STOCKS HIGHER ON LIGHT VOLUME – A SUGGESTED HEDGE STRATEGY
Posted on August 27, 2008 at 23:48 PM EDT
Today in the market, Wednesday, August 27, 2008 : Stocks rose Wednesday in a thinly traded and choppy session. An encouraging reading related to the manufacturing sector helped offset disappointment over the third straight gain in oil prices. The market indices ended up around +0.8%. Good day to offset the recent down days. Expect a very slow and light volume day tomorrow. ETF/CEF Medium Volatility: DBC - DB Commodities Tracking Index Fund > $40.00 GSG - Commodity iShares S&P/GSCI Index Fund >$64.00 IYM - Basic Matls iShares >$76.00 ETF/CEF High Volatility : DBE - PowerShares DB Multi-Sector Commodity Trust Energy Fund >$47.00 DBO - PowerShares DB Multi-Sector Commodity Trust Oil Fund >$47.00 USO - United States Oil Fund, LP >$98.50 ETF/CEF Catch a Falling Knife on the Road to Recovery (CFKRR): CGW - Claymore S&P Global Water Index ETF >$24.00 EWW - Mexico iShares >$55.00 IDU - Utilities iShares buy now IXN - iShares S&P Global Information Technology Sector >$59.00 IYZ - Telecom iShares >$24.30 PIQ - PowerShares Dynamic Magni Quant Sector Portfolio >$25.50 PSI - PowerShares Dynamic Semiconductors Portfolio >$16.40 VOX - Vanguard Telecommunication Services VIPERs >$63.00 XLU - Utilities Select Sector SPDR buy now XRO - Claymore/ZAcks Sector Rotation >$28.50 ETF/CEF Discussion: What an interesting kettle of fish we have today. This time they are all ETFs. The first two groups of ETFs begs the question…Are oil/energy prices going to rise and continue their upward trajectory? Or will higher energy prices continue to slow the world’s economy and cause energy prices to depress? RSI is answering yes to the first question and no to the second. You decide. Likewise for the CFKRR group. All these sectors are affected by energy prices and the global economy. They are bets on the economy getting better and energy prices abating. It is an interesting dichotomy and I have a solution. Place some of your money on the first group that benefits from higher energy prices and some of your money on the second group that benefits from the economy rebounding. Set 8% stops under you buy prices and the track how your hedge plays out. One position should do better than the second. There is the possibility energy and the world economy both suffer. Then you take your losses and move into other defensive positions. It is a viable strategy that is necessary in these uncertain times.