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Portfolio Update: Long Yen, Short Apple, More Gold Downside

Published 10/08/2014, 12:24 AM
Updated 07/09/2023, 06:31 AM

Here is a quick update of my portfolio and two new trades. First one is long Japanese Yen or short the USD/JPY exchange rate pair. The second one is short Apple Inc (NASDAQ:AAPL) shares. Let me quickly explain both, as well as comment on some other assets.

Chart 1: Japanese Yen might be in a pull back mode after a strong rally!

USD/JPY Daily

Source: Bar Chart (edited by Short Side of Long)

I entered a short on the US Dollar. That’s right, it is not a typing mistake… I’m actually attempting to short the US Dollar right now, unlike the whole “bloody” world (as we would say in Australia). As readers would recall, I tried buying the Yen during the middle of the year and walked away with a breakeven, as the currency broke down yet again.

My entry on the USD/JPY exchange pair is currently just above 109, with a tight stop at 110 (on closing basis). I’ve discussed the Yen in the recent September Sentiment Summary (here). Adding to the large number of short contracts, Yen’s various sentiment surveys are also at ridiculously low levels of optimism. Who knows… I will probably be wrong on this trade once again. Fighting central banks isn’t the smartest thing in the world and maybe Yen isn’t yet at a bottom, but as a wise man once taught me “when there’s a big short position in anything it often leads to a rally.”

Chart 2: Apple could be stalling here as it approached its old resistance

Apple Daily

Source: Bar Chart (edited by Short Side of Long)

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The other new trade I just opened is short Apple. I’m not as impressed with this company as I once was during my university days. Without Steve Jobs, this company seems to be struggling creatively. Obviously it doesn’t really matter what I think, but I travel quite frequently and have noticed many Apple fans thinking the same way as I do now. I won’t go into it again, because I wrote an article on this company just a couple of days ago.

Basically, the bottom line is that I’ve shorted Apple just above $100, with a tight stop loss at $102 (on closing basis). Right now Apple is still hanging in there, as it respects its support level (refer to Chart 2). However, I’m anticipating a possible drop and if the important price level was to break in coming days, I might add even more shorts. This is highly volatile stock that can move fast in both bullish and bearish direction, so caution and risk management is advised. Could it close the gap towards $74? Maybe… but I bet no one on Wall Street thinks it could.

Chart 3: Gold has found support, but I believe more downside is coming

Gold Daily 

Source: Bar Chart (edited by Short Side of Long)

Gold isn’t a new trade, but I constantly get questions about it. I have been shorting Precious Metals since early July, when Gold traded at $1310 and Silver at $21. My large long term Silver investment is fully hedged and I continue to hold naked short Gold positions (giving me an overall net short bias). Despite negative sentiment on the metal, I am not changing my mind on further downside, but I do want to repeat that I am extremely bullish on Gold and Silver in the long term.

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From the near term perspective, the US Dollar is overbought so maybe Yen and Gold (as well as other foreign currencies) could rebound. This is especially true for Gold, which has just successfully tested its important support level around $1,185 per ounce. However, I do not think we are forming a base for a new bull market. Instead, I would be interested in adding more shorts against the yellow metal if it rallies towards $1,240 to $1,250 per ounce, as I am anticipating a breakdown in a similar fashion to Silver recent weeks.

Chart 4: US small caps are acting weak as of late and could break down!

Russell 2000 Daily 

Source: Bar Chart (edited by Short Side of Long)

My last trade to discuss is the US small cap sector. I first talked about this trade during minimal updates on the South Korean part of my recent trip. At the time, we saw a major price reversal for the Russell 2000 and I entered a very leveraged short position, with a tight stop. Conditions could be described as an extremely low level of bearish sentiment / high complacency, incredibly outrages valuations on small caps, deteriorating financial conditions / rising credit spreads and worsening breadth / internals within the index.

So far that mix seems to be proving out like a lethal cocktail, as small caps continue to act weak and might be close to breaking down below an extremely important support zone. All of this is most likely linked to a change in Federal Reserve policy, where QE is ending. As excess liquidity is removed, lower quality assets seem to be on struggle street. At the same time, the FOMC is talking about projections for possible interest rate hikes in the middle of 2015 and I think that has some of the market participants worried even more.

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Other positions:

  • I still continue to hold large Australian Dollar shorts from November 2012, around $1.05, as well as the recent trade I’ve opened at just shy of $0.94 cents. The currency is becoming oversold and could rebound, however I believe further downside still exists here.
  • Global stock markets are correcting and the China / Russia combo remain on my radar for a buy. I own Russian small caps, which I purchased in early March during the Ukraine “blood on the streets” panic. The market has only gotten cheaper since then, both with a rising dividend yield and falling Price to Book. However, I continue to wait before opening new positions as I believe we could retest those March levels or even break lower temporarily creating a bearish trap.
  • The Uranium sector is now down 82% from its highs in early 2011 and heading for a forth annual loss in the row. I will continue an investment strategy different to trading presented above, where I keep buying small portions with dollar cost averaging technique on extremely oversold conditions, as others are panic liquidating. I believe this sector will eventually recover and post some impressive capital gains in years to come.

Latest comments

Good call on shorting Apple when it was $100! Any other genius calls you want to share?
Good call on shorting Apple when it was $100! Any other genius calls you want to share?
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