WASHINGTON, March 5, 2013 – Surprise. As our readers know, we’ve been peeling back our positions slowly for the last couple of weeks. Our charts have been insisting that it’s time to lighten up our stock portfolio. So what does Mr. Market do? It takes off like a shot this morning, leaving bench sitters—like us—in the dust. The Dow blasted up nearly 150 points, exceeding its all-time high of 14,198, which it last touched way back on October 9, 2007. The S&P 500 and the NASDAQ are also flirting with all-time highs.
The alleged reasons for today’s big rocket blast: China, which has been making negative noises about its economy for the last few days, suddenly started talking positively this morning, getting everyone all excited again since China, apparently, is the only place where anyone is buying quantities of U.S. stuff anymore. Meanwhile, the Japanese, who are mounting an epic effort to terminate over 20 years of deflation by destroying the yen have apparently told several African debtor countries that they can pretty much forget about paying back Japanese government loans.
Katie bar the door! It’s off to the races!
The good news here is that the Fed is winning its inflation battle: it’s inflating stocks like there’s no tomorrow with its QE-infinity program. The bad news: the Dow’s record-breaking day today merely brings us back to those halcyon moments before Great Depression II kicked in. In other words, stock fans, after roughly five and one-half years of misery, we’re right back to where we were in late 2007. Kinda puts the capital “P” in “Progress,” doesn’t it? Needless to say, we’re getting hosed in the modest short positions we put on yesterday, so let’s look at them and see if we can’t quickly trim the damage.
How to play today’s action:
We still think this market is going to correct, sooner rather than later. That said, at approximately 2:45 p.m. EST as we write this (we had a long appointment in DC this morning), the Dow, after backing off briefly to around a plus 120 on the day, is now getting back to about 140 in the positive direction. Given the way things have been going lately, the bears might come out to play about 10 minutes before the close. But it’s best to step back again from a couple of our admitted gambles and let the irrational exuberance wear itself out.
We’ve had a small position in the S&P 500 short ETF (SH). We just took half of it off. We put on three equivalent shorts yesterday: GLL (the double-short gold—careful here); EUO (the double short Euro—remember Italy?); and EEV (the double short emerging markets ETF. The latter we put on precisely because of the Chicom nervousness.
With that caution apparently history, emerging markets are emerging back big time today, so we’re headed out of EEV entirely. Ditto for part of EUO. We’ll hold the rest for a bit, given that Italy is still a mess. We continue to hold GLL. Gold is up a bit today just because, but we still think that if stocks can continue with these kinds of moves, gold bugs will either continue selling or remain on the sidelines.
Meanwhile, since it’s slightly off today and still under its eventual redemption price of 25, we’re adding a bit to our income-oriented position in Northstar Realty Preferred B, Schwab symbols NRF/PRB or NRFpB. (Other brokerages and quote systems may use slightly different symbols.)
Other than that, we’re staying put in what’s left of our REIT and MLP positions, again for income and a touch of appreciation. We just don’t trust this market. True, the bulls left us in the dust today. And we’re hardly known as bears here, really. But charts and other systems are still telling us, with near unanimity, that it’s a dangerous time to be too long right now.
Magic numbers like today’s interim Dow figure tend to make some folks want to take a little off the table. Ergo, we’re being really careful here, given that Washington’s next bit of kabuki budget nonsense is right around the corner—and this one, as opposed to the phony-baloney sequester—could very well be for real.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
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