Volatility: SP500 Levels, Refreshed

12/07/11 11:16AM EST

POSITION: Long Healthcare (XLV), Short SPY

Since the SP500 is Bullish TRADE; Bearish TAIL, I like my setup. Healthcare has been one of our favorite Sectors since the beginning of the year and continues to beat beta.

We want to be proactively fading beta here on both sides of the market. 

  1. On up days towards long-term TAIL resistance (1270) = sell/short
  2. On down days towards immediate-term TRADE support (1231) = buy/cover 

Where this strategy goes a little haywire is when TRADE support (1231) becomes resistance. But rather than fighting that, embrace the uncertainty associated with it and manage your hedges (gross and/or net exposures) dynamically.

Your execution costs might go up, but the volatility of your portfolio will come down.

Having a plan for volatility is that the plan is going to change, across durations.


Keith R. McCullough
Chief Executive Officer

Volatility: SP500 Levels, Refreshed - SPX

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