In this post I will try to explain my reasoning behind some of the positions I’ve taken and elaborate on the strategy I’m adopting for the medium/long term period.


1. US indices

Currently I have a small long position in US indices. Specifically 100 SPY, 100 DIA and 300 QQQ. I believe the low on August 24 was “the low” and that we will go higher from there. If the SPX goes back to the 1900-1850 area I will consider increasing my position by buying some futures contracts. The stop on these contracts would be one tick below the August low because I think if we break that low the probability of a further decline increases. On my ETF positions I have a wider stop and I would consider exiting the positions only if we have a weekly close below 1800 on the SPX. If the market on the other hand continues to go back up without revisiting the low I am fine with the positions I am already holding.

I do NOT think that we will have a significant decline ahead of us akin to that of the 2008-2009 period. The memory of those events is still strong and the fear is still very much present. So if the market declines to let’s say the 1700 area the vast majority of traders will get out fearing another 2008 and as a result, with the majority out, the market would have nowhere to go but back up.

After a period such as 2008-2009 with fear levels not seen since the great depression it is unlikely that the market will have a large decline so soon. With the pendulum swinging so far in the fear direction I feel the only way we get a large correction is when the pendulum swings all the way around in the other direction. I already talked about it in this post: Is the Nasdaq gonna “pull a silver” on us?

I feel that something similar to what happened to silver when it got to 50$ will happen to the Nasdaq. As I’ve written there, first it had to go to the 4000 level and then it “pulls a silver”. It only reached 4300 so far and if it goes all the way to 4000 I will back up the truck and go full long. If the Nasdaq goes up so will the Dow and the S&P. The Russell 2000 is the weakest in my opinion and it won’t go up that much as the big three. Another weak sector are the financials and they in my opinion also won’t see a large up move so those sectors should be avoided. If the SPX has a strong weekly/monthly close below 1700 then I am wrong and at that point something bigger may lie ahead and I would have to rethink my strategy.

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SPX October 2015


2. US 30 yr bond

I feel that this is a no-brainer. The 30 yr bond has topped. Consequently I have a pretty large short position right now. I have stops placed near the 161 level and if they get triggered I will partially exit my position. If ZB goes above 163 I will be out of half of my position and I would have to reassess my strategy at that point. Conversely if ZB drops below 150, especially 146 I think it’s over for the 1982 bull market.

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30 yr bond October 2015


3. Precious metals and mining stocks

I talked about my opinion on gold in this post (in the “2. Going long gold and silver section”): Portfolio Performance Update: Month 6, 7, 8 – Part 2 – Trade Details and Lessons Learned and today I will expand a little bit on that.

I think that sentiment on gold has gotten so bearish recently that gold in response is gonna have a rip your face off rally to the 1350-1400 area. Everybody’s bearish right now (with some exceptions) and the bullish analysts give gold only a max projection of around the 1200 level so I think there’s a high probability that gold surpasses everybody’s expectations and has a 200$ move to the upside from these levels.

You would have to watch the nature of the uptrend, the sharper and quicker it is, the more I will be convinced that it is just a counter-trend rally and that it will be retested in the future. Especially if you start reading on blogs people saying that gold has bottomed and that you missed the move. If gold, on the other hand, has a more gradual ascent I think then you could make a case that the July low at 1071 was “the low”.

Grafically I am expecting something like this for gold in the medium/long term:

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Gold October 2015 Medium-Long term projection

In Elliott wave terms basically I am expecting a flat with a retest of the 1000 level. At this moment I think it will be successfully retested and it won’t go lower, however it is too soon to tell. I would have to see, as I’ve said, the nature of the uptrend, if gold breaks above the 1400-1500 level or not, to say something more about the likelihood that the 1000 level will fail to hold.

In terms of specific trades in my portfolio here are my recent trades in gold:

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Gold October 2015 Trades

You can see that I started going long gold in May but it went down more then I expected so I had to get out partially of my position. From July I started accumulating again. I usually don’t enter into a position 100% at once but I gradually accumulate. I found that I am not that precise at guessing the exact low so I start accumulating small positions and I gradually increase them over time. The micro gold instrument is perfect for that and for the size of my portfolio.

I started going long 3-4 MGC contracts and then I would get stopped out and partially exit. Then on the next go I would be long 6 contracts instead of 4. If I got stopped out and partially exited the second time, the time after that I would get long 8 or 9 contracts instead of 4. You can see that this strategy is similar to the Martingale strategy which is 100% guaranteed to win as it is in a coin toss or in roulette, the only problem is you would have to have an infinite amount of money and since I am a little bit short of that obviously that wouldn’t be feasible in the real world. My strategy here is sort of a Martingale strategy with a ceiling (which at the moment I have reached and it is 15 MGC contracts). If gold falls below 1100 towards 1050 and if I get stopped out the next time I go long I won’t be increasing my size to 18-20 contracts but the max will remain 15 if gold resumes its uptrend or my position size will go to a minimum of 0-3 contracts if gold continues to go down towards 1000$

Other than gold I am also long silver, platinum, copper and mining shares. I expect mining shares to roughly double from here at which point I will exit and reassess the situation. Usually at that point it would be more efficient to allocate that part of my portfolio to a different instrument because after a sharp rally usually comes a period of consolidation (like we have seen in oil recently). I won’t exit 100% but I will leave a small position for psychological reasons in case gold and miners don’t retest the lows but keep on advancing. This is all assuming the rally actually happens so let’s not start counting chickens before they hatch and wait for the market to tip it’s hand first and then adjust the strategy accordingly.

An interesting note, I got long Freeport-McMoran 2 days before the Carl Icahn news and also I wrote a post on shorting Netflix 2 weeks before he announced that he got out so apparently Carl Icahn is reading my blog 😉


4. Other commodities and comments in general

Basically I am long commodities in general. I am long agriculture (Wheat, Soybeans and Soybean oil) and long energy (Natural gas and Oil). I am playing the long oil thesis less through being long oil (I have only 1 E-Mini Crude Oil contract at the moment) and more through being long energy stocks and the Canadian dollar. I feel that oil has one last wave down until a longer lasting low forms. If oil turn backs down I will go long substantially more and I have one contract as an insurance if the low is already in place.

The only shorts I have in the commodities sector at the moment are Cocoa and Rough rice.

The important thing to say here is that if all goes well according to my projections I will probably win big. However since I have large chunks of correlated trades the opposite may happen as well. Currently the net liquidation value of my portfolio is 217,000$ but that can change very quickly since at the moment I am fully invested. In a very short time period I will either have north of 250,000$ or I will go back below 200,000$ and likely below 190,000$. You have to be equally prepared for both large wins and losses. If you are not comfortable with the size of the potential loss then that means that you took on too much risk. For me the threshold point is anything below 190,000$ so if my account equity falls below that level I will start to get very defensive.

It’s important to point out that I don’t place stops based on my equity level but based on where my thesis would be negated. My position sizing and stops are placed in such a way that my account level shouldn’t fall substantially below 190,000$ if the majority of them gets triggered.

This is not investment advice and you are solely responsible for your actions.

For a full list of instruments traded in the lifetime of the portfolio and for performance go to the Performance section.