Tuesday’s close finally ended the short position on the SPY, which was in place since Jan 8th. With a multi-year record upside performance on the SPY, this position was obviously a huge loss – down 3.5%, 5.2% with leverage.
The SPY strategy ended January at about 0, hardly a success compared with a huge gain on the S&P 500. Still, it was a good January – the last three Januaries the strategy recorded about 5% loss each! My gut feeling is that a strong second half of December (QE setting in?) followed by a strong January is taking a toll on this (and probably other) contrarian strategy.
This pattern got me thinking that a lose stop loss may be able to keep most of the gains while reducing the pull-backs. Haven’t had positive experience with stop losses in the past, so I am still pondering what to try. Any ideas?