Autumn's Contrarian Ideas: Second Update

The position in UltraShort Financials ProShares (SKF) was stopped out on Oct. 8 for a 2.1% loss.

Idea No. 6 - Sell Municipals

After a one-year run up from less than $90 to an intraday high near $106, iShares S&P National Municipal Bond(MUB) has pulled back giving us more than 2% gain, even after we paid a dividend of 31 cents. The trailing buy stop order is now at $103.89, well below our short sale price of $105.44.

Idea No. 7 -- Sell the S&P 500

The position in UltraShort S&P500 ProShares(SDS) was stopped out on Oct. 12 for a 3.4% loss.

Idea No. 8 -- Sell Oil

The position in UltraShort Oil & Gas ProShares(DUG) was closed with the execution of the stop loss order on Oct. 6 for a loss of 4.4%. Following the strategic plan, a position was opened immediately in Ultra Oil & Gas ProShares(DIG) to go long oil. The tracking chart uses the closing price on Oct. 6 as the purchase price. So far the position is up almost 17%. The following chart shows pertinent details about the new position.

ProShares Ultra Oil and Gas Source: Stockcharts.com

The 10% trailing stop loss puts the current stop loss right in the middle of the recent trading band. If the price goes to the top of the trading band the stop loss will move up to about $36. We will continue the strategy of reversing to buy DUG on the same day if DIG is stopped out.

We note that the trading volume for DIG has been quite stable at relatively low levels compared with the volumes in July. This has been an orderly market recently.

The portfolio has gained more than 3% in the first three weeks, with six of nine positions still open. The status as of the market close on Oct. 16 is summarized in the following table, including updated stop loss information. The next report will be published in about two weeks.

Contrarian Portfolio - Autumn 2009 Source: Stockcharts.com

-- Written by John Lounsbury in Clayton, N.C.

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