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Tuesday, May 25, 2010

Fear is Abating ...

.... for now. In fact, my thoughts in regards the following entry has to do with my thoughts regarding the next 10 to 15 trading sessions. So don't take any of this as a 'macro modeling' theme or anything. :)

The VIX (Called the volatility or "Fear" index) continued to fall today, and the VXX (tracks the VIX) fell almost straight out of the gate, from the open onwards. In fact, I saw someone shorting the VXX today. All I could think was ... wow. That takes some stones. It's one thing to go long a dividend bearing bearing stock inside of fear, that I know will compound my returns down the road. It's something else altogether to short it altogether. It's not often I'm impressed in the capital markets ... but that impressed me.

As I mentioned on the Facebook page today ...

"I continue to hold my long term dividend bearing stocks. I'm expecting a 'relief rally' any day now. But at the same time? I believe in "investor insurance". So I'm also a holder of SPY puts as a hedge ... just in case "the wheels come off the cart" so to speak ... I'll be protected. Obviously the Challenge Project accounts can't handle hedges of that sort at this stage in the game. So next quarter will be about focusing on the "investing sister" account once again, for those sub-accounts."

Now overall? It sounds like a great plan. We'll either rally, and I'd only have sacrificed less than 10% of the gains of such a rally on an insurance policy that will last 51 more trading sessions. If we plummet further, then I'm covered.

But it doesn't mean that on days like today ... well ... that it isn't a bit painful. The hedge works out ineffective, since we rallied from the open, and all of my dividend bearing stocks are still down.

I wanted to share a bit of the 'pain' of the business today ... because too often ones only share the successes. It's great that the model portfolio of "Airelon's Market Tactics" is up around 56% or so. It's great that this plan sounds so intelligent. But it doesn't mean that I won't face a bit of consternation on days where the market whipsaws my plan, and my dividend investing portfolio gets kicked in the teeth right after I averaged down.

One bright spot today (and I'll go ahead and say it, since I've taken most of the profit off the table) was that I was long Sugar #11, along with subscribers of the newsletter. Yes ... it was sweet.


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Note: This is not an investment or trading recommendation. The losses in trading can be very real, and depending on the investment vehicle, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. But I do have 14 years of experience in trading and investing in these markets. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.


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