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), 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) in secular move away from personal computers, AT&T (T) and Verizon's (VZ) 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.
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