hmm, the bearish sentiment is growing... http://online.wsj.com/article/SB127517060464598905.html?mod=rss_whats_news_us WSJ.com " * MONEY * MAY 30, 2010 May's Big Selloff Could Be Just the Beginning By BRETT ARENDS Are you ready for a lot more turmoil? You had better be -- because there's a good chance that's what you're going to get. Nobody knows for certain, of course. All stock-market predictions need to be taken with a little salt. But there are reasons to suspect that the sudden plunges of the past few weeks may be unhappy omens of what's to come. [Sunday] Like last week, with stocks lurching wildly with the headlines -- up by triple digits one day, down the next. For the month, the Dow Jones Industrial Average dropped 7.9% and is negative for the year. The Nasdaq Composite and the Standard & Poor's 500-stock index also are in the red for the year. Some pretty smart people are cautious. Seth Klarman at Baupost Group is worried. John Hussman of the Hussman Funds says all sorts of warning lights have lit up across his screen. Even Ron Muhlenkamp of the Muhlenkamp Fund, who usually takes a sunnier view of things, says he has moved a big chunk of his mutual fund into cash in case there's a plunge. How far will it go? Mr. Hussman says the technical indicators have only been this bad 19 times before in the last half century -- and on average the market plunged about 20% over the following 12 months. When markets were also high, like now, the picture's even worse. Ugh. ...."
Could you explain this a little more. Assuming beta>1, if SPY is up you make $? If down you lose? Is this correct? How does the hedge do if held longer. Do things grow with time?
if SPY is up i will make some money because high beta stocks will move more (my portfolio is not composed of some weird spy-uncorrelated stocks). i am guessing that over time high beta stock will run away from SPY unless the market is choppy/flat but i don't actually know.
Thanks. It goes with some of my initial thoughts. I am guessing that you trade the cash session only. Do you have futures trading enabled as well?
Futures are up over the last hour (I think +0.5%). What do you do in a case like this one? Do you sell some futures to make beta closer to zero? They seem to have move up with the Euro. The latter has not been reliable lately.
Hello Shortie, The utter lack of reaction to the Spain credit downgrade should tell you something about the market. Friday's selloff was to be expected, a massive run-up on Thursday, end of week, end of month...it was no surprise. The markets still have a little upside left in them (up to roughly 1129 on the S&P500 in my pathetic opinion.) JCS
basically, i agree with you that some upside is possible. there was a knee-jerk reaction to Spain, bounce and sell-off (but did not take out the lows). therefore, by the close the news seemed to be priced-in. now they are talking about possible downgrade for France = zero reaction from Futures. therefore, we have another confirmation that bad European news can't move the market lower at this point. having said that, i will stay on sidelines when it comes to multi-day swings because my pattern-recognition contraption tells me there is a decent chance of another dump ahead.