Friday Follies – Markets Still Look Toppy to Me

And we're done being bullish.  

It was a fun couple of days but I cannot, in good conscience, maintain a bullish stance into the weekend uncertainty.  In the past month, the Atlanta Fed has dropped their GDP forecast from 4.3% (which was silly) to 3.2%, which is down 25% yet the S&P has gained 45 point (1.8%) and the Dow is up 340 points (1.6%) and, as I noted in yesterday's PSW Report, the updated Fed Forecast from Wednesday's meeting indicates barely 2% growth this year and next – yet we are paying record-high multiples for stocks?  

I'm not advocating shorting stocks (other than TSLA, of course), that's how people got destroyed in 1999.  I'm just saying if we keep plenty of cash on hand and hedge our longs – we will have lots of money to go bargain-hunting when reality hits the fan – as it has been prone to eventually do, in every other instance of recorded history so far.  

Image result for hedgingMaybe this time will be different and that's why we have a Long-Term Portfolio that is filled with long-term trades (which are, in turn, hedged by our Short-Term Portfolio) and we went over our position in our Live Member Chat Room yesterday aftenoon and only had to make 6 adjustments to 37 positions despite gaining about $100,000 (7.6%) since our April Review.  That was offset by a $25,000 loss in our Short-Term Portfolio, which is what's supposed to happen to our hedges when our longs are doing well.  

And that's what I want to stress this morning – protecting your gains with hedges.  Hedges are not supposed to make money, they are insurance plays that help you lock in your unrealized gains when the market does correct on you.  It's very dangerous to be overly complacent about your profits, they can evaporate very quickly (just ask millions of trades who thought they were rich in 1999 and found out they weren't in 2000).  

Gains should be appropriate to what you have at risk.  When I was being interviewed at the Nasdaq on May 30th, we talked about hedging our Nasdaq-heavy portfolio (I run one
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