Yesterday, I adjusted various positions in the Trading Portfolio.
The latest housing numbers and durable good orders turned out much worse than consensus estimates. However, stocks didn’t really sell-off. When negative news don’t lead to declining prices, it is a sign that a short-term reversal could be at hand. As a consequence, I closed most of my short positions (Russel 2000 (TWM), Financials (SKF) and Navistar (NAV)) and went long the S&P (UPRO), Lazard (LAZ) and Bidu (BIDU). On the long side, I finally sold the second half of my
Potash (POT) position. I don’t see a compelling risk reward/ratio at this point, since more than $160 will be difficult to get out of potential acquirers.
I do not expect a major rally, but these trades are simply to profit from “reversion to mean”. It will be interesting to see how markets react to Thursday’s job numbers, but any result in line with estimates might spark a rally due to oversold conditions. But even if initial claims come in worse than expected, hope for additional stimulus might put a floor under the market.
Other positions that are currently in the portfolio:
McDonald’s (MCD): my favorite trade right now. The market loves dividend plays these days and McDonald’s is a growth story as well. Great price momentum.
Gold (UGL): a position I have been in for the last three weeks and I plan to add more if momentum accelerates, which might happen if Mr. Bernanke shows up in his helicopter the next days.
Starbucks (SBUX), short: recently broke down from a significant technical top-formation. I initiated a small short position and plan to add more on rallies.
So in the next days, I probably will reduce long exposure quickly and look for some compelling short setups. Unfortunately, every trader will do that so the rally might end faster than we hope.
One position I’m looking forward to get in during the next days is the Long Utilities/Short Financials pair trade to benefit from over/underperformance of both sectors through a market neutral trade. Investors are chasing divdends and banks will be under pressure due to the flattening yield curve.
