Friday, June 27, 2008

Ultrashort Real Estate - SRS update.

Reader m posted a question on the ultrashort real estate ticker SRS. As you know I am long the SRS and prefer using trailing stops as to timing the top with a straight sell, realising that markets can rise or fall much further than we ever expect.

That being said I do use targets as a compass for where we may be headed. The SRS (chart above) shows a nice bull wedge that we broke out of a few weeks ago. The widest part of the wedge is worth about $53.5 pts. Given the break out occurred at roughly 87 this would give us an approximate target of $140.50. (87 +53.5)

I hope this helps and if it sounds and looks simple, it is. Which is why I like it.

Hat tip to Mike Panzner over at Financial Armageddon who brought the following article to my attention. Mike's site, which is carries the same name as his best selling book, is must reading as he covers all angles of the markets and is a savvy market veteran. Regarding his book, if you haven't read it, please do as it is comforting knowing there were some who clearly saw the current debacle coming. Reading it know would seems almost like an event by event account of current market goings on. I cannot recommend it highly enough.

The article entitled Suit Claims UBS Misled Investors, is written by Gretchen Morgenson formerly of Wealth magazine and now at the NY Times talks about the auction rate securities market and how UBS foisted the crap onto unsuspecting clients. Please read it as it will make you re-consider your faith in Wall St. recommendations. But hey, I am just a sarcastic, miserable cynic.

Housekeeping notes;

I was filled another unit long of Currencyshares Swiss Franc ticker FXF at $98.30 leaving me with 3 units long.

Good speculating to you all and always remember that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 6 units Currencyshares Japanese Yen ticker FXY @ $88.55 stop at $91.40
Long 3 units Ultrashort Dow DXD@ $50.12 stops $62.22/60.49/58.62
Long 2 units Ultrashort Financials SKF @ $103.90 stops $139.46/134.67
Long 3 units Currencyshares Swiss Franc ticker FXF @ $97.35 stop at $93.82
Long 3 units Ultrashort ReEstate ticker SRS @ $88.95 stops $99.23/97.47/92.72
Long 1 unit US Gasoline Fund ticker UGA @ $60.35 stop at $62.54
Long 1 unit Ultrashort QQQ ticker QID @ $37.05 stop at $41.91
Long 1 unit Ultrashort S&P ticker SDS @ $57.20 stop $61.57
Long 2 units Hecla Mining ticker HL @ $8.50 stop at $7.16
Long 2 units Kinross Gold ticker KGC @ $18.93 stop at $17.56
Long 1 unit Market Vector Coal ticker KOL @ $55.70 stop at $52.27
Long 1 unit Contango Oil ticker MCF @ $94.00 stop at $90.07
Short 1 units Daimler AG ticker DAI @ $86.20 stop at $70.12
Short 2 units Brinker Int'al ticker EAT @ $20.07 stop at $20.68
Short 2 units Darden ticker DRI @ $36.35 stops at $35.36
Short 2 units Lehman ticker LEH @ $43.70 stop at $28.32
Short 2 units Deutsche Bank ticker DB @ $117.03 stops at $105.26/99.32
Short 1 unit of Visa ticker V @ $86.25 stop at $85.36
Short 1 unit HSBC ticker HBC @ $83.23 stop at $83.52
Short 2 units of Netflix ticker NFLX @ $30.35 stop at $32.34
Short 1 unit of IBM ticker IBM @ $122.80 stop at $127.27


m said...

The problem I have with SRS's chart is that normal technical analysis might not be applicable, as SRS tracks double the daily inverse of the IYR, instead of double the monthly or yearly performance of the IYR. For example, the last time IYR was this low, SRS was at 130+. Now it's at 104. Apparently a long, drawn out fall in the IYR is much, much better for SRS than a quick drop.

I read this post on yahoo which was helpful and explanatory:

"(1) A 5% dividend gets paid out to IYR holders and therefore 10% dividends must be deducted from the value of SRS. (Otherwise you could buy X shares of SRS and 2X shares of IYR, be market neutral, and collect the IYR dividend for free.)

(2) There is a mathematical value decay that occurs on retracements. There is also a mathematical compounding value add that occurs on sequential moves in the same direction. However, the mathematical retracement decay is a higher order formula than the compounding formula. So, over time the retracement decay will win out, particularly if there is more volitility (like going to 150 and back) and less trend. Here is a more complete explanation:

Harleydog said...

I have no doubt the work you posted is spot on. It is very detailed. For me as long as SRS is going up and IYR making lowere highs and lower lows I shall stick with it. Sometimes it is that simple. Remember also that the leverage in the commercial real estate arena is as large if not larger than the residential debacle coming to that. Case in point Harry Maclowe and company.

Anonymous said...

I have been long SRS and have observed that the opposite of SRS, which is URE, and I did a 6 month chart of both of them, and they BOTH lost money. Once again, Wall Street picks your pocket.