Market Outlook

The futures above show that if we hold these levels at the open, we should open about 1% lower on the s&p and also the rest of the indices.

With 3rd quarter full in swing, the game has changed from aggressive offense to strategic defense. I will come out and say that I have never had a positive July! Everyone also complains about May being terrible but July has always been my worst month. Friday’s jobs number gave the shorts the ball, so the question is will dip buyers come in and take advantage of the lower price levels OR will the shorts begin to take us down further, as funds get skeptical of the economic recovery. I believe that short positions must be in a person’s portfolio now, due to the lack of strength in the market; however, time is everything. Honestly, it may be too late to short at these levels, so I need to see the tape tomorrow to see.

As for long/short exposure, I will remain net long and from time to time, switch to net short. For some newbies, let me clarify this terminology. Say I have a portfolio of $10,000. If I had $6,000 in “long” position and $4,000 of “short” positions, I am net long by 20%. If I change it to $6,000 “short” and $4,000 long, I am net short by 20%. I will develop forecasts of the markets over day periods, then allocate my positions pending upon my market thesis. Right now, I do not believe it is a good time to be “all-in” long, nor “all-in” short….just a small mix of both, with a bias maybe to the long side (for now).
Here are my favorite plays, both long and short:

Longs: BAC, GNK, GLW, EXM, energy sector (for a starter position), MSFT, and tech.
Shorts: ISRG, BIDU, AMZN, select solar and retail.

If you don’t have a margin account and cannot short, my favorite ultrashort is the TWM. Keep in mind these are NOT long-term investments because you WILL get crushed. I ONLY HOLD THEM FOR 2-5 DAYS MAX. It’s important to note this because people don’t understand them but truly these are levered day trading instruments on indexes. Regardless, I like to buy them as a hedge on my longs, in case the market tanks, these shares will rise in value and my losses are not as bad. I then sell them for a profit and see on the cash for a bit until the “longs” seek revenge and go up.

With this market decline, I might cover the rest of my shorts…875 is key support which is VERY strong, so if we break that, we are in big trouble.