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| Stocks: Additional Strategy Thoughts - Mar. 29, 2005 |
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Summary
Based on yesterday's market performance as well as how early today appears to be shaping up, my short-term desire to expand my S&P short position into rising prices is not working out. Thus, it's time to think about a possible alternate strategy for the near term.
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Approximately 10% of the model equity portfolio consists of an S&P 500 short position put on the books on 3/4 at 1220.38. Measured against yesterday's close of 1174.28, that's a nifty 46.1-point, 3.8% gross profit. But the stock market's sour performance of yesterday and early today (so far) is flaunting my efforts to expand the short into a rally that is not happening. (For additional details, see yesterday's missive entitled, "Stocks: Confusion & Strategy.")
Maybe things turn around to the upside, maybe they don't. However, at current levels, I'm in no mood to chase anything in either direction. So another possibility emerges.
If the market does not cooperate with those looking for some quarter-end, window-dressing strength (I guess I am one of those, despite my exceptionally bearish outlook overall), and instead, prices get pasted, then I just might put on a long S&P position at lower levels. This would be for a trade only, an attempt to put some realized gains on the books to help create some portfolio flexibility for later on.
I have no intention of covering the existing short. Its 1220.38 execution price looks pretty attractive to me, perhaps for a long time to come. Therefore, for a long-side S&P trading position to have any net benefit to the portfolio, it would have to exceed the short position in value. My thought right now -- if any of this even happens -- would be to go long, say, $200,000 to $300,000. And remember, if it happens it all, it is for a trade. Thus, if this all comes together, the long position would likely get blown out of the portfolio rather quickly.
Stay tuned!
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