Tuesday, February 27, 2007

Big sell-off

I assure you that when I wrote the piece yesterday, I had no idea how soon a sell-off was going to be. Nothing I’m going to say is going to alleviate you losses, I don't even pretend it will limit your future losses. But I do need to talk about specific actions I took today, if only because I have written about those positions in this blog.

- TCK Sold at a small loss as it dropped below the 50 dma. I expect there to be a concern over global economic activity such that base metal stocks will likely be under pressure.
- ITA Sold at a small gain as momentum indicators are rolling over.
- BG Sold at a gain. Same reason as ITA, but even more extended.
- NAT It was already oversold going into today. It dropped in the morning but was unscathed in the bigger carnage in the afternoon. Adding back the $1 dividend it would have been at the 200 dma. Hold
- CanRoys Oil did ok for most of the day. The energy sector had (some) relative strength and I’m a long term believer. Hold

I day-traded EWM and QQQQ and made a little pocket change. At one point, I wanted to short EEM but no shares were available, so I settled on EWM instead. Overall, I believe the sell-off in China was just a trigger for a market on very loose footing. The durable goods number this morning, for example, was awful. This could be as bad as last May and the potential to be worse since the most recent experience taught everyone to hold through the downturn. In addition to IAI and the home builders, I’ll be looking for more shorting opportunities in the days ahead.

Although I have been bearish on the economy, I made no concrete bets as top-calling is reserved for the very bright and the very dim. I’m still in the accumulation stage of my investment life and I couldn’t afford to sit the market out. Now that I believe a top has been established, it’s time to get serious about protecting my assets. I cannot sell the asset allocation accounts easily, so I’ll be looking to offset them with put options or inverse ETFs.

What about gold?

Spot gold fared well during regular Nymex hours. It clawed back from down $11 to close down only $2. However, once the thinly traded Access market started, it was a one way trip down south. It bottomed just below $660. Around 3pm when the Dow was down over 500 points and many PM stocks were down double digits I actually scooped up a couple of names. The fear was so palpable and the bottom so brief that I couldn’t click my mouse fast enough. Still, I’m not sure if I made the right decisions, I may just trade these shares for a quick bounce. At the end of the day I also picked up some GDX puts for protection just in case. Overall, my faith in gold/silver is unshaken. Although I’m quite aware of the short term dangers, the strength of the metals during regular Nymex hours gave me some confidence.

In conclusion, my message is that I don’t expect this to be a one-day event and concrete defensive steps need to be taken. Stay tuned and best of luck.