Thursday, November 6, 2008
Markets Still Going Down
As the Market rallied somewhere around 18% this past week, I held on to my short position. I had no doubt in my mind that the market would eventually reverse and have a violent move down. That's what we have seen in the last two days with the market down over 10%. Do people really understand how crazy this is? You usually don't get double digit moves in a year. We are seeing them regularly over days. The thing is, the market is going to go down from here, so I will continue to hold on to my short position for at least a few more percentage points.
I'm very short term bearish on this market. If you can hold on to stocks for years, it might be a good time to buy, but the news coming out is consistently bad. Earnings are bad at almost every company reporting, layoffs are being announced almost hourly, and the governmetn can't seem to get anything right. I find it very hard to believe that any of the professional investors out there are going to put much capital in the market until at least the beginning of the year. Most if not all will attempt to liquidate any positions they have remaining on every market rally.
So here is the recipe that I'm using. When the S&P drops to around 880, you want to be out of any short position. If you are brave, you might want to go long at this point. When the S&P gets to around 950 its time to short. You play this range, and be disciplined, and you will probably do just fine. If you are smarter, you just stay out all together.