Summer Contrarian Close-Out

NEW YORK (TheStreet) -- In May, I put together 10 contrarian ideas, and updates were published in June and in July . In the July review, the portfolio was up 4.01%. Since then, following my contrarian leads has lost much of that gain and its return is now 1.79%. The dog days of summer treated me like a dog.

Short Gold

The vehicle suggested was the Ultrashort Gold ProShares (GLL) exchange-traded fund. As of the July 14 update, the position was ahead by 5.7%. Gold has rallied for the rest of the summer and the position was stopped out for no gain on July 20.

Buy Corporate Bonds

The iShares iBoxx Investment Grade Corporate Bond (LQD) ETF was used for this position. LQD advanced in a very well-defined channel through the end of July. On July 14, a $2 trailing stop loss was instituted. The stop was triggered on Aug. 6, for a 7.73% gain. The following chart shows the stop loss in the context of price action before and after the sale.

LQD Source: StockCharts.com

This is a classic example of the problem of using trailing stop losses in a strongly trending market. There was a sharp spike in price in early August, followed by a typical correction which triggered the trailing stop. Of course, this type of unusually large spike also can occur at a market top. If that had been the case, we would be congratulating ourselves for "catching the top."

In hindsight, a better strategy would have been to use fixed stops, placed whenever an advance occurred from a price pullback. Examples of such stops are shown with solid blue lines. Entry points for each stop are indicated with blue arrows, when a daily close was 1.5% higher than the intraday low of the dip. This strategy would have an advance for the position at the market close on Sept. 11 of 11.59%, with the stop loss protecting an advance of 9.31%, both including dividends.