Reply #1: Market WrapUp BY MARTIN GOLDBERG, CMT

[ozymandius]

Aggressive Portfolio Insurance

There is a strong case for positioning into some sort of market plunge protection as a hedge against downside risk. That insurance would be in addition to the risk protection that is provided us free of charge by the Fed. There are a number of conventional strategies involving options which may be used. But tonight, I’m going to propose a more aggressive approach. That is “insurance” by being short or owning puts in the stocks of lagging sectors. Of course, you should consider that in the markets, “more aggressive” generally implies more risk and this strategy is no exception.

With the Nasdaq making multi-year highs and many foreign indices at or near all time highs, and the major indices getting ready to do the same, it would probably be wise to be fearful while the crowd is being greedy. At the moment, there is not a technical reason to sell out of winning long positions. But one can make a good case for taking some bearish positions against the bullish sentiment that is apparent.

-cut-

Today’s Market

With the quarter of a point a done deal, the market sold off strongly today. Of particular note were the department stores featured above (drafted last night). Except for Macy’s, all were down between 4 and 6% today, some on heavy volume. Today was another distribution day for the Dow and NYSE which is significant according to Investors Business Daily’s method of characterizing the market as bullish (confirmed rally), or bearish (downtrend).

With most market indices trading at or near all time highs, a one day selloff is enough to make the fed “pump” $41 billion into the US financial system. I’m no expert; only a technical analyst, but this would not appear to be a healthy situation. With the US housing market in shambles, the elevated stock market is all the fed has to support a continuation of the wealth effect in the US. Without that, the economy and the market go into recession. With the infusions, may be the market and economy will still go into a recession.

http://www.financialsense.com/Market/wrapup.htm