First, we need to address gold. In September, I recommended SPDR Gold Trust ETF (GLD 109.44, +2.13, +1.99%) , ProShares Ultra Gold ETF (UGL 44.68, 0.00, 0.00%) , and PowerShares DB Gold Index Fund (DGL 39.22, 0.00, 0.00%) .
In early December, we sold gold. Below is a report that went out to clients, and it explains my recommendation to sell gold, and more. You should read it immediately if you are still hanging on. It has everything to do with dollar stabilization, and it is directly tied to the $1.2 trillion buyback program that is now exhausted. The carry trade is over; we were seeing it unwind in mid-December. By early January, it will be nonexistent.
In the next handful of months, I expect the dollar to remain relatively stable. I believe gold will be out of favor, and I am preparing for a strong short bias. In January, we should all short the market. In fact, my clients have already begun.
In my September MarketWatch article, I also referenced my interest in buying ProShares UltraShort 20+ Year Treasury ETF (TBT 49.88, 0.00, 0.00%) . We are still holding that. We are also holding ProShares UltraShort Financials (SKF 24.23, 0.00, 0.00%) , because I believe shorting financials is a good place to be, for many reasons.
We added SKF in December, and I will be adding two more short positions soon. I will have four positions in total, with equal dollar amounts in each. This is the same method we used in February and March, but those were long not short; reference my MarketWatch columns for performance.
My interest is in double weighted short ETFs like ProShares UltraShort Russell 2000 ETF (TWM 25.19, 0.00, 0.00%) , ProShares UltraShort Dow 30 (DXD 29.47, 0.00, 0.00%) , ProShares Ultra QQQ (QLD 60.50, +1.02, +1.72%) , ProShares UltraShort MidCap 400 (MZZ 22.06, -0.05, -0.23%) , ProShares UltraShort Real Estate (SRS 7.50, 0.00, 0.00%) , or similar.
The market will tell me when to do this and what to choose, so I will be watching closely, but I expect to move in January. I consider the TBT and SKF positions we have already to be relatively balanced, because TBT can work even if the market goes up.
However, when I receive my short signals from the market, I will be heavily weighted on the short side. I expect increases in 2010, but not market increases. I expect these increases instead:
I expect the market to decline eventually. As 2010 comes to an end, I expect that to get serious too. Until then, we may have 10% undulations from the market from time to time. In January, I expect a short opportunity, and we plan to scalp those positions when we have solid gains, then reverse long for a short while, and back again, when it is time. That will be the theme for the first half of the year, I expect, and then serious declines will come.
If we are proactive, and that means releasing the buy and hold mentality and transition with the market instead of being at the mercy of it, we will be able to prosper in 2010. Our swing trading and position trading strategies worked well in 2007, 2008, 2009, and they can work well in 2010.
By Thomas Kee is the author of "Buy and Hold is Dead."