Bookkeeping: Starting Ultra Financial (UYG)

Impressive bounce off that 1260 level on the S&P. Like a magnet the market bounced to S&P 1275.... (thanks PPT) and away we go to 1280s. Reader Shax is happy and smug somewhere in Asia with his 100% long exposure. I just cannot see a break through that 1260 on the first attempt with all the King's Horses and all the King's Men here to socialize the market, all over again. They have charts too and realize how important this level is. It's going to take repeated attempts I believe, to break through their purchasing power.

Frankly at this point we have 2 outcomes (a) crash i.e. a 10% drop in the markets (June) followed by even more rampant selling layered on top or (b) an oversold bounce.

I wrote last week I was done for now with Ultrashort Financial (SKF) as the risk/reward started pushing towards risk (of reversal). [Jun 26: Cutting Ultrashort Financial to Nearly 0] And I still believe that, short of a crash scenario. I did not catch the top as we sold the last piece at $146 and today we're at $155 - that's ok, we probably were buying it when everyone believed the "2nd half recovery" story and it was trading in the $90s.

I also wrote in that piece

For a short term trade only (I reserve up to about 10% of the fund for shorter term actions) I'm eying Ultra (long) Financial (UYG) - but not yet.

At the time UYG was north of $22 and now its near $20. So I'm going to take a gander into this one and begin a stake here just north of that $20. This will obviously be a trade and not long term hold, but perhaps we can get a $23-$24 range if we get a VERY overdue oversold rally. Or at the very least that rotation from best of breed to junk that happens every 6-10 weeks. We are also VERY overdue in that department - granted it is hard to buy items simply on "they are due to have shorts cover their positions" and that's all this trade really is. This is the proverbial falling knife with zero support but I actually believe the risk/reward is more on my side - at this point I am not sure who is left to sell financials... and when they bounce there will be a lot of short covering to help them along. Ultra Financial (UYG) is a 3.7% stake.

We'll switch back to SKF exposure on any meaningful bounce....

Again a "crash" would make any long position moot, but that's an outlier probability - not something to count on, so hard to build a portfolio based on an assumption something that happens every 15-20 years is going to happen this or next week. But I do think Thursday's unemployment report will push us strongly either up or down - so we'll either have a potential crack through that support we've been bouncing along the past few days or our oversold bounce...

Long Ultra Financial, Ultrashort Finanical in fund; long Ultra Financial in personal account