kind of mathematical/technical stuff that tickles me. If you have similar interests, check it out.