Wednesday, January 28, 2009

Big up day + optimism = another sucker rally

The S&P 500 rose 3.4% today, which is one of the larger 1-day swings in the last several weeks. More importantly, sentiment is returning to the highest levels of optimism in the last two years. I'm going to use this opportunity to put my remaining cash (25%) into the Grizzly Short fund (GRZZX).

Jan. 29 Update: My grand average purchase price for GRZZX is $9.03 per share.

8 comments:

RO said...

I missed this oportunity before the market closed, got to figure out how to subscribe to e-mail alerts etc ;)

Any general comments on investing in taxable accounts vs retirement accounts when following your buy/sell patterns? Would you change your "strategy" in different accounts?

Stefanie said...

Hi, Jody,

We took a position in GRZZX at 8.26, which I'm moderately pleased with. I was wondering if you'd share your exit strategy? You have a lot of confidence in this fund to be fully invested in it. :)

Jody said...

RO:

I personally would use the same strategy with a taxable account, because it still makes money. It's better to get taxed at a high rate on positive gains than to have no gains at all.

If you're absolutely determined to minimize your taxes by holding a long-term position, then I would advise staying in a money market fund or short-term treasury fund until I signal that the bear market is over.

I will consider putting together an email list...

Stefanie:

I will cash out of my GRZZX position when there are signs that a medium-term market bottom has been reached. The most important indicator will be pessimism among short-term traders. Keep in mind that a medium-term bottom is not necessarily the end of the bear market.

Jody said...

p.s.: I'm confident that the stock market will fall from here. GRZZX is simply a collection of short (inverse) positions in stocks that rise in value when the market falls, so it's a safe bet given a falling market.

Anonymous said...

There are so many investors who are following market sentiment in an attempt to find a market bottom. Are you at all concerned that this undermines this tactic?

Jody said...

Sentiment, as measured by where traders are putting their money, is the one indicator that doesn't lie. If enough people started following sentiment indicators and reacting to them, then the indicators would move to neutral and stay there. Any little move, say, to optimism would cause a stampede of traders to invest in the opposite direction, bringing the indicator back to neutral.

Sentiment red-lined on optimism recently, so clearly we're nowhere near any kind of feedback loop.

Good question, though!

Robin said...

Jody,

With all due respect, I think you are crazy. Even though I strongly believe the market will continue to fall over the next few months, I would never ever be 100% invested in anything - what a huge portfolio risk! Risking everything just doesn't appeal to me.

I may approach 100% in VTI/VEU/VWO/etc someday, when I'm looking to be more passively invested, but that time is not now.

Anyway, I'll keep all of my fingers and toes crossed for a great exit for you.

-Neil

Jody said...

GRZZX is as close as to an inverse VTI (total market index ETF) as you will ever find. If near-100% VTI is considered safe during a bull market, then that's a pretty good case for GRZZX in a bear.