Get out!

A couple of weeks ago, I said "Buy not Run" when S&P crashed to 1812. I was thinking that with  extreme pessimisms at that time, the market would likely rebound. That was what had happened in the following few days. S&P shot up to 1947 within just a few sessions. Honestly I was even expecting that S&P could run up a few more points to challenge its 50 day MA around 2000 at that time. But now I have to say I see less and less chance that S&P could do that and I think S&P will likely go down to test its Jan low of 1812 pretty soon. If this level cannot hold, which is a high probability, it will be really ugly. As I said before, I won't be surprised to see S&P crash to 1600s this year. We are really facing a great risk of a substantial market turmoil in the next few months!


I personally have virtually cashed out all my positions in my own and my wife's 401k accounts where I have not much choices for hedging. For my trading accounts, I still hold a lot of quality stocks which I want to hold with dividend reinvestment for retirement.  But I have started to use covered call options to hedge against such positions to minimize the downside risk. I've also added more and more short positions against the whole market or other assets that have a great risk of going down. Having said that, since S&P held up about 1880 last Friday, there is still a chance that it may bounce back to challenge its recent high around 1950. If that happens, that's likely the most it can do with this rebound and this should be a great chance for those who wants to get out.


Just an idea about hedges via foreign markets.  My friend Frank has talked about shorting the Brazil stocks via EWZ or BRZU for many months, which is really a great spot-on call! I can also add one market that will likely continue to go down substantially from here: Canada via EWC. With the ongoing turmoil in the energy sector that Canada is heavily relying on, the Canadian economy will not be doing great in this environment. Its real estate is also facing a huge bubble and may also crash by a significant degree. At the moment, I don't see anything that is substantially positive for Canada, even the newly elected left wing government is doing something that will likely add more pain to its economy.