I've written a few times about some of the income trusts and other funky investment vehicles from Canada. I have always found them intriguing, conceptually, but have never been comfortable pulling the trigger.You can click on the chart to enlarge it and get the ticker symbols. The last few months have been brutal. Great Lakes Hydro has come closest over the years to doing what I would hope all of them would deliver; very little price movement and a whole lotta yield.
I've mentioned a couple of times my intention to add a little exposure during panic days (and have disclosed the couple of things I've done) and to put the double short back on in some way if the market goes up a lot in a short period of time. It's a plan, it is not difficult to stick to but yesterday I realized one thing that is missing. What if it does neither? What if there is a stumble across the bottom such that SPX bounced between 900 and 1000, give or take a few points?
There is probably not much of a reason to re-equitize into a market that ends up not doing anything for a while. If the market stayed between 900 and 1000 I would sit tight for a few months, maybe six or so, and eventually deploy some cash. If this scenario were to play out for a while, ok, but it would not last forever. It is a good bet that if the market is range bound like that for a while it would then break one way or another. My hunch is that it would break upwards as some amount of time will cure this market.
Still no progress on the currency ETF front. Both WisdomTree and Rydex and new funds in registration but have not listed any funds in a while. At some point the market will realize that close to zirp in the US and massive expansion of the Fed balance sheet via treasury issuance is not great for the dollar. After such a violent rise in the dollar a fast retracement (may have already started) of maybe 50% of what was gained followed by some meandering seems very plausible. If that turns out to be close to right it'd be nice to have a little more choice.
A reader left a comment that I think expressed surprise that the market was so quick to sell off yesterday at the close. Tuesday's 900 point Dow rally was not a sign of health. A healthy market does not deliver 10% in a day. The market could go up a couple of thousand points despite the current lack of health and even then the market would probably not be healthy. We all have opinions about what is probable here but we should not rule anything else out as possible.
19 comments:
"There is probably not much of a reason to re-equitize into a market that ends up not doing anything for a while. If the market stayed between 900 and 1000 I would sit tight for a few months, maybe six or so, and eventually deploy some cash. If this scenario were to play out for a while, ok, but it would not last forever."
This is the worst advice I have ever seen you give. This is the buy higher when I feel good about the market approach as opposed to the buy when there is blood on the streets approach (below 900) that is know to be the true way to make money.
Everyone makes mistakes, especially me, but I think you have been overly rattled or other wise thrown off by the recent events.
If you are going to buy this rally the sooner the better.
pretty clear you just skimmed the article and missed the entire preceding paragraph.
Made a small investment in Daylight Energy Trust (DAY.UN:TSX) 2 months ago and though payments continue it has lost half of its original capital value. I am still over ninety per cent in government and a few corporate bonds - thank the Lord. Willy
Hi, Roger,
I enjoy your blog, read it daily.
You wrote that would "put the double short back on in some way if the market goes up a lot in a short period of time", which prompts my questions. On 13-Oct and again on 28-Oct, the S&P put on big gains. Expecting retracement, I bought SDS the next day in both cases. For the first one, I set a trailing stop at about -2%. The late day volatility took out my stop before going back up for a small-change day. I thought, OK, I'm learning, so after the next big-up day, I did the same thing, but with the trailing stop at -3%. Same thing happened - late day volatility pushed the S&P way up, so SDS swung down and took out my stop. Then it went back to near neutral by the close.
So - when you use the supershorts, do you set trailing stops? If so, please say how, 'cause I'm not getting it right.
BTW - I've been 98% in cash for 11 months; this trading account I'm playing with is just 2% (but shrinking!) that I'm using to learn with. So far, I'm learning things to not do. :-/
i/m thinking a big rally not a one day bounce. not 100% positive but something like spx 1100 or 1200 maybe, certainly not below 1000.
i do not use stop orders as i don't think the potential gaps makes stop orders a great tool for the double short funds.
keep in mind if i buy i'd be using 2-3% of the portfolio-so very small.
I admire you, Roger, for at least trying to plan. I'm having a difficult time keeping my head in the game. With the big gaps, end of day volatility, and correlations of 1, I'm fighting against a yeah, whatever kind of malaise. That's not good, but maybe I need a vacation to get re-energized.
it is probably constructive that you realize a little burn out. that type of detachment/introspection is not easy.
i'm no expert but I would use bigger stops on ultrashort or ultralong, 7-8%, and then tighten them if you have a profit. if you've bought so much that you cannot bear a 3% loss then you probably should not be using these.
Roger,
great blog...saved me a ton of money in my retirement account.
Now if i think about getting back in, wondering if SSO (2xSPY) would be a better choice over SPY. I know SSO lagged in 2007. Would you have any thoughts re whether it has a potential to lag the index if we have a meaningful rally. Also could this be a vehicle of choice for long term investing or should one stick to vanilla indexing.
-GI
SSO is meant to be double long on a daily basis. how it behaves over a longer period depends on the combination of results for a given time period.
depending on how the chips fall it could be a huge winner in a rally or could actually lag. there is no way to know.
Anonymous said: "... use bigger stops on ultrashort or ultralong..."
Well, yeah. Obviously, I set my stops too close. The question that I seem to be poorly posing is, is there a more intelligent way to set trailing stops, if in fact trailing stops are a good tool to use in situations like those I described? Roger basically said the stops aren't likely to work here. OK. But let's suppose I'm hardheaded and want to use them anyway. Is there some rule of thumb, or better yet, a quantitative approach to calculating the stop based on some historical measure of the volatility? Just asking, and trying to learn... :-/
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Thanks for publishing this comment.
Craig in Ogden, Google "chandelier stops". I use 4.5 x 40 day ATR as my chandeier stops, but will often set my initial stop 2.5 ATRs below the entry low.
Craig,
I've used stops rarely, but they CAN be "lifesavers". It seems to me the trick is to take into account a security's "natural" volativity, plus the state of the market.
Given the current state of the market, combined with the "2x" factor of the ultras, I'd be thinking in the neighborhood of 10%to avoid being "whipsawed".
Roger,
Regarding your thoughts on Canadian income trusts. Maybe you're expecting too much from them? My experience with them has been solely with the oil/gas trusts, but it would make sense (at least to me), that ANY trust would reflect what's going on within the industry in which it operates. After all, even if they DO pay out most/all of earnings as "distributions", giving them the high yield, much like a REIT, if their sector is in trouble, there's less profits to be paid out. (Like now, with oil/gas down sharply, the Canroys have all tanked, at least for now).
jan
i think you're right
I hate to say it, but I think our rally has ended. I like the points made here, you and www.crashmarketstocks.com have been calling it.
I have owned the oil/gas trusts but please enlighten me on the Canadian hydro trusts. Are they listed on US exchange? How does one buy them? I am not saying I will buy any of them, just would like to know how to go about doing it.
i say in the post you can click on the chart and get the symbols, the chart is obviously from Yahoo so you can some info there, my site has a search box that you can try.
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