17 July 2008

While I Was Away...

Just as I step away from the blog for a few weeks, the market plummets, the VIX crosses 30, and I start getting comments and questions about UYG.

I am riding out this bear-market rally with holdings in DDM and UYG. I built a position in UYG over the last couple of weeks at prices ranging from $17.90 to $23.75, for a cost basis of $21.81. I got to the party a bit on the early side, before Freddie and Fannie crashed the festivities and IndyMac upper decked the loo.

In the near-term, I'm looking to exit UYG as it approaches its 50-day moving average, currently at $25.43. (See chart below.) With MER's huge miss after the market's close today, I would be surprised if the upward trajectory continued without interruption tomorrow, but we have C reporting in the morning, so we'll see.

Notice the tremendous volume in UYG shares as it bottomed out at $14-and-change. That seems a good sign for the quick jump back to $20, aided by incredibly oversold conditions, our quasi-socialist government propping up the FM's, and JPM's less-sucky earnings.

Looking at the Dow (further below), I will strongly consider lightening up my long position if the Dow approaches its 50-day moving average, conveniently just above the 12K-mark.

Finally, a reader asked about the composition of UYG. Here's a link to its current top-10 holdings, and a link to its complete and lengthy list of holdings.

For more on the financials, I found this piece and this piece well worth reading.

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