This Rally Is Devastating my Brokerage Account

Latest Newsweek cover heralding the end of the recession—or not.

Dude, this months-long rally since March is taking a toll on freaking brokerage account.

As I mentioned in my last post, I was recently stopped out of my position in SH, an inverse ETF that rises when the S&P declines and vice-versa, for a sizable 10% loss.

Most of my funds are out of the market in cash at this point. I still have one money losing investment: a long-dated put option on the IYR, an ETF that tracks the real estate market. (We’ll talk about the advantages of naked, “long-dated” or long-term leap options in a different post.)

At the moment, I have an unrealized loss of 66% on this option. I bought $1,900 worth and now am down to about $700. The thinking behind this investment was that commercial real estate would also implode, foreclosures would rise even more, etc., etc. and the real estate market would continue to tank.

Now it is unclear when or if this will happen and I have to reevaluate my position. Man, do I suck at investing.

It seems that even the most intractable bears are now reevaluating their theses on where things in the stock market are heading. Newsweek seems to be heralding the end of the most difficult period of the recession while hinting that the “recovery” will also be difficult. Even dedicated bears like Martin Weiss, founder of the fiercly independent stock research company Weiss Research, has turned decidely less bearish.

In a recent video released to subscribers, he claims to equally bearish over the long-term but that the short-term may present traditional “long” profit opportunities. “Going long” means that one makes an investment in a position that is expected to rise. In contrast, “going short” means taking a position in a vehicle that is expected to decline.

I am not so sure but with perennial bears going bullish all-of-the-sudden to me it seems like a contrarian indicator. I don’t think we are out of the woods yet. But it does mean that we should reflect on whether to stay out of the market or not. We’ll have to continue to gage the inflation-deflation debate in order to decide.

At the moment, there remains a huge downside risk in the market. It is better not to “panic buy” for fear of missing further rises in stocks. This market has risen on relatively low volume, which means that there is not a lot of conviction out there and, perhaps, large banks are manipulating prices.

Tread cautiously.