Scale Scale Scale

Last night I mentioned I was suspicious of the rally based on financials leading.  We saw the financials get taken out back today and shot.  But, even taking this into consideration, I covered some of my shorts today.  Key word being “some”.  I think we’re at this inflection point where we’ll see another rally like March & April or we’re begining to enter the panic phase.  Every time we’re supposed to rally and don’t, you see more and more fear.  That’s how bottoms are made.  Either way, I’m well positioned.  Locking in some short position gains on these types of days typically makes sense and that’s what I did today.

My beta right now is 0.  That means if the market goes down, I lose nothing and if it goes up I make nothing.  That’s a great place to be right now.  Yesterday, I was slightly net short so I made a minor move to move more long today.

When things are this negative, you have to begin to scale out of your shorts and into some longs.  The key is scale.  Or, you may call it averaging out.  Either way, we’ve had a huge drop pretty much straight down since mid May.  Markets breathe.  I believe we’re getting to a trading low.  But, don’t go overboard and believe this is the buy of a lifetime, it’s not.  But, we’re setting up for a trading rally.  I’m just telling you I’ve begin scaling out of the shorts.

If you’re looking to buy something because you have a bunch of cash, you have to go back to the global growth story.  Coal, steel, and agribusiness may be stabilizing after falling a ton in a short amount of time.  You can look at individual companies or the ETFs.  And don’t be afraid to keep your broad market shorts and go long the best sectors like the ones mentioned above.  That’s another way to play it.


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July 2008
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