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The point of hedging is to protect against unlikely, adverse outcomes. In general, you buy a stock because you think it’s going to go up; you hedge in case you are wrong. Sometimes an example from outside of investing can be useful to illustrate the principle. Here’s one from Saturday’s UFC 269 mixed martial arts event.
It makes me feel good to provide excellent ideas to my beloved Gold and Platinum members. First off, they are the ones who honor my hard work with their subscriptions. Second, the profits thrown off from good ideas will, in a tiny way, find their way back to me, because any economically rational member will keep their subscription going. So it’s a nice feeling.
I’m having one of those this morning thanks to this premium post from the 8th of December regarding EFA:
Well, the Tim-is-traveling effect clearly works, even if I travel on weekends. It just has a lag time.
Indeed, I should be ashamed of myself. And ashamed of my fear. What would Dr. Peterson say to me? Don’t be weak! Yet there I was, on the Southwest flight home, and I knew the futures market had opened. I’m a cheap sumbitch, so I hesitated to spend the $8 on Wifi, but I just couldn’t take it. I was eager to see what futures were doing. Probably getting wiped out, right? I sure hoped so! So I paid my eight bucks, fired up thinkorswim, and……….
SPX did the lower low I was expecting in my last post and found support at the rising support trendline from the March 2020 low, as I had suggested it might.
The strong rally since then is now within striking distance of a retest of the all time high, and if seen, the normal range for the next high of 3% to 4.5% above the 45dma, now at 4598, would now be in the 4736 to 4805 range. That is particularly interesting as that range includes the retest of the all time high at the lower end and I have the main resistance trendline on SPX at the upper end in the 4800 area.