Just wanted to get some feedback on hedging a “Saul Portfolio”. First, I wanted to estimate how much Saul’s portfolio has drawdown since the Fall. I started with his Portfolio on October 29, 2021 being up 82.8%. Then, I took his year ending portfolio on December 31, 2001 where he was up 39.6% for the year or a drawdown of 43.20% from Oct. 29, 2021 to Dec. 31, 2021. Then, I subtracted another 26.6% based on his February 26, 2022 portfolio results. I wanted to determine what his drawdown would be from November 19, 2021 to March 11, 2022. I used the NDX index as a proxy for Saul’s portfolio to extrapolate his portfolio from this November 19, 2021 date. Based on this extrapolation, I estimate that Saul’s portfolio suffered approximately a 72% drawdown.
So why am I interested in November 19, 2021? On the Mechanical Investing Board, they track three primary, “Bear Catchers”. The one that I am interested in is derived by using the $NAHL on stockcharts. This is the Nasdaq New Highs minus New Lows. Two different people applied two different moving averages so as to reduce whipsaws. One is a 9 day EMA (Exponential Moving Average) and the other is a 13 day EMA. Not too much difference. The 9 day EMA went bearish on Nov. 18. 2021 and the 13 day EMA went bearish on Nov. 19, 2021. They both remain bearish till today. Here is the chart from stockcharts:
https://schrts.co/gjajXViX (let me know if there is a problem with the link)
So how would you hedge?
Assume you had a Saul portfolio with a value of $100,000 on Nov. 19, 2021. Then, at the end of the trading day on Nov. 19, 2021(this is the date that the 13 day EMA goes bearish), you short one future’s contract on the e mini Nasdaq 100 index (/NQ on the TD Ameritrade Platform). Futures trade approximately 23 hours a day so it is easy to short a futures contract either after market close or before market open. So if you did this, your Saul portfolio would have lost approx. $72,000 (October 29, 2021 to March 11, 2022 and your short futures position would have profited approx. $65,000 from Nov 19, 2021 to March 11, 2022. Currently, the margin requirement on one e mini Nasdaq 100 is approx. $22,000. It would have been a little different on Nov. 19, 2021, but not that much.
I appreciate any feedback.