The change in the market since late April has been quite dramatic. Volatility has exploded to the upside, the bears are in charge, its been better to sell market rallies rather than buy the dips and it feels more like the bad old days of 2008 rather than the continuing recovery story of the last 12 months.

With the Euro zone troubles growing over the last 6 weeks and talk of China slowing it was only the US that was providing a good growth story. The job numbers out on Friday were therefore a massive disappointment and with the stimulus gradually being withdrawn over the next 6 months there remains a big question mark over whether the private sector will step in and be the engine for growth going forward.

With the outlook for the market changing during Friday afternoon I decided to significantly raise the level of cash in the portfolio, reopen some FTSE down bets and reassess my strategy going forward.

Of course the market is now down around 15% from its highs and therefore some of this news is now in the price, perhaps all of it. I could be acting at the bottom of the market. However at best I see trading over the summer being choppy and perhaps trading within a range and at worst significant further downside. There are still positives out there, with companies reporting improving demand, turnover & profits plus stronger balances sheets, Asia forecast to continue its good economic growth, the US & UK economies are now both growing with positive GDP figures and expecting to grow through the rest of this year, if not as strongly as previously expected. Valuations are reasonable and I still don’t see us heading all the way back to March 2009 lows.

On balance with the portfolio still up for the year & outperforming I feel comfortable getting more defensive, reducing my longs and looking for shorting trades whilst waiting for possible exceptional buying opportunities and a clearer view of future prospects.

So on Friday afternoon I made the following trades:

Sold 2000 shares in Barclays @ 290p
Closed Man Group position, selling 1425 shares @ 239p
Sold 4500 shares in Lloyds @ 56.1p
Closed final Polo Resources spreadbet, £500 per pt @ 3.6p (still long 250k shares)
Sold 275 Soco International shares @ 1609p
Sold £475 per pt in Unitech Corp Parks between 26p & 27p
Sold £20 per pt in West China Cement @ 505p

I opened a FTSE 100 short spreadbet, selling £6 per pt short at an average of 5159

Overall that gets the portfolio around 25% into cash, with some downside protection, a more comfortable position. I am now running current positions with much tighter stop losses and wait to see what the coming week will produce, there is sure to be plenty of action!