Just a quick note. Our market risk indicator flashed today at the close. We always wait for confirmation on a weekly basis so we won’t have an official signal until Friday. If the signal holds till Friday we’ll be moving our current 100% hedge away from a simple short of SPY (or SH if that’s your preference) to an instrument that is more aggressive. Some examples would be puts that mirror our portfolio, managed short funds like HDGE, BEARX (use with caution), or midterm volatility like VIXM or VXZ. As always, don’t use any financial instrument you don’t understand (options, volatility, shorting).
My reading on gold stocks is that they’re probably not finished declining. GLD has been trying to hold the 150 area for nearly three months while GDX and GDXJ have had a rally with a trend line failure. Previous failures have resulted in fairly severe sell offs. However, there is some good news in the charts. Notice the volume on the recent rally was very high for GDX. Then as it started selling off as volume is drying up. This is different than the two previous rallies that failed (they had low volume rallies and higher volume sell offs). So what would I do? If I held absolutely no precious metals in my portfolio I’d be willing to dip my toes in the water at these prices as a hedge against the European debt crisis escalating. The position would NOT be an inflation hedge. It would be a hedge against a confidence failure in the Euro as a currency. I’d be buying with the expectation that I’ll add more to
Twitter resistance is falling for SPX with people only talking about 1380, 1390, and 1400. Coming out of the early June bottom people were more optimistic with the old highs as their target. It appears that the volatile nature of this up move is reducing expectations. While there are fewer people talking about the June lows as a target or support they have lowered their target to between 1320 and 1330.
The Downside Hedge Twitter Sentiment Indicator for the S&P 500 continues to paint a triangle pattern showing uncertainty in the market. As the market moves higher twitter sentiment is compressing and showing a negative divergence with price. It continues to stay below zero which is net negative for market prospects going forward. On the positive side sentiment rose today even as the market sold off hard.