This column originally appeared on Real Money Pro at 8:35 a.m. EDT on Oct. 11.
NEW YORK ( Real Money) -- Yesterday I covered all my index hedges and moved back to a 5%-10% net long exposure.
Though this is still quite a defensive posture, it follows a period during which I carried a net short position for a while.
It is important to recognize that I am not a perma-bear nor am I a Cassandra.There are many ways to skin the market's cat. Tactical and opportunistic moves are necessary reagents to delivering superior investment returns. Indeed, given the backdrop I see into year-end, trading will be on my front burner, and investing will be demoted to the back burner. So, get ready for more frequent trading (vs. investing) commentary. I covered my hedges yesterday for several reasons:
- Yesterday was the fourth day of market losses in a row.
- Sentiment has turned decidedly negative. Many of those who were optimistic at the market top earlier this month have turned pessimistic. AAII bears are now at 38.8% vs. 33.2% last week, for the highest reading since mid to late July. AAII bulls are at only 30.6% vs. 33.9% last week, which is the lowest level since August. I expect that many who were bullish at the highs will be bearish in the period ahead. I don't want to be a member of their club.
- Most importantly, several equities have fallen in price and entered my buy point levels -- for example, Yahoo! (YHOO - Get Report), Bristol-Myers Squibb (BMY), Sourcefire (FIRE) and Fusion-io (FIO). Even during corrections, selected stocks can perform well.
- Technology: Jim Cramer did an exquisite analysis of the weakening outlook for this sector yesterday afternoon. Among other issues, tech is transitioning from open to closed systems such as Apple (AAPL - Get Report) in secular move away from personal computers, AT&T (T - Get Report) and Verizon's (VZ - Get Report) networks have been built out, the weakening of global economies is hurting consumer spending for tech gadgets, and the move to the cloud is disruptive to technology sales.
- Cyclicals: The sector is exposed to a global slowdown, especially in China and Europe.
- Financials: These stocks are extended.
- Rate-sensitive (utilities, etc.): Names in this space are exposed to the inevitability of higher interest rates.
- Staples: These stocks are generally fully valued after a big run.
- Transports: Sector share prices have broken down.