Monday, July 28, 2008

Common wisdom suggest ....

That you should PILE ON the momo of the day, which could be rotating from basic/commodity related into pharma-care/biotech. AMGN and JNJs of the world.

You should do it quick, both the entry (AND the EXIT sign out of commodity) might be shut permanently.


ARAK said...

Are you saying the one should get short on commodities here or get short on biotech/pharma? Or get short commodities and long bio/pharma?

MTGSPY said...

at least short commodities :)

ARAK said...

The usual suspects? POT, MOS, USO and SMN or do you think there are others that could move better and faster in the downward direction?

MTGSPY said...

i was long SMN and switched to short UYM.

ARAK said...

Is shorting UYM the right idea? Over the past year it seems that UYM has been stuck in a trading range of 110 to 80 most of the time. Given how much the commodities went up, it is quite odd how UYM remained in a trading range.

Would choosing options/shorting individual commodities stocks be a better idea from a risk/return perspective?

Looking at the UYM constituents, it looks there are some defensive stocks in the list that will prevent a serious decline like the one we'd like. Check out

MTGSPY said...

UYM is 2x IYM daily return
SMN is -2x IYM daily return

the biggest components of IYM are


and quasi member POT and FSLR whose movement drove sentiment in these agri/oil plays despite not part of IYM.

U need to see for yourself that agri is inflated many times than oil over the past 12 months by checking at their prices.

Why were they pumped sky high?

Traditional "early recovery", "shallow recession" and "Japan/Chinese decoupling people". And hedgefunds who sucked the retails blood dry while using the conviction of the fanatics to drive the crowd.

MTGSPY said...

Btw, all ultrafunds have negative alpha. Use that fact to your advantage.

ARAK said...

Yep, that is what I was betting on ... eventually all 2x funds trend to zero as time trends to infinity.

Crap, UYM has no options. Looks like I better convert my account to margin immediately.