Tracking Winter's Contrarian Ideas

Here's how the winter contrarian portfolio has performed since its inception on Dec. 21. The top performer is the iShares MCSI Brazilian Index.
Publish date:



) -- I wanted to update readers on the performance of my

winter contrarian trading ideas

, which I published on Dec. 21.

I initiated a portfolio using those ideas and have opened seven of the eight proposed positions. So far, the portfolio has returned 1.10%. (

Editor's note: For comparison, the S&P 500 rose 0.88% from the market open on Dec. 21 to the close on Dec. 31.


On the following pages I discuss results for the specific ideas.

Idea No. 1: Buy Brazil

The biggest gainer in the portfolio is the

iShares MCSI Brazilian Index

(EWZ) - Get Report

, which is up 4.1%.

We bought after an 8% pullback and, so far, the purchase has proved to be well timed. In the chart above, I have noted some near-term possible decision points. A flag pattern appears close to resolution, and a possible direction change in MACD is near. Note that the last time the MACD had a strong move up to cross its moving average in early November, the down trend continued. We are positioned for a different MACD response this time (i.e., higher prices).

Idea No. 2: Buy China

There has been a gain of 2.0% in the

iShares FTSE/XinhuaChina 25 Index

(FXI) - Get Report

. We bought this position after FXI had declined more than 10% from mid-November, so this was another well-timed trade against the short-term trend. As noted in the chart above, the price and indicator trends are less bullish for FXI than they are for EWZ. This still looks like a contrarian bet because the chart indicates many signs that lower prices are possible.

If stopped out of FXI, we will immediately buy

ProShares UltraShort FTSE/Xinhua China 25 Index

(FXP) - Get Report

and limit risk with a 10% trailing stop-loss order.

Idea No. 3: Buy Gold

The anticipated short-term rally in gold has not yet materialized. The position in

SPDR Gold Shares

(GLD) - Get Report

has gained only 0.7%. We are still looking for a 5% to 10% short-term rally before gold again moves lower. If that doesn't materialize and we are stopped out, the position faces a loss of 3%. If stopped out, we will immediately buy

ProShares UltraShort Gold

(GLL) - Get Report

and place a 10% trailing stop-loss order.

Idea No. 4: Buy Silver

The portfolio's only losing position is the

iShares Silver Trust

(SLV) - Get Report

, which is down 1.6%. The stop-loss control on this position is being switched to a 5% trailing stop loss on SLV. Until now we have used the GLD stop-loss trigger for SLV. If sold on the new stop-loss trigger, the loss will be 3.3%. If the stop loss is triggered, a position will be opened immediately in GLL and we will place a 10% trailing stop-loss order.

Idea No. 5: Sell Oil

Oil has traded in a fairly narrow range for the past two months. The chart for

Proshares UltraShort Oil and Gas

(DUG) - Get Report

reflects this. The chart is largely bearish (bullish for oil), but there are a few signs that change might be imminent: (1) A triangle should be resolved in January; (2) The 50-day moving average is starting to turn up; and (3) Volume has been extremely low and has been decreasing during the December decline in DUG.

DUG is almost even, with a gain of 0.2%. If the trailing stop loss is triggered, a loss of 7.7% will be realized. If the stop loss is triggered, a position in

ProShares Ultra Oil and Gas

(DIG) - Get Report

will be opened. A 10% trailing stop-loss order will be maintained if DIG is purchased.

Idea No. 6: Sell Treasuries

The limit buy price on

UltraShort 20+ Year Treasury ProShares

(TBT) - Get Report

has not been hit. The buy limit $47 order is being maintained.

Idea No. 7: Sell the S&P 500


ProShares UltraShort S&P 500

(SDS) - Get Report

position is exactly even (0.0%). If the 5% trailing stop-loss order is triggered, the loss will be 4.6%. If stopped out, we will immediately buy

ProShares Ultra S&P 500

(SSO) - Get Report

and place a trailing 5% stop-loss order.

Idea No. 8: Buy the Nasdaq-100

This position in

ProShares Ultra QQQ

(QLD) - Get Report

is the second-best performer in the portfolio so far, with a gain of 3.4%. If the trailing stop loss is triggered without further advance the position will gain 0.5%. If stopped out, we will immediately buy

ProShares UltraShort QQQ

(QID) - Get Report

and place a trailing 5% stop-loss order.

Portfolio Summary

I'll next update the portfolio by Tuesday, Jan. 19.

Disclaimer: These portfolios are not intended to be used as investment advice. Suitability of any investments discussed is an individual determination and professional advice should be sought. The author intends that his process for selecting and monitoring these portfolios may serve to illustrate methods of investing and controlling risk that might be instructive but may not be suitable in specific detail for many individuals.

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

The author may trade any of the positions mentioned at any time and may do so in a manner that doesn't follow the published portfolio strategies.

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,