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%.