NEW YORK (
) -- We are approximately halfway through the term of the autumn contrarian trading portfolio. The portfolio has a gain of 0.03% as of the market close of Oct. 30. This is a drop of more than 3% since the
. The bulk of the damage resulted from declines in natural gas prices and silver. We now have only three of the nine original positions open. We will be reopening one of the previously stopped positions on Monday.
Idea No. 1: Buy Natural Gas
The position in
U.S. Natural Gas
was sold per a stop-loss order at $10.39 on Oct. 28. The position lost 11.6%, the worst performance in the portfolio. We will watch this for a possible re-entry. For now, we are putting in a limit order to buy at $9.10 or less to try to catch a dip back to the lows of Sept. 3, if it should occur.
The other position under this idea was
First Trust ISE-Revere Natural Gas
, which also stopped out, with a 4.5% gain, on Oct. 28.
Idea No. 2: Buy North American Energy Production
Enerplus Resources Fund
for this position. This was stopped out on Oct. 30 (stop-loss order) for a gain of 1.2% since Sept. 25.
Idea No. 3: Buy Silver
Gold and silver have pulled back significantly in the past two weeks. Our position in
iShares Silver Trust
is holding just above our stop-loss order at $15.64. The gain since Sept. 25 is 2.1%. If this position is closed by hitting the stop loss, a position in
Ultrashort Gold ProShares
will be opened the same day.
Idea No. 4: Buy Corporate Bonds
This position was closed previously.
Idea No. 5: Short Financials
This position was closed previously. A new position in
Ultrashort Financials ProShares
will be opened on Monday, Nov. 2. A 10% trailing stop-loss order will be placed as soon as purchased. The following chart shows the marked three-month divergence between price trend and MACD. Currently there is support at the 50-day moving average (25.50) and the just exceeded resistance line at 26.30. Resistance is shown at the three recent peaks.
SKF (ProShares UltraShort Financials)
Idea No. 6: Sell Municipals
This position short
iShares S&P National Municipal Bond
continues to behave well, with a 2.3% gain since Sept. 25.
Idea No. 7: Sell the S&P 500
This position was closed previously.
Idea No. 8: Sell Oil
This idea has contributed well over half of the gains thus far. The original position in
Ultrashort Oil & Gas ProShares
was stopped out on Oct. 6, with a 4.4% loss. The reversal into
UltraLong Oil & Gas ProShares
produced a gain of 10% until stopped out on Oct. 26. The four days since have seen the reversal back to DUG produce a gain of 13.3%. We will continue to follow the strategy of buying the reversal position whenever stopped out.
In the following price chart, we see there were four gaps in the price rise in oil (decline in DUG) in October. Two of those have been filled to date. The current trailing stop is well below the support level defined by the highest gap filled.
DUG (ProShares UltraShort Oil & Gas)
The trading in FCG, ERF, DIG and DUG has far more than offset the loss in UNG. The reason for the near-zero return on the portfolio is primarily the timing of the short stock positions (SKF and
UltraShort S&P500 ProShares
The correction anticipated at the end of September did not occur and we were stopped out as the market rise continued. There appears to be some sort of correction under way now. We will re-enter one of these positions (SKF) on Nov. 2. If the market correction continues, we expect that financials will lead the market down. The status of the portfolio is summarized on the following table.
Status of the 2009 Autumn Contrarian Portfolio
The next update will published on Nov. 16.
-- Written by John Lounsbury in Clayton, N.C.
At the time of publication, Lounsbury was long SKF, DUG and SLV.
John B. Lounsbury is a financial planner and investment adviser, providing comprehensive financial planning and investment advisory services to a select group of families on a fee-only basis. He worked for 34 years with IBM, and spent 25 years in R&D management and corporate staff positions. He also was a Series 6, 7, 63 licensed representative with a major insurance company brokerage for nine years.
Specific interests include political and economic history and investment strategy analysis. He holds degrees from the University of Vermont, Columbia University and the Illinois Institute of Technology, where he studied chemistry, physics and mathematics. He is a contributor to Seeking Alpha and his own blog,