09/25/2011 Mousetrap

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE 9.96% Closed
Hedge XLF -6.41%

Position Date Return Days Call
BKI 5/31/2011 3.13% 118 Hold
CFI 6/22/2011 -6.65% 96 Hold
SE 6/27/2011 -5.33% 91 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 -0.75% 82 Hold
GCI 7/14/2011 -30.20% 74 Hold
AGO 8/5/2011 -16.62% 52 Hold
DISH 8/10/2011 24.88% 47 Hold
GTAT 9/8/2011 -35.03% 18 Buy
NA NA NA NA NA

Mousetrap Return -7.80%
S&P Return -8.76%
Hedged Return -4.65%

Mousetrap Annualized -41.16%
S&P Annualized -46.22%
Hedge Annualized -24.51%

Annualized Advantage 5.06%
Hedged Advantage 21.71%

The High Frequency Trading algorithms are clipping off day traders on both ends, and traditional technical analysis is being turned against itself. These algorithms know every move, pivot, stop limit, and trendline – and they are breaking these limits just before reversing. The day traders are low hanging fruit.

Most people cannot micromanage a bear market. They don’t have the skill or the nerves – nor even the time to constantly monitor the market.

Long only investors are being shown volatility that exceeds even 2008-2009, when using daily price ranges as the volatility measure rather than the VIX, and are constantly reminded of the possibility of a Euro implosion that would:

1) Create a deflationary collapse, coupled with
2) A currency crisis, and
3) Sovereign debt contagion, topped off with
4) Massive inflation once the deflation is done.

Since no one has a crystal ball, the glaring headlines in market op-eds are enough to make someone stuff his last remaining resources under his mattress and stock up on canned goods.

In reality, we’ll probably have at least a reasonable bear market, rather than a total system collapse. My own target is 970, with a recession, a Euro tarp, and eventual stag-flation. We’ve had the stagnation for a while, but we’ve been exporting the inflation all year. It WILL come our way. But first, a cyclical bear market (instead of Armageddon). It’s bad, it’s scary, but it probably isn’t the end of the world.

The beauty of a hedged position is that I don’t really have to be bothered with it.

GTAT remains the buy, with XLF as the hedged short position.

Tim

[Timothy Clontz]

Condition Bear Market
S&P Target 970
Hedge XLE 9.96% Closed
Hedge XLF -6.93%

Position Date Return Days Call
BKI 5/31/2011 5.16% 119 Hold
CFI 6/22/2011 -2.08% 97 Hold
SE 6/27/2011 -4.01% 92 Hold
AWR 7/5/2011 -3.64% 45 Closed
CLH 7/6/2011 1.01% 83 Hold
GCI 7/14/2011 -28.14% 75 Buy
AGO 8/5/2011 -9.28% 53 Hold
DISH 8/10/2011 26.15% 48 Hold
GTAT 9/8/2011 -29.85% 19 Hold
NA NA NA NA NA

Mousetrap Return -4.96%
S&P Return -7.88%
Hedged Return -2.27%

Mousetrap Annualized -25.86%
S&P Annualized -41.07%
Hedge Annualized -11.83%

Annualized Advantage 15.21%
Hedged Advantage 29.24%

Hedged position is back into the performance target range of 30%.

Since the model is hedged, not much is likely to happen for a few days. Since the market recently stopped out short traders, it will likely stop out long traders next before the anticipated rally. Europe is trying to kick the can down the road, but we’re already at the end of that road now.

It’s in the hands of politicians and high frequency traders.

Good luck to everyone.

Tim