Here at Cheapest Stock Trading Strategies, I disclose how my model portfolio is actually doing, and will not mask any underperformance. I will post updates on winning trades as well as losing positions... trading will certainly be volatile, especially at these stages of the market (be afraid when results are too good and too consistent... I might be the next Madoff!!). My goal is to be as open with the model portfolio trades as possible, so we will all learn from each others experience. I don't pretend to be any guru. Readers are also invited to post their trades in the comments section.

After making some money on the short side (fleeting moment) my model portoflio was crushed on the back of a two-day close to 2%-3% rally on major indexes. The Goldman upgrade (they knew a lot of people were short didn't they?) and the surprise rate hike by the Australian central bank pulled the rug from under me. Well I am also admittedly the victim of my promotion of easy money from the Fed (providing all the liquidity to push asset prices up, bit me in the arse!). The problem clearly was that the portfolio was just starting (start date September 30, 2009), and I wasn't able to get enough long positions as most of the stocks in my focus list didn't have the proper technical setup at the time. Though my stocks are filtered by fundamentals/sector theme/megatrends, I only buy them on good technical setups.

Given the fact that I was seeing the market wavering when the portfolio started, I started putting in short bets without enough long positions to offset them if I was wrong. Well I could still be right and the market goes down from here, but I find it prudent to rebalance my portfolio and trim my short positions today while the market is quiet. This goes to show the fallout of having to bet too much on one extreme -- either heavily long or heavily short - and having the outcome in the opposite direction. My mistake, but I had to make a call. If I'm wrong I can afford the loss but if I was right I would've made a lot.

This just goes to show that you can't fight the Fed... too much cash in the sidelines (or should I say cash in bonds and excess banking reserves?) looking for higher yields out there. Thus any decline for the near future will indeed be very choppy, and we could see 3% swings the other way before the real move comes. I still have half of my short position left in JWN, half of long SDS and UUP calls. I'd look to add long positions only if the market pulls back from here, and reinstate some of my shorts if we rally closer to resistance. Right now, we are sort of in limbo, and I would not force long trades at these levels. A range trading strategy is still recommended. The model portfolio is down about 3% since inception.

Slow news day today as the market awaits AA earnings after the bell.