Friday, March 6, 2009

Stock trading update - March 7

In late Feb I summarised my strategy as:

"1. Short SP500
2. Continue to short term trade Australian market with small positions.
3. Watch gold and treasuries markets especially around gold at US$1000 resistance. "

Since then I have:
1. Decreased the size of my size of my short position on US market and opened short positions on the following market indexes Spanish (largest position), French and UK. Basically the eastern European credit problem looks like it might be an issue and that on top of the hosing market related issues and economic contraction there was fast or faster than the US. In addition the European Central Bank has much less power than US Federal Reserve to aggressively take supporting action so they are in a more difficult situation if things continue to deteriorate.

This has worked well as the Spanish market is down 9.5% this month while US market only down 5.8% and The UK and French markets down around 6.5%.

2. Dipped my toe into small gold stocks in the Australian market when it looked like gold was strong. I sold most of the positions as the gold price weakened and manged to get out even through some reasonably good short term trading. Gold has now bounced off 900 and if it can hold above 920 there maybe another attempt to break strong resistance at $US1000. I am poised to jump back in if $920 support holds.

3. Doing a little less of my day trading in small cap stocks and managing to make a tiny bit of money in a steadily falling market which is good.

4. Concluded that there is little commercial property going to be built in the US in the next 2-3 years (in contract to the past year which has been fairly normal due to lags in planning/building etc). so looked for suppliers to the commercial property market in the US to short. Couldn't find any that looked ideal so gave up for now. Need to get back to that.

The economic news is basically still more of the same. Insurance stocks now being hit hard. Certainly there is potential for them to be forced to raise a lot of capital given that they invest premiums in the market before they need to pay them back and asset values have dropped across the board.

There is clearly a possibility of a significant bounce at this part if only because markets have dropped so far so fast. In addition residential real estate and banking stocks have dropped so far that more drops from this point probably won't have much impact on the stock market indexes.

So large falls in the short term probably depend on the market coming to believe that:
a. Commercial real estate is some sort of repeat of residential real estate (hope Geithners stress test include defaults from builders on owners in this area - 25% of banks loans)
b. Insurance becoming part 2 of the banking crisis (again based on asset purchases with money that they need to pay back in the future - in this case to policy holders).
c. More panic in credit markets.

If not we could have a bounce despite continuing deterioration in economic conditions.


  1. If you have shorted S&P500 ard the 6 March, you should be taking a big hit on your portfolio.

  2. Hi Kevin - I shorted only to the valuation of my Australian dollar portfolio. This is the usual limit to my shorting. I did take a hit on my short but then closed my position before the hit was too bad but made up for this obviously on my Australian portfolio as markets rallied worldwide. I continued to take a hit on my Spanish shorts as my subsequent posts show. On the other hand my shorts the last 2 years have obviously been highly profitable.

  3. Great post. Very informative.

  4. I have been waiting for this update. I know that this is a very important update about stock trading. I read the whole article and I found it very interesting and informative as well.