Sunday, October 5, 2008

Two Days, Two lessons

I guess I just don't learn. I took two short term positions in the market, and I got burned on both.  The financial play is a complete disaster for me.  I correctly called that the government would do something stupid and pass the bill, but the market reacted in a way I wasn't expecting.  I could understand if the market went down slightly, and stayed flat on the news, but instead it decided to tank, and took off 5% from the top of the day.

You can attribute most of this to profit taking.  It's a simple Wall Street strategy, buy on the rumor, sell on the news.  In this case, people were buying in anticipation that the market would rally, and as soon as the news hit people began to sell.  This dip in financials really doesn't make any sense.  This is fantastic news for the banks and financial institutions in the short term.  The government is essentially telling them that they will buy all the crap still left on these financial institutions' balance sheets.

I decided, probably mistakenly, to stay in this trade.  I saw the selling as a short-term knee jerk reaction to the news, and I hope that the market will come to its senses on Monday morning.  But given my track record so far, my advice to people should probably be do the exact opposite of me, short the financials.

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