Month: April 2016

The hated rally

It has been a much hated rally since January which should have seen enough bearish sentiment capitulation to potentially lead to weakness from current overbought conditions. Did it commence on Thursday in the U.S.? I will not go into details about why the May to November six months are often weak both in U.S. and Australia but point out stats at least in the US over the last 60 or so years are pretty compelling when the year is carved up into these periods. However, there are also some sound theories as to why this occurs. Combine that with the self-fulfilling factor, a market that has surged into April month end, and a market that is overvalued on many fundamental measures with poor market breadth and it becomes easy to take some chips off the table right now via the U.S. market as I just have. My cash equivalents weight (34%) is the highest it’s been since earlier in the year, and my equities weighting is quite low now as I have more exposure to commodities since. So I am quite defensive again, which is a change from recently having a suspicion stock markets could be dangerous to short as we go through to the end of April.

This week I shorted the Dow Jones September contract at an average of 17,740 (probably equivalent 17,900 actual index), for about 8% of the portfolio, and have a stop at 18,900 in that contract. There could be plenty of stops close to the all-time highs so hopefully that gives me some buffer if we see a little short covering.

Since the blog started I have had a suspicion Oil may form a bottom and now it has been climbing for 3 months or so and poking above the 200 MDA. Whilst I didn’t go seriously long at the bottom I felt it was better to slowly accumulate and upon stabilization and a rising trend there will still be plenty of time to profit. This is exactly how I played the gold sector which has worked extremely well in the last year. I do have some energy plays in the portfolio but dips in the oil price or related stocks I see as generally being opportunities to buy. My bullishness doesn’t extend to bulk commodities which I see as more correlated to global economic growth where the expansion is long in the tooth and lacklustre. Also with central banks either running out of bullets or if they have bullets the tools are now blunt, I don’t want to bet on strong growth around the corner. Silver has finally had a good week or so and significantly outperformed Gold. In the last fortnight Gold up just 3%, Silver up over 10%.


short AUD/USD

I shorted the AUD against USD at 77.4 with a stop at 79.5. There looks to a bit of a resistance point just above 78 where I want to give myself a little wriggle room as perhaps many may stop out between 78.7 to 79.4. At this level I essentially moved from being 3% of the portfolio underweight AUD to 8%. For some perspective 8% is a meaningful position and 10-15% would be significant. From when the AUD/USD some years back was above 95 the underweight was generally more than 10% for the profitable move down to 75 over the last 5 years or so until late last year.

Whilst one can argue the AUD rally is based on fundamentally an increasing commodity price environment I feel this can easily come unstuck. As mentioned above I am only selectively bullish on certain commodities. The Australian economy is more exposed to the commodities I am bearish on, those that are more correlated to a positive global growth environment.

Some of the sentiment measures I have seen lately indicate shorter term traders now betting on a weaker USD, this certainly differs to what I wrote about when the blog started in January. Then I discussed the bullish USD trade as a classic “crowded” trade. I just regret not extrapolating that them to going underweight USD, instead of just covering my long USD position.

Fortunately, the weak CPI has transpired since and we are at 76.50 as I write having seen below 76. I have a target of 74 for the time being on this particular trade.



Watching in May 2016


  • Stops on the DOW shorts at 18,900, AUD/USD short at 79.50, Robusta coffee long at 1274.
  • Shorting is a tough game and I need to be prepared if I am stopped out on the above. Another measure I may deploy to de-risk is more USD exposure should the USD weaken further. The USD should reassert itself as a safe haven currency down the track again. I am weighing up still about the timing and how best to implement this. For the time being already I have increased USD exposure to now a meaningful amount, however some may get at least temporarily stopped out if we go above 79.50 quickly in the short term.
  • The energy sector I believe made a major low this January and if we see dips they can be used as opportunities to buy correlated stocks or equity markets. My optimism in the commodity space does not extend beyond energy, precious metals and softs as more demand sensitive commodities remain vulnerable to global economic demand shocks.
  • I am negative on the U.S. equities markets which lack breadth and many basic fundamental measures point to overvaluation. In particular measures point to a major relative overvaluation compared to other global equities markets.
  • Whilst I advocate being very defensive and cautious with the U.S. equities markets, a portfolio does not necessarily have to have a major overweight in cash burning a hole in your pocket. I hold more cash than one normally does but make the point there are depressed assets that can provide opportunities. For instance, investing in other stock markets, just to name a few suggestions Australia, Singapore, Russia, Vietnam, China, UK, Spain, Italy you are buying at a time where the 5-year performance has been disappointing, unlike with the U.S. major indices. Likewise investing in the energy, precious metals, agriculture sectors.



Interactive blog

Initially I started this blog mainly to develop a routine to my investing as with this being almost a full time commitment now I figured that was important, together with making my decisions more accountable and helping me not over trade given I am trying to document most trades here.

I am new to blogging and found it interesting looking at the viewing statistics recently and was surprised to see more views than I imagined, and also some from interesting places. Whilst it’s “free to look” as you hear in the shops sometimes, it would be interesting to see some comments on my posts here so this post is just to say please don’t hesitate. Some opposite opinions also welcome as I always say to prevent confirmation bias it is good to hear the other side. Also those who hold some of the stocks I write about may have far more in depth knowledge than myself. With other commitments now I can only manage to scramble together an hour or so a fortnight to expand and write about little notes I have jotted down over the period so I only just scratch the surface on many issues. So others may be able to add to the very brief information I provide on stocks.

To personalise things a bit more, I have a new domain name, and you should be able to see my ugly mug shot if I have uploaded it correctly. If you don’t learn or profit from any of my writings, you can at least have a laugh about my classic “mid-life crisis” career change and watch someone have fun destroying their wealth! I might upload some travel info just to make sure I don’t get bored of this blog! Sometimes after a busy couple of weeks I am tempted to let this blogging phase slip, but preferably I’d like to continue and eventually look back on things with interest to see where I can improve.