Wednesday, July 08, 2009

Grizzly Time

I've just put in an order to buy GRZZX with 50% of my Roth IRA. I think the purchase price will be today's closing price.

For those who don't know: GRZZX is a mutual fund which sells stocks short, meaning it goes up in price when the market falls.

14 comments:

vv said...

Be careful. A 33% retracement of the rally is "expected" by bulls. 950 - .33*(950 - 666) = 856 on the S&P.

linc campbell said...

@VV - Where are you getting this info? Thanks

John said...

Jody;
What in your predictive model suggested you get into the market in a bear position at this time? Do you believe there has been a shift in the longer term market trend back to bear or are you taking advantage of a shorter term opportunity in a bull market? I ask because I believe there is greater risk investing in shorter term positions that are contrary to the longer term market direction. Comments?
John

Jody Wilson said...

Linc,
One of your comments disappeared for some reason when I tried to publish it. Please feel free to re-post.

John,
In addition to the money-where-their-mouths-are optimism that's been in place for months, there was a market-top signal that suggests the March-June rally is over. No forecast is 100% certain, but I choose to keep going with the odds.

vv said...

@linc campbell - It was from multiple sources.. talking heads on CNBC, some blogs and Jim Jubak (he also mentions a 62% retracement possibility).

http://articles.moneycentral.msn.com/Investing/JubaksJournal/forget-the-market-just-pick-stocks.aspx

linc campbell said...

@VV thanks

So, have we been head-faked or is today the big up-day preceding the fall? Hmmm.... juicy.

Nick L said...

Jody,
This question may have already been raised in the past, but why do you mess around with the GRZZX mutual fund? And not an inverse ETF or short straight up? For example SH the inverse S&P ETF has outperformed GRZZX and you don't need to deal with all the mutual fund BS.

Standard and Poor said...

Jody, There is something amazingly accurate about your sentiment timing model. It hasn't exactly proven to work in the direction you specualte on but has marked sharp turns now 3 times in a row. I hope you are willing to discuss this.

There is some component that is missing and maybe some of your readers can help figure that out.

Thanks,
Standard and Poor

vv said...

I think NickL has a point. Back when you decided to go into GRZZX, it was outperforming SH & SDS. Not any more. Sept to March 9th, GRZZX did really well but not after that.. Ever since Steve Leuthold (of GRZZX) made his bottom call in early March, GRZZX hasn't done that well.

http://www.google.com/finance?chdnp=0&chdd=1&chds=1&chdv=1&chvs=Logarithmic&chdeh=1&chdet=1248124422437&chddm=86802&cmpto=NYSE:SH&cmptzos=-18000&q=MUTF:GRZZX&

But SH probably uses derivatives like all short ETFs. The fear last year was that the counterparty to these derivatives would not be able to pay up (e.g., AIG). Even Goldman Sachs would've been sunk if the Fed had not bailed AIG out. The cascading effects would've made all derivatives based ETFs blow up but would've probably left the pure stock shorting funds like GRZZX and BEARX in a better position.

Now that the S&P has closed with a higher high than before, it appears that the bulls were right about the retracement (about 25% instead of 33% though).

What do you make of this, Jody?

John said...

Jody;
Given that the S&P is currently 980, what will make you either sell your current position or buy more? I continue to belive that there are too many bears saying that the market should go down based on macroeconomic data and earning, of which I am one (which seems very rational). However, I don't think the market will go down until the vast majority of bears have given up. That may take until S&P 1050 or even 1200. Also, as I've read, many bears (technical and fundamental) were "headfaked" by the last correction to under 900. Until very few bears get "fooled", the market will continue up. Any thoughts?
John

Jody Wilson said...

NickL and vv,

Time will tell if my avoidance of SH and SDS was correct. As you said, if the first bailout of AIG hadn't happened, the derivatives market may have imploded already, and I'd be a genius. If, instead, future bailouts prevent the implosion entirely, then my concern was all for naught.

As I said in a previous post, we're at a point now where government action is trumping normal economics and market forces, and I have absolutely no ability to predict what the government is going to do.

Jody Wilson said...

John,

Given the degree to which non-market forces are affecting prices, I'm less inclined to make mid-term forecasts at this point.

In the long term, historical precedents argue for an "average" S&P 500 index value around 500. Further, a typical excursion to low P/E levels and high dividend yields would take the S&P to around 350.

Stocks today are highly overvalued based on both earnings and dividends, and this rally - no matter how long or high it goes - is speculative and is not based on stocks' actual worth as investments.

John said...

Jody;
Thanks for the comments.
John from CO

linc campbell said...

I have no skin in this game, but i'd like to refer all of you to the following items:

http://tr.im/vGCw
http://tr.im/vGCi
http://tr.im/vGC5 - specifically pg. 8 - 29 on forecasting
http://tr.im/vGBR - as well as parts II and III

Although I was curious about the looks in Jody's post of June 30th and was amazed at the punctuation of the following week, never bet against the 200 SMA. You may occasionally get it right, but your odds are about 97:3 against.