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It's the Santa Claus rally, the S&P is at 900, and I'm ambiguously hedging my holiday cheer. On one hand, we're up 20% from our lows and could run to 1000 before major resistance. On the other hand, we're already up 20% from our lows and I seriously doubt that this is anything more than a bear market Santa Claus oversold looking-for-a-sucker rally. Here's a 3-month chart with some key levels to remember (click chart to enlarge):
As you can see, we're in between the lows (741) and the highs (1007), and nearing the 50-day moving average (930). Hence, my ambiguity. Right now, we're in the middle.
 I'm bearish and grinch-ish, and eager to go short. I want to throw out my longs, tie antlers to a dog, and steal the joy from Cindy Lou Who.
However, wise traders know you need to trade the tape you have, not the one you want. The tape we have is one that is going higher in the face of high unemployment and disaster in Detroit (both the automakers and the 0-13 Lions).
So, I've got a smattering of longs. The two best so far have been the utterly beaten Ultra Oil & Gas ETF (DIG) and the "I'm gonna buy my kids a present even though I'm underwater on my house" play, Nintendo (NTDOY). Toss in some steady-as-she-goes biotech, and I'm looking at something resembling a portfolio.
But even Santa needs a hedge. Today I started very small positions in the Ultra Short Real Estate (SRS) and Ultra Short Financials (SKF), both of which are within shouting distance of their 52-week lows, despite making 52-week highs only 11 trading days ago. They have red noses so far, but will come in handy if the weather gets foggy. Look at the 3-month chart below, as a reminder why you can't buy and hold anything, even a short, in a bear market. Wow!
Disclosures: Long DIG, NTDOY, SRS, SKF
See more at www.thestocksurfer.blogspot.com
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