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The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
ETF Expert) -- Holy Macaroni! For those who limited themselves to lamenting the 1% Cinco De Mayo losses on the
Dow, they missed a stunning beat-down in the commodities universe.
It’s not that it was entirely unexpected. Some may have read my
commentary one week ago to the day when I offered the following:
“That said, traders should begin to consider a near-term possibility of shorting silver via ProShares UltraShort Silver (ZSL). The historical ratio between silver and gold prices has contracted to 33:1 from 90:1 in about 6 months time.What's more, even with the Fed's policy, markets tend to anticipate change before it happens; that is, in the very near-term, the dollar will get a bit of a bounce and silver will take a bit of beating.”
Had you bought ZSL at the open on Thursday, April 28, and closed the position out at waning moments of Wednesday, May 5, you’d have achieved 80% in one week. Am I bragging? Maybe a little. Yet the truth is, it was only a quick trade on a quick hunch; I avoid this type of speculative activity in the active management of portfolios.
What I have done and what I will do… I reduce exposure via stop-limit loss orders to areas of the market that fall too far from their highs. In other words, I seek to ensure a large-gain, small gain, or small loss on every portfolio holding. Prior to the commodity killing, I took profits on
SPDR Oil Services(XES). And today, in some circumstances, I needed to reduce exposure to
iPath DJ Total Commodities(DJP), even at a small gain or small loss.
That does not mean I won’t revisit these very investments in the near future. In fact, the long-term prognosis for total commodity investing is very strong. Yet there’s no telling how long the dollar will strengthen or how long the commodity trade itself will unwind. For that reason, I will continue to evaluate an appropriate entry back into commodities based on price movement as well as supply vs. demand.
Here’s the May 5 ugliness in table form:
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