Surprise, Surprise

I’ve got myself in quite a pickle here.

To begin, I accurately felt the “changing of the tides” a few weeks back, noting that the bulls were starting to so strength. Accordingly, I profited from the rally, though not nearly as much as I should have. Forgive me for proper risk management, as I was quick to lock in an 8% aggregate book move. Since then, the bulls have been relentless and I’ve yet to find a proper time to hop back in. Moreover, I’ve got myself trapped in some inverse ETF’s, with positions bigger than 100% normal size in both TZA and SKF. Skillfully (as opposed to luckily), the book is still 55% cash, and shielded from major P/L swings. What’s better is that the recent move in the equities I own long, especially the oversized GSVC position, have offset the losses in these terrible leveraged instruments and I still remain +7% since Sep 1. Surprise, surprise.

Going into this week, I am 125% into TZA & SKF, 30% CRM, 20% MET and 20% JNS short. On the long side, I have 15% of assets in GSVC which I will need to reduce now that it has grown to be such a huge position thanks to the recent run from $12-$13 a share. Additionally, I own GLD, GDX, RGLD & AGQ, which at a cost basis of ~$72 a share, is quite close to recapturing all losses and allowing me to switch to SLV (to accompany GLD).

My feeling on the markets is such: With the Europe problem temporarily shelved in the eyes of equity guys (as opposed to bond guys), I can certainly picture a year end romp coming. Throw in some underinvested manager salt, some fantastic earnings reports pepper, with a pinch of short covering and we could be back at yearly highs in no time. Seems like it would make a great story ending for 2011, too. For that reason, my #1 priority is getting money long this market. My problem is buying into this 20% SPY run in less than a month. And, I have these shitty leveraged ETF’s on my books that need to get disposed of immediately. My plan for them is as follows: the first week of the month has been notoriously bad in 2011. I will not hold TZA or SKF past Friday. In fact, I will sell both Friday at the close, when we break above the recent high, or when we retag 1274; whichever scenario happens first. In summary, I want to sell out of TZA/SKF and make purchases, but only when the time is right. I’d like to be long this market into November & December and right now I am leaning short with a huge cash position.

However, I do not believe that negative headwinds have passed us just yet, and I am more than willing to start some short swing positions here. They will be slow & steady.