The markets just don't go down anymore.
I said the markets were broken the other day and this BAC chart spells that out. We haven't had a sustained move down since last year as the market keeps grinding higher but it's all based on what investors HOPE is going to happen – not what is actually happening. The "Hard Data" has, in fact, been crashing all year and the bounce we are currently celebrating is mainly due to post-hurricane buying – something we knew was going to happen but is still getting the markets very excited and now analyst/cheerleaders are extrapolating this one-time boost in buying ad finitum to entice more money off the sidelines and into the markets.
Even Warren Buffett is getting into the act, virtually guaranteeing the tax cuts will pass (which should boost bottom-line earnings – even though no actual improvements in sales or operations will have occured) and going so far as to state that he isn't even selling his winning positions because he will save so much money next year on lower tax rates. Of course Buffett is talking his massive book, which holds hundreds of Billions of Dollars worth of stocks at record highs. So are all the other fund managers they are trotting out on TV – telling you how great the market is at this price.
We are VERY reluctantly long still, but not so much. Since our last Portfolio Review in mid-September, our Long-Term Portfolio has gained $48,000 (2.9%) while our hedges in the Short-Term Portfolio have dropped $30,000 so a net gain of $18,000 on our paired portfolios while we're putting in fresh record highs.
Just this morning, we discussed, for the first time, buying NAKED LONG TZA Nov $12 calls, which are $1.35 with (TZA) at $13.15 so they have just 0.20 in premium and, if the Russell (now 1,515) does drop 2.5% to 1,477, the ultra-short ETF would gain 7.5% to $14.13 and the calls would be worth $2.13 – up 57% on a 2.5% drop in the Nasdaq so 20:1 leverage on the downside.