Tuesday, January 22, 2013

Time to go inverse?

Unlike the sites that charge a fee I rarely reccomend specific positions, but try to give you a more general market outlook.  That outlook can be used to buy long or short (inverse) index ETFS like IWM (Russell long) or RWM (Russell short).  Of course you can trade less broad indexes like S&Ps or DJIA using ETFs. 

I generally hold some Russell inverse (RWM) as a hedge against long positions.  I don't hold the shares passively but usually write calls after an 8-10% up move.  The last calls I wrote in late December just expired worthless.  Even with the proceeds from the calls I still have a small loss on  my RWM positions as I wait for a pop to write more calls.

It appears to me that the maket should top this week. So I believe you should consider taking some profits or alternatively buy some inverses like RWM to hedge your gains if you wish to maintain your holdings.  No one knows exactly when but sooner or later there will be another 40-50% sell down like the early 2000s or like 2008-2009 and inverses will soar.  Many analysts believe that could start in 2013.  History tells us that the average length of a bull run is about 4 years.  2009+ 4 is 2013. Or, history tells us that the 2 years after a presidential election tends to lag...

With this in mind I looked more closely at the RWM chart.  Here is the results:

GL traders


  1. Inlet,

    Thanks for posting the RWM chart.
    I haven't added yet.

  2. Doc - I expect the time to buy is Thur/Friday this week (another 10-20 cents lower?)

  3. Inlet,

    I wonder if RWM will go even 10 cents lower. The DOW & Nas have been up all day, but the Russell is trading lower. I'm still waiting yet. Maybe something will POP the Russell higher.

  4. Hey Inlet,

    Down 11 cents so far. Hmmmm.

  5. I'm wary of the call for market to top this past week (even though it certainly is toppy) since i believe your cycles mentioned the same thing for late December and then you modified the cycles in early January to accommodate when it did not happen.
    No system is perfect of course but I would say the cycles so far have been 50/50 with respect to their accuracy over the last few months that i have been following this blog. Not sure if it's a helpful tool for trading to date anyways but i do find the concept interesting.

  6. Testy - always do your own analysis. Never claimed my interpretation of the cycles is perfect. cycles is a single piece of information and I do include other info in my posts.