3/25/19 What is New: ALL BETS ARE OFF!! We are no longer stalking the bear and have booked any Short gains.
Why: The Recent Fed comments are so overwhelmingly dovish that holding short positions no longer fits our Bearish thesis. We always try and align ourselves on the right side of probabilities and statistics. 80% of the time stock markets move higher that is a fact and it is undisputed. So, to carry shorts we need all the proverbial stars to line up. An overly dovish Fed makes this star lining impossible.
How to Proceed: We are now looking for weakness to build long term investment positions. Our favorite thesis remains Cannabis stocks with an emphasis on US based businesses
2/26/19 What is New: New resistance new short position opportunity. Indexes are challenging the Oct./Nov. 2018 highs and this will no doubt be the next location where the Bulls and Bears do battle.
What to Look For: The SmallCaps (IWM ) have always been the canary in the proverbial coal mine. This index called the collapse last year and has also out performed to the upside this year. IWM is most vulnerable to investor mood swings as institutional money and investment baking support is limited for SmallCaps vs their bigger rivals. Less support + less liquidity = greater volatility. The 25th and 26th of Feb. IWM has led to the downside and this may become a problem. Add to this the clear distribution day yesterday for all indexes and a possible trend reversal is in the wind
How to Proceed: We have begun to establish Short positions again in the Dow30 (DIA), NASD100 (QQQ) and SmallCaps (IWM). We may also employ the inverse ETFs DOG, PSQ & RWM respectively. Watch for weakness in the afternoon and avoid euphoria over early morning strength.
Caution: As always short selling is not for most investors and holding cash is usually best during reversals. However, if one chooses to sell short then employing tight stop losses is a must. Never a good idea to fight an up trending market. So take Short losses quick and reevaluate.
Check back for further updates as we invest during this Bear market and watch every day at 12pm our live stream on YouTube or listen to our BlogTalkRadio show for in depth analysis and actionable trading / investing information.
1/30/19–EXIT all Short positions on close at new highs since the bottom. Will reassess. Stay tuned….
1/24/19–We now have our complete allocation to the Short side of the market for all 3 of our model IB portfolios. You can monitor our exposure to Long, Short and Cash positions in our model stock market portfolios on our homepage.
The Background: Since the 24th of September 2018 we have been advising an extremely defensive posture. This has primarily equated to large Cash equivalents in our model portfolios at Interactive Brokers (IB). All 3 Algorithmic directed portfolios outperformed all stock market indexes in 2018. At the beginning of any equity market downtrend we advise Cash instead of Short selling.
Please see Post: Investing Rules of the Road Learned over 30 years on the High Seas
Rule #7 There is a step between Long and Short…it is called CASH!
It is time to be ruthless! We have waited 3+ months for this opportunity. Our algorithmic research reveals unequivocally that the best time statistically to Short the stock market occurs once a downtrend is established and said trend is confirmed with downward trending 200 and 50 day moving averages. This set up occurring today is the moment during which the most downward pressure is being exerted on the stock market.
The Reminder: Statistically speaking stock markets go up 80% of the time. Short selling by its very nature is a low percentage investment plan. So it behooves us to Short Sell only when percentages are at their best and now is that time. Short selling is not for all investors and simply continuing to hold large amounts of cash equivalents remains a solid strategy.
1/10/19– Day 10 of the rally off the extremely oversold lows of December. This is typical action in a Bear Market. Excess volatility, huge quick rallies back to downtrends are part and parcel of Bear market behavior. These types of rallies make the investor question the veracity of the Bear picture. Never forget the stock market goes higher 80% of the time. This 80% number is a real statistic and fighting this overwhelming probability is not for all investors. In fact, short selling is not for most investors. There is nothing wrong with simply holding large amounts of cash during stock market sell offs. However, we choose to stalk the bear because the reward for the risk we are taking is significant. When an investor catches the short side correctly in a bear market gains can be large and usually come quick.
We are now actively searching for stock market developments that let us know the downtrend is in force. All the stock market indexes we follow closely (SPY,DIA,QQQ,IWM,MTUM) are approaching or have hit the top of the downtrend in place since September 2018. Now we will hunt for paw prints. This means finding reversals at key locations like downtrend lines and moving averages. We also want SmallCaps (IWM) to begin leading to the downside. During the last 10 days IWM has led the market higher and this behavior must stop for the Bear market to reassert.
We have begun buying a small amount of Put options on IWM ($142.5) at the key location of the downtrend line and will look to add to this position at around $145 or on key reversal days.
9/24/18 We made our first call to begin booking profits and protecting capital as Small Caps (IWM) showed signs of trouble. Small Caps are always the “Canary in the Coal Mine” and the canary died on this date.
10/10/18 We made the call that all our Long only algorithms were calling for full Risk Off on the major indexes: SPY DIA QQQ IWM MTUM. Investors can uses this proprietary information to adjust their portfolios as needed to protect capital and avoid the current destructive forces pressing the stock market lower
11/28/18 In front of Fed chairman Powell’s comments and before the G20 meeting our ARMR Report advised the Reward was worth the Risk and the probabilities were in our favor to begin adding risk again to equity portfolios.
12/4/18 After an initial push higher (one that allowed us to raise stops to protect the nascent gains) all 5 ARMR Report index algorithms advised aggressive moves back into cash. We also advised, for aggressive portfolios, the time was right to begin Short Selling. This day marks the beginning of the Bear Market. Up until 12/4 one could argue the stock market was experiencing a normal albeit strong correction but after this day we believed a real Bear market had commenced.
12/13/18 Now that a real Bear market is underway we have been advising would be short sellers to sell strength in the beginning of the week and book profits when the markets get to the bottom of the down trending channel. On our trading desk we initiated Short positions on the 4th and added to these positions on the Monday thru Wednesday rally. We explained on our live YouTube stream and BlogTalkRadio Podcast that the SmallCap index (IWM) is a wonderful guide during Bear markets. Follow the Bear paw prints left by IWM to help make decisions. As an example, when the equity markets rallied early this week IWM under performed and today as the markets sell off IWM is the 1st to reach new lows. This IWM action is the very definition of a Bear Paw print.
12/17/18 We enter the week Short Multi-Day thru Equity option Puts on the big index ETFs SPY DIA QQQ IWM. This position means we are looking Long Intra-Day to hedge and benefit from the increased volatility of a Bear Market. Looking for double bottoms at key locations such as previous sell off lows. Check out our website RosenthalCapital.com for updates to our 3 model portfolios at Interactive Brokers. We only short in our Aggressive portfolio and hold large amount of US T-Bills in the other 2 accounts.
12/19/18 Fed Day! What the Fed does is infinitely less important than what the Stock Market reaction is to the news. As always we will read and react. However, in advance of this information we can look at the action and draw some conclusions: QQQ SPY DIA have all rallied into the fed decision yesterday and this morning. But what is the canary, IWM, doing? While Big Caps are attempting a recovery, Small Caps continue to lag; PAW PRINT! On our trading desk we will look to fade any rally on the news and do so aggressively if IWM doesn’t participate. On the other hand a selloff on the news to test lows will set up possible year end rally so be ware. Listen to our 12pm live stream to hear more strategy
12/26/18 Reversal day! We all knew the massive selling could not last. A Bear Market bounce was certainly in the cards and what a bounce it was. Those of you following my Twitter feed will know we were buying the Stock Market at 11:06 and used the options market to do it. We were buying the SPY Jan. Calls and by days end had a better than 129% gain. This day was a perfect illustration on Rule #55 of blog titled, Investing Rules of the Road Learned over 30 years on the High Seas. Rule #55 talks about looking for long day trades every day when carrying a large cash position. All three of our model portfolios are currently carrying 85% cash and have been since 12/4/18 so massive Alpha has developed for our investors. The closure of the Gap up this morning offered the perfect location for a reversal and when our trigger occurred we executed our plan ruthlessly leading to big gains. tomorrow will be a bit trickier. Rule 27 now comes into play, ” In a down trend the stock market can have two strong rally days at any time. 2 days means nothing 3 days means a trend change is developing” The fact that today’s move was so aggressive doesn’t bode well for stock market bulls. Chances are high this rally will need to digest and probably retrace some if not all of this move before a real cessation of selling can be trusted. I will be inclined to sell a Gap up tomorrow not buy it. Meanwhile, I continue to wait for our Big 5 Index Algorithms to change our Real Time RiskOn/RiskOff Monitor and alert us that the coast is clear and Risk can be added back into the portfolio.